-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WYWyRj+zAr9PSAkx9rpKMv+dEyOrQXGXNbGyXVcV/fybYr/XVaiAURZtP2mdlo1Z 0vv66Le/8rvPPkAbTv4ORw== 0000950136-02-003427.txt : 20021206 0000950136-02-003427.hdr.sgml : 20021206 20021206162642 ACCESSION NUMBER: 0000950136-02-003427 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 20021206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDAMERICAN ENERGY HOLDINGS CO /NEW/ CENTRAL INDEX KEY: 0001081316 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC, GAS & SANITARY SERVICES [4900] IRS NUMBER: 942213782 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-101699 FILM NUMBER: 02851209 BUSINESS ADDRESS: STREET 1: 666 GRAND AVE STREET 2: PO BOX 657 CITY: DES MOINES STATE: IA ZIP: 50309 BUSINESS PHONE: 5152424300 MAIL ADDRESS: STREET 1: 666 GRAND AVE STREET 2: PO BOX 657 CITY: DES MOINES STATE: IA ZIP: 50309 FORMER COMPANY: FORMER CONFORMED NAME: MID AMERICAN ENERGY HOLDINGS CO /NEW/ DATE OF NAME CHANGE: 19990308 S-4 1 file001.txt REGISTRATION STATEMENT AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 2002 REGISTRATION NO. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MIDAMERICAN ENERGY HOLDINGS COMPANY (Exact name of registrant as specified in its charter)
IOWA 4900 94-2213782 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
666 GRAND AVENUE DES MOINES, IOWA 50309 (515) 242-4300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) DOUGLAS L. ANDERSON GENERAL COUNSEL MIDAMERICAN ENERGY HOLDINGS COMPANY 302 SOUTH 36TH STREET SUITE 400 OMAHA, NE 68131 (402) 341-4500 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ Copy to: PETER J. HANLON, ESQ. WILLKIE FARR & GALLAGHER 787 SEVENTH AVENUE NEW YORK, NY 10019 (212) 728-8000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of 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. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------------------------ CALCULATION OF REGISTRATION FEE
========================================================================================================================= PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- 4.625% Senior Notes due 2007 ......... $200,000,000 100% $200,000,000 $18,400 - ------------------------------------------------------------------------------------------------------------------------- 5.875% Senior Notes due 2012 ......... $500,000,000 100% $500,000,000 $46,000 - ------------------------------------------------------------------------------------------------------------------------- Total ................................ $700,000,000 100% $700,000,000 $64,400 =========================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. 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 OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED , 200 PROSPECTUS [MIDAMERICAN ENERGY HOLDINGS COMPANY LOGO] --------------------- OFFER TO EXCHANGE --------------------- UP TO $200,000,000 4.625% SENIOR NOTES DUE 2007 FOR ALL OUTSTANDING 4.625% SENIOR NOTES DUE 2007 AND UP TO $500,000,000 5.875% SENIOR NOTES DUE 2012 FOR ALL OUTSTANDING 5.875% SENIOR NOTES DUE 2012 --------------------- o We are offering to exchange new registered 4.625% senior notes due 2007 for all of our outstanding unregistered 4.625% senior notes due 2007 and new registered 5.875% senior notes for all of our outstanding 5.875% senior notes. o The exchange offer expires at 5:00 p.m., New York City time, on , 200 , unless extended. o The exchange offer is subject to customary conditions that may be waived by us. o All original notes outstanding that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer will be exchanged for the exchange notes. o Tenders of original notes may be withdrawn at any time before 5:00 p.m., New York City time, on the expiration date of the exchange offer. o The exchange of notes will not be a taxable exchange for U.S. federal income tax purposes. o We will not receive any proceeds from the exchange offer. o The terms of the exchange notes to be issued are substantially identical to the terms of the original notes, except that the exchange notes will not have transfer restrictions, and you will not have registration rights. o There is no established trading market for the exchange notes, and we do not intend to apply for listing of the exchange notes on any securities exchange or market quotation system. SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF MATTERS YOU SHOULD CONSIDER BEFORE YOU PARTICIPATE IN THE EXCHANGE OFFER. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. --------------------- The date of this Prospectus is , 200 TABLE OF CONTENTS
PAGE ----- SUMMARY ................................. 1 RISK FACTORS ............................ 14 FORWARD-LOOKING STATEMENTS .............. 24 USE OF PROCEEDS ......................... 25 THE EXCHANGE OFFER ...................... 26 CAPITALIZATION .......................... 34 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA ....................... 35 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 38 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ......... 55 BUSINESS ................................ 56
PAGE ----- REGULATION .............................. 77 LEGAL PROCEEDINGS ....................... 90 MANAGEMENT .............................. 93 DESCRIPTION OF THE NOTES ................ 102 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ................... 117 PLAN OF DISTRIBUTION .................... 121 NOTICE TO CANADIAN RESIDENTS ............ 122 LEGAL MATTERS ........................... 122 EXPERTS ................................. 122 WHERE YOU CAN FIND MORE INFORMATION...... 122 FINANCIAL STATEMENTS .................... F-1
------------ In this prospectus, references to "U.S. dollars," "dollars," "US $," "$" or "cents" are to the currency of the United States and references to " (pounds sterling)," "sterling," "pence" or "p" are to the currency of the United Kingdom. In this prospectus, MW means megawatts, MWh means megawatt hours, Bcf means billion cubic feet, mmcf means million cubic feet, MMBtus means million British thermal units, GWh means gigawatts per hour, kV means 1000 volts, and Tcf means trillion cubic feet. ------------ This prospectus incorporates important business and financial information about us that is not included or delivered with this prospectus. We will provide this information to you at no charge upon written or oral request directed to Douglas L. Anderson, General Counsel MidAmerican Energy Holdings Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131, (402) 341-4500. In order to ensure timely delivery of the information, any request should be made by , 2002. No dealer, salesperson or other individual has been authorized to give any information or to make any representations not contained in this prospectus in connection with the exchange offer. If given or made, such information or representations must not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create any implications that there has not been any change in the facts set forth in this prospectus or in our affairs since the date hereof. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal accompanying this prospectus states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the exchange notes received in exchange for original notes where such original notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 120 days after the expiration of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resales. See "Plan of Distribution." ii NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. iii SUMMARY This section contains a general summary of the information contained in this prospectus. It may not include all of the information that is important to you. You should read this entire prospectus, including the "Risk Factors" section and the financial statements and notes to those statements, before making an investment decision. MIDAMERICAN ENERGY HOLDINGS COMPANY OVERVIEW We are a United States-based global energy company. Our principal businesses are regulated electric and natural gas utilities, regulated interstate natural gas transmission and electric power generation. Our operations are organized and managed on seven distinct platforms which we refer to as: MidAmerican Energy, Northern Natural Gas, Kern River, CE Electric UK (which includes Northern Electric and Yorkshire Electricity), CalEnergy Generation-Domestic, CalEnergy Generation-Foreign and HomeServices. Through six of these platforms, we own and operate a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom and a diversified portfolio of domestic and international electric power projects. We also own the second largest residential real estate brokerage firm in the United States. The following is a chart of our operating platforms and the principal lines of business in which they are engaged:
---------------------- MidAmerican Energy Holdings Company ---------------------- | | ------------------------------------------------------------------------------------------------- | | | | | | | | | | | | | | - ------------ ----------- ------------- ---------------------- ------------ ------------ ------------- MidAmerican Northern Kern River CE Electric UK CalEnergy CalEnergy HomeServices Energy Natural Gas ---------------------- Generation- Generation- Northern | Yorkshire Domestic Foreign Electric | Electricity - ------------ ----------- ------------- ----------------------- ------------ ------------ ------------- Regulated Regulated Regulated Regulated electricity Non-utility Non-utility Real estate gas and natural gas natural gas distribution power power brokerage and electric transmission transmission generation generation related utility services
Our principal subsidiaries generate, transmit, store, distribute and supply energy. Our electric and natural gas utility subsidiaries currently serve approximately 4.3 million electricity customers and approximately 653,000 natural gas customers. Our natural gas pipeline subsidiaries operate interstate natural gas transmission systems with approximately 17,500 miles of pipeline in operation and peak delivery capacity of 5.3 Bcf of natural gas per day. We have interests in 6,185 net owned megawatts of power generation facilities in operation and construction, including 4,618 net owned megawatts in facilities that are part of the regulated return asset base of our electric utility business (as further described in "Business--MidAmerican Energy--Electric Operations") and 1,567 net owned megawatts in non-utility power generation facilities. Substantially all of the non-utility power generation facilities have long-term contracts for the sale of energy and/or capacity from the facilities. We have recently achieved significant growth in our asset base, while expanding and diversifying our underlying revenue and earnings base. In the past four years, we have consummated the four significant acquisitions described below. In March 1999, our predecessor, CalEnergy Company, Inc., acquired a publicly traded company which owned the largest combined electric and gas utility in Iowa. The primary asset of this company consisted of the MidAmerican Energy platform. 1 In September 2001, we acquired the electricity distribution business of Yorkshire Power Group Ltd., or Yorkshire Electricity, which was one of the twelve original regional electric companies in the United Kingdom, and simultaneously sold the electricity and gas supply business of Northern Electric plc, or Northern Electric, to the former owner of Yorkshire Electricity. In March 2002, we acquired Kern River Gas Transmission Company, or Kern River, which owns a 926-mile interstate natural gas pipeline extending from Wyoming to markets in California, Nevada and Utah and accesses natural gas supplies from large producing regions in the Rocky Mountains and Canada. In August 2002, we acquired Northern Natural Gas Company, or Northern Natural Gas, for $928 million in cash (subject to adjustment for working capital). We used the proceeds from a $950 million investment in our subsidiary trust's preferred securities by Berkshire Hathaway Inc., or Berkshire Hathaway, to finance this acquisition. Northern Natural Gas owns a 16,600-mile interstate natural gas pipeline extending from southwest Texas to the upper Midwest region of the United States with a design capacity of 4.4 Bcf of natural gas per day. Northern Natural Gas also operates three natural gas storage facilities and two liquefied natural gas peaking units with a total storage capacity of 59 Bcf and peak delivery capability of over 1.3 Bcf of natural gas per day. Northern Natural Gas accesses natural gas supply from many of the larger producing regions in North America, including the Rocky Mountains, Hugoton, Permian, Anadarko and Western Canadian basins. The pipeline system provides transportation and storage services to utilities, municipalities, other pipeline companies, gas marketers and industrial and commercial users. Our revenues for the year ended December 31, 2001 were $5.3 billion and our total assets were $12.6 billion as of December 31, 2001. Our revenues for the nine months ended September 30, 2002 (which includes Kern River for the period from March 27, 2002 and Northern Natural Gas for the period from August 16, 2002) were $3.5 billion and our total assets were $17.0 billion as of September 30, 2002. As of September 30, 2002, the total consolidated assets of our four utility platforms, MidAmerican Energy, Northern Natural Gas, Kern River and CE Electric UK, aggregated approximately 82% of our total assets. We are a privately owned company with publicly held fixed income securities. Since March 14, 2000, our sole shareholders have consisted of a private investor group comprised of Berkshire Hathaway, Walter Scott, Jr. and members of his family, David L. Sokol, our Chairman and Chief Executive Officer, and Gregory E. Abel, our President and Chief Operating Officer. Prior to that time, our common stock was publicly traded on the New York Stock Exchange. STRATEGY Our business strategy is focused upon the successful operation, management and growth of our diversified portfolio of energy assets and on the pursuit of strategic utility acquisitions and selected other investment opportunities, principally in the United States. As a privately owned company, we are able to focus on long-term risk-adjusted cash flow returns from our businesses. We seek to manage and operate our energy assets such that their cost structure makes us a low-cost provider of energy and energy services. In order to implement this strategy, we plan to: PURSUE OPERATING EFFICIENCIES AND INTERNAL INVESTMENT OPPORTUNITIES IN OUR BUSINESSES, WHILE MAINTAINING QUALITY AND RELIABILITY OF SERVICE. Our management philosophy emphasizes the efficient operation of our businesses through strict attention to the operational performance of our assets, continuous review and implementation of cost reduction initiatives and the active pursuit of opportunities to earn reasonable returns by making incremental capital investments within our existing operations. Following each of our utility acquisitions, we have implemented operational improvements and cost reductions that have enhanced asset performance and service reliability. These and other initiatives have helped us to pursue our goal of being a low-cost provider of energy and energy services to our customers and have strengthened our competitive position in the marketplace, while also increasing the returns on 2 our investments. In addition, we have worked closely and successfully with customers and with regulatory and legislative authorities to ensure that our business initiatives are consistent with our obligations to serve customers and with the requirements of the regulatory regimes under which we operate. We have identified and are proceeding with a number of significant capital investment opportunities that we believe offer attractive risk-adjusted returns. These opportunities include a $1.2 billion program to expand MidAmerican Energy's base of electric generation facilities in Iowa and a $1.2 billion expansion to approximately double the design delivery capacity of our Kern River pipeline by 2003, which we refer to as the 2003 Expansion Project. GROW AND DIVERSIFY THROUGH ACQUISITIONS OF HIGH QUALITY REGULATED UTILITY BUSINESSES. We believe that well managed regulated utility businesses can provide a stable cash flow profile and a reasonable risk-adjusted equity return to their owners. Our acquisitions of Northern Electric in 1997 and MidAmerican Energy in 1999 provided us with specialized skills and expertise, particularly in operations and regulatory affairs, which have enhanced our competitive position and positioned us favorably for future growth in our targeted sectors. In the past fifteen months, we completed three acquisitions of utility operating companies, Yorkshire Electricity, Kern River and Northern Natural Gas, each of which has added substantially to our base of utility operating assets and cash flows. We believe that these acquisitions helped us achieve additional diversification of our utility business with respect to sources of cash flow, types of utility operations, geography and regulatory regimes. CAPITALIZE ON CHANGE IN OUR INDUSTRY AND ON OUR SUPERIOR ACCESS TO CAPITAL IN ORDER TO MAKE ATTRACTIVE INVESTMENTS. The global energy markets, particularly those in the United States, are experiencing a period of significant change due to various factors, including the macroeconomic environment, fluctuating commodity prices, regulatory and legislative developments and financial restructurings by many market participants. We and our shareholders believe that such an environment provides opportunities for disciplined companies with access to investment capital to achieve reasonable risk-adjusted returns by acquiring high quality companies and assets at reasonable prices. Warren Buffett, Chairman of the Board and Chief Executive Officer of Berkshire Hathaway, has publicly stated that we are a core holding of Berkshire Hathaway and are expected to be its principal vehicle for investments in the energy sector. In 2002 to date, we completed two acquisitions of interstate natural gas transmission pipelines, which we funded with a majority of the proceeds of Berkshire Hathaway's investment in $1.273 billion of our trust preferred securities and $402 million of our zero coupon convertible preferred stock, all of which is subordinated to our senior indebtedness. We believe that our ability to successfully negotiate and complete these acquisitions was facilitated by our access to capital from Berkshire Hathaway and that there will continue to be opportunities in the current environment to make additional acquisitions that further enhance our business mix, risk profile, capitalization and investment returns. ENHANCE OUR INVESTMENT GRADE CREDIT PROFILE AND THAT OF OUR SUBSIDIARIES. Our financing strategy is focused on capitalizing and managing our utility subsidiaries in a manner consistent with maintenance of strong credit ratings, thereby supporting our credit profile with more predictable underlying cash flows from these subsidiaries. This strategy is driven by our belief that strong credit ratings allow us to minimize our financing costs over the long term and to optimize our investment returns, while also retaining the financial flexibility to pursue attractive capital investment opportunities as and when they are available. Our strategy is to finance our operating subsidiaries with debt that in almost all cases is non-recourse to us, which has allowed us to reduce financing costs by taking advantage of the stable, investment grade characteristics of our subsidiaries' utility assets. MAINTAIN PRUDENT FINANCIAL AND RISK MANAGEMENT POLICIES AND PRACTICES. Through our focus on regulated utility businesses, we strive to minimize the underlying risks of our portfolio of assets. Substantially all of our net owned megawatts in our non-utility power generation business have long-term (greater than one year) contracts for the sale of their energy and/or capacity, and substantially all of these assets are financed by non-recourse project finance debt. We seek to limit our exposure to movements in the commodity prices of energy products and are not a significant trader of energy commodities. Our activities in the marketing and supply of energy to customers outside of our regulated utility customer 3 base are not a material part of our business and are conducted pursuant to closely monitored risk management policies and practices that are intended to minimize our exposure to fluctuations in energy commodity prices and to counterparty credit risk. A core tenet of our acquisition and investment philosophy is that we will only pursue opportunities that meet our strict requirements for an acceptable risk profile and attractive potential cash flow returns. If we do not believe that such opportunities are available, we prefer to reduce our acquisition activities and focus on the optimization of our existing portfolio rather than pursue growth by accepting greater risks or inferior returns. ---------------- Our principal executive offices are located at 666 Grand Avenue, Des Moines, Iowa 50309, and our telephone number is (515) 242-4300. 4 THE EXCHANGE OFFER On October 4, 2002, we privately placed $200,000,000 aggregate principal amount of 4.625% senior notes due 2007 and $500,000,000 aggregate principal amount of 5.875% senior notes due 2012, which we refer to collectively as the original notes, in a transaction exempt from registration under the Securities Act. In connection with the private placement, we entered into a registration rights agreement, dated as of October 1, 2002, with the initial purchasers of the original notes. In the registration rights agreement, we agreed to offer our new 4.625% senior notes due 2007 and 5.875% senior notes due 2012, which will be registered under the Securities Act and which we refer to collectively as the exchange notes, in exchange for the applicable original notes. The exchange offer is intended to satisfy our obligations under the registration rights agreement. We also agreed to deliver this prospectus to the holders of the original notes. In this prospectus we refer to the original notes and the exchange notes as the notes. You should read the discussion under the headings "Summary--Terms of the Notes" and "Description of Notes" for information regarding the notes. THE EXCHANGE OFFER.......... This is an offer to exchange $1,000 in principal amount of exchange notes for each $1,000 in principal amount of original notes. The exchange notes are substantially identical to the original notes, except that the exchange notes will generally be freely transferable. We believe that you can transfer the exchange notes without complying with the registration and prospectus delivery provisions of the Securities Act if you: o acquire the exchange notes in the ordinary course of your business; o are not and do not intend to become engaged in a distribution of the exchange notes; o are not an "affiliate" (within the meaning of the Securities Act) of ours; o are not a broker-dealer (within the meaning of the Securities Act) that acquires the original notes from us or our affiliates; o are not a broker-dealer (within the meaning of the Securities Act) that acquired the original notes in a transaction as part of its market-making or other trading activities. If any of these conditions are not satisfied and you transfer any exchange note without delivering a proper prospectus or without qualifying for a registration exemption, you may incur liability under the Securities Act. See "The Exchange Offer--Terms of the Exchange." REGISTRATION RIGHTS AGREEMENT................... Under the registration rights agreement, we have agreed to use our reasonable best efforts to consummate the exchange offer or cause the original notes to be registered under the Securities Act to permit resales. If we are not in compliance with our obligations under the registration rights agreement, liquidated damages will accrue on the original notes in addition to the interest that is otherwise due on the original notes. If the exchange offer is completed on the terms and within the time period contemplated by this prospectus, no liquidated damages will be payable on the notes. The exchange notes will not contain any provisions regarding the payment of liquidated damages. See "The Exchange Offer--Liquidated Damages." 5 MINIMUM CONDITION........... The exchange offer is not conditioned on any minimum aggregate principal amount of original notes being tendered for exchange. EXPIRATION DATE............. The exchange offer will expire at 5:00 p.m., New York City time, on , 200 , unless we extend it. EXCHANGE DATE............... Original notes will be accepted for exchange at the time when all conditions of the exchange offer are satisfied or waived. The exchange notes will be delivered promptly after we accept the original notes. CONDITIONS TO THE EXCHANGE OFFER.............. Our obligation to complete the exchange offer is subject to certain conditions. See "The Exchange Offer--Conditions to the Exchange Offer." We reserve the right to terminate or amend the exchange offer at any time prior to the expiration date upon the occurrence of certain specified events. WITHDRAWAL RIGHTS........... You may withdraw the tender of your original notes at any time before the expiration of the exchange offer on the expiration date. Any original notes not accepted for any reason will be returned to you without expense as promptly as practicable after the expiration or termination of the exchange offer. PROCEDURES FOR TENDERING ORIGINAL NOTES............. See "The Exchange Offer--How to Tender." UNITED STATES FEDERAL INCOME TAX CONSEQUENCES........... The exchange of the original notes for exchange notes by U.S. Holders (as defined below) will not be a taxable exchange for federal income tax purposes, and U.S. Holders should not recognize any taxable gain or loss as a result of such exchange. EFFECT ON HOLDERS OF ORIGINAL NOTES...................... If the exchange offer is completed on the terms and within the period contemplated by this prospectus, holders of original notes will have no further registration or other rights under the registration rights agreement, except under limited circumstances. See "The Exchange Offer--Other." HOLDERS OF ORIGINAL NOTES WHO DO NOT TENDER THEIR ORIGINAL NOTES WILL CONTINUE TO HOLD THOSE ORIGINAL NOTES. ALL UNTENDERED, AND TENDERED BUT UNACCEPTED, ORIGINAL NOTES WILL CONTINUE TO BE SUBJECT TO THE TRANSFER RESTRICTIONS PROVIDED FOR IN THE ORIGINAL NOTES AND THE INDENTURE UNDER WHICH THE ORIGINAL NOTES HAVE BEEN ISSUED. To the extent that original notes are tendered and accepted in the exchange offer, the trading market, if any, for the original notes could be adversely affected. See "Risk Factors--Risks Associated with the Exchange Offer--You may not be able to sell your original notes if you do not exchange them for registered exchange notes in the exchange offer."; "--Your ability to sell your original notes may be significantly 6 more limited and the price at which you may be able to sell your original notes may be significantly lower if you do not exchange them for registered exchange notes in the exchange offer."; and "The Exchange Offer--Other." USE OF PROCEEDS............. We will not receive any proceeds from the issuance of exchange notes in the exchange offer. EXCHANGE AGENT.............. The Bank of New York is serving as the exchange agent in connection with the exchange offer. 7 TERMS OF THE NOTES GENERAL..................... $200,000,000 aggregate principal amount of 4.625% senior notes due October 1, 2007, and $500,000,000 aggregate principal amount of 5.875% senior notes due October 1, 2012. INTEREST PAYMENT DATES...... January 31 and July 31 of each year, commencing January 31, 2003. OPTIONAL REDEMPTION......... We may redeem the notes of each series, at our option, in whole or in part, at any time, at a redemption price equal to the greater of: (1) 100% of the principal amount of the notes to be redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on the series of notes to be redeemed discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the yield on equivalent Treasury securities plus 37.5 basis points, plus, for (1) or (2) above, whichever is applicable, accrued and unpaid interest, if any, on such notes to the date of redemption. SINKING FUND................ The notes are not subject to a mandatory sinking fund. CHANGE OF CONTROL........... Upon the occurrence of a Change of Control each holder of the notes will have the right, at the holder's option, to require us to repurchase all or any part of the holder's notes at a purchase price in cash equal to 101% of the principal thereof, plus accrued and unpaid interest, if any, to the date of such purchase in accordance with the procedures set forth in the indenture for the notes. A Change of Control means the occurrence of both of the following: (1) a transaction pursuant to which Berkshire Hathaway ceases to own, on a diluted basis, at least a majority of our common stock, assuming conversion of all convertible securities then owned by Berkshire Hathaway, without regard to whether then presently convertible, or we or our subsidiaries dispose of all or substantially all of our property and that of our subsidiaries to any entity which is not so majority owned by Berkshire Hathaway, and (2) within 90 days after the earlier of the announcement or occurrence of any such transaction, a downgrade in the ratings for the notes (generally to below investment grade by both Moody's Investors Service, Inc. and Standard & Poor's Rating Service) occurs. See "Description of the Notes--Covenants--Purchase of Notes Upon a Change of Control." RANKING..................... The notes are our general, unsecured senior obligations and rank pari passu in right of payment with all our other existing and future senior unsecured obligations and senior in right of 8 payment to all our existing and future subordinated obligations. The notes are effectively subordinated to all our existing and future secured obligations and to all existing and future obligations of our subsidiaries. COVENANTS................... The indenture for the notes contains covenants that, among other things, restrict our ability to grant liens on our assets and our ability to merge, consolidate or transfer or lease all or substantially all of our assets. See "Description of the Notes--Covenants." EVENTS OF DEFAULT........... Events of default with respect to the notes of any series under the indenture include, among other things: (1) default in the payment of any interest on any notes of that series for 30 days after payment is due; (2) default in the payment of principal of, or premium, if any, on any note of that series or as to any payment required in connection with a Change of Control as described above; (3) our failure to perform, or breach by us of, any covenant contained in the indenture or the notes of that series, which failure continues for 30 days after written notice thereof is provided to us pursuant to the indenture; (4) our failure or the failure of any of our significant subsidiaries (as defined later in this prospectus) to pay when due beyond any applicable grace period, or the acceleration of, debt (other than debt that is non-recourse to us) in excess of $100,000,000; (5) the entry by a court of one or more judgments against us or any of our significant subsidiaries (other than a judgment that is non-recourse to us) requiring payment by us in an aggregate amount in excess of $100,000,000 which has not been vacated, discharged, satisfied or stayed pending appeal within 60 days from entry; and (6) the occurrence of certain events of bankruptcy, insolvency or reorganization with respect to us or any of our significant subsidiaries. See "Description of the Notes--Definitions" and "--Events of Default." RATINGS..................... The notes were initially assigned ratings of Baa3 by Moody's, BBB-- by S&P and BBB by Fitch, Inc. However, these ratings are subject to change at any time. DENOMINATION AND FORM....... The original notes were, and the exchange notes will be, issued in denominations of $1,000 and any integral multiple of $1,000. The original notes were, and the exchange notes will be, represented by one or more global securities registered in the name of The Depository Trust Company or its nominee. 9 Beneficial interests in the global securities representing the original notes are, and the exchange notes will be, shown on, and transfers of the beneficial interests in the global securities representing the original notes are, and transfers of the beneficial interests in the global securities representing the exchange notes will be, effected only through, records maintained by DTC and its participants. Except as described later in this prospectus, notes in certificated form will not be issued. See "Description of the Notes--Global Notes; Book-Entry System." TRUSTEE..................... The Bank of New York is the trustee for the holders of the notes. GOVERNING LAW............... The notes, the indenture and the other documents for the offering of the notes are governed by the laws of the State of New York. RISK FACTORS This investment involves risks. Before you invest in the notes, you should carefully consider the matters set forth under the heading "Risk Factors" and all other information in this prospectus. 10 SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA The following table presents our summary historical consolidated financial and operating data as of and for the years ended December 31, 2001, 2000, and 1999, and as of September 30, 2002 and for the nine months ended September 30, 2002 and 2001. Our unaudited consolidated financial statements as of September 30, 2002 and for the nine months ended September 30, 2002 and 2001 reflect all adjustments necessary in the opinion of our management (consisting of normal recurring accruals) for a fair presentation of such data. The financial data set forth below should be read in conjunction with our historical consolidated financial statements and the notes thereto appearing elsewhere in this prospectus. All data (except for ratios) is presented in thousands.
YEAR ENDED DECEMBER 31, 2001 (1) -------------------------- STATEMENT OF OPERATIONS DATA: Operating revenues ........................... $ 5,060,605 Total revenues ............................... 5,336,804 Interest expense, net of capitalized interest ................................... 412,794 Income before provision for income taxes ...................................... 503,884 Net income ................................... 142,669 (4) OTHER FINANCIAL DATA: Depreciation and amortization ................ $ 538,702 Capital expenditures ......................... 576,752 Ratio of earnings to fixed charges (7) ....... 1.8 Net cash flows from operating activities ..... 846,998 EBITDA (8) ................................... 1,455,380 Adjusted EBITDA (8) .......................... 1,275,887 EBIT (9) ..................................... 916,678 Adjusted EBIT (9) ............................ 737,185 AS OF SEPTEMBER 30, 2002 ---------------- BALANCE SHEET DATA: Property, plant, contracts and equipment, net ............................. $ 9,168,940 Total assets ................................. 16,984,050 Short-term debt .............................. 642,031 Current portion of long-term debt ............ 483,106 Parent company debt .......................... 1,623,178 Subsidiary and project debt .................. 6,388,169 Total liabilities ............................ 12,247,784 Parent company-obligated mandatorily redeemable preferred securities held by Berkshire Hathaway ...................... 1,727,772 Parent company-obligated mandatorily redeemable preferred securities held by others .................................. 335,043 Total shareholders' equity ................... 2,491,515 OUR PREDECESSOR MARCH 14, 2000 ----------------------------------------- THROUGH JANUARY 1, 2000 YEAR ENDED DECEMBER 31, THROUGH DECEMBER 31, 2000 (2) MARCH 13, 2000 1999 (3) --------------- ------------------ ---------------------- STATEMENT OF OPERATIONS DATA: Operating revenues ........................... $4,147,867 $ 1,087,125 $ 4,184,546 Total revenues ............................... 4,242,749 1,106,609 4,466,425 Interest expense, net of capitalized interest ................................... 311,404 85,814 426,173 Income before provision for income taxes ...................................... 219,204 91,170 357,069 Net income ................................... 81,257 51,312 (5) 167,230 (6) OTHER FINANCIAL DATA: Depreciation and amortization ................ $ 383,351 $ 97,278 $ 427,690 Capital expenditures ......................... 538,729 123,541 603,640 Ratio of earnings to fixed charges (7) ....... 1.3 1.7 1.6 Net cash flows from operating activities ..... 246,407 171,083 554,959 EBITDA (8) ................................... 913,959 274,262 1,210,932 Adjusted EBITDA (8) .......................... 913,959 281,867 1,126,637 EBIT (9) ..................................... 530,608 176,984 783,242 Adjusted EBIT (9) ............................ 530,608 184,589 698,947 OUR PREDECESSOR --------------------------------------------------- AS OF DECEMBER 31, 2001 2000 1999 ----------- ----------- ---------------- BALANCE SHEET DATA: Property, plant, contracts and equipment, net ............................. $6,527,448 $ 5,348,647 $ 5,463,329 Total assets ................................. 12,615,333 11,610,939 10,766,352 Short-term debt .............................. 256,012 261,656 379,523 Current portion of long-term debt ............ 317,180 438,978 235,202 Parent company debt .......................... 1,834,498 1,829,971 1,856,318 Subsidiary and project debt .................. 4,754,811 3,388,696 3,642,703 Total liabilities ............................ 9,767,438 8,911,349 8,978,924 Parent company-obligated mandatorily redeemable preferred securities held by Berkshire Hathaway ...................... 454,772 454,772 -- Parent company-obligated mandatorily redeemable preferred securities held by others .................................. 333,379 331,751 450,000 Total shareholders' equity ................... 1,708,167 1,576,401 994,588
11
NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 ------------------ ----------------- STATEMENT OF OPERATIONS DATA: Operating revenues .................................... $3,404,533 $3,756,931 Total revenues ........................................ 3,549,744 4,043,075 Interest expense, net of capitalized interest ......... 438,870 290,153 Income before provision for income taxes .............. 492,192 502,729 Net income ............................................ 306,800 (10) 122,085 (11) OTHER FINANCIAL DATA: Depreciation and amortization ......................... $ 386,531 $ 395,253 Capital expenditures .................................. 778,750 376,962 Ratio of earnings to fixed charges (7) ................ 1.9 2.1 Net cash flows from operating activities .............. 682,782 790,990 EBITDA (8) ............................................ 1,317,593 1,188,135 Adjusted EBITDA (8) ................................... 1,263,253 967,027 EBIT (9) .............................................. 931,062 792,882 Adjusted EBIT (9) ..................................... 876,722 571,774
- ---------- (1) Reflects the acquisition of the Yorkshire Electricity electricity distribution business and the simultaneous sale of the Northern Electric electricity and gas supply business on September 21, 2001. (2) Reflects our acquisition by a private investor group on March 14, 2000. (3) Reflects our acquisition of MidAmerican Energy on March 12, 1999, our disposition of the Coso Joint Ventures on February 26, 1999, and our disposition of a 50% ownership interest in CE Generation, LLC, or CE Gen, on March 3, 1999. (4) Includes $15.2 million of non-recurring net income related to the sale of the Northern Electric electricity and gas supply business, the sale of the Telephone Flat Project, the sale of Western States Geothermal, the transfer of Bali Energy Ltd. shares, and the Teesside Power Limited, or TPL, asset valuation impairment charge. (5) Includes $7.6 million of net non-recurring expenses for the costs related to our acquisition by a private investor group on March 14, 2000. (6) Includes $81.5 million of non-recurring net income related to the settlement of political risk insurance proceeds related to our investment in Indonesia, gains on sales of shares of McLeodUSA, our disposition of the Coso Joint Ventures, our disposition of a 50% ownership interest in CE Gen, CE Electric UK restructuring charges and transaction costs related to our acquisition by a private investor group. (7) For purposes of calculating the ratio of earnings to fixed charges, earnings are divided by fixed charges. Earnings represent the aggregate of (a) our pre-tax income and (b) fixed charges, less capitalized interest. Fixed charges represent interest (whether expensed or capitalized), amortization of deferred financing and bank fees, and the estimated interest component of rentals. (8) EBITDA represents earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA represents EBITDA adjusted for non-recurring income and expense items as follows: (a) items discussed in (4), which are $179.4 million before tax; (b) item discussed in (5); (c) items discussed in (6), which are $84.3 million before tax; (d) items discussed in (10), which are $54.3 million before tax; and (e) items discussed in (11), which are $221.1 million before tax. Information concerning EBITDA and adjusted EBITDA is presented not as a measure of operating results, but rather as a measure of our ability to service debt. EBITDA and adjusted EBITDA 12 should not be construed as an alternative to either (a) operating income (determined in accordance with generally accepted accounting principles, or GAAP) or (b) cash flow from operating activities (determined in accordance with GAAP) . Since EBITDA and adjusted EBITDA are not defined by GAAP, they may not be calculated on the same basis as similarly titled measures of other companies. (9) EBIT represents earnings before interest and taxes. Adjusted EBIT represents EBIT adjusted for non-recurring income and expense items. Information concerning EBIT and adjusted EBIT is presented not as a measure of operating results, but rather as a measure of our ability to service debt. EBIT and adjusted EBIT should not be construed as an alternative to either (a) operating income (determined in accordance with GAAP) or (b) cash flow from operating activities (determined in accordance with GAAP). Since EBIT and adjusted EBIT are not defined by GAAP, they may not be calculated on the same basis as similarly titled measures of other companies. (10) Includes $41.3 million of non-recurring net income related to the sale of assets by CalEnergy Gas (Holdings) Limited, or CE Gas Holdings. (11) Includes $13.7 million of non-recurring net income related to the sale of Western States Geothermal and the sale of the Northern Electric electricity and gas supply business, or Northern Supply. 13 RISK FACTORS An investment in the notes is subject to numerous risks, including, but not limited to, those set forth below. In addition to the information contained elsewhere in this prospectus, you should carefully consider the following risk factors when evaluating an investment in the notes, including participation in the exchange offer. RISK ASSOCIATED WITH OUR CORPORATE AND FINANCIAL STRUCTURE WE ARE A HOLDING COMPANY THAT DEPENDS ON DISTRIBUTIONS FROM OUR SUBSIDIARIES AND JOINT VENTURES TO MEET OUR NEEDS. We are a holding company and derive substantially all of our income and cash flow from our subsidiaries and joint ventures. We expect that future development and acquisition efforts will be similarly structured to involve operating subsidiaries and joint ventures. We are dependent on the earnings and cash flows of, and dividends, loans, advances or other distributions from, our subsidiaries and joint ventures to generate the funds necessary to meet our obligations, including the payment of principal of, or interest and premium, if any, on, the notes. All required payments on debt and preferred stock at subsidiary levels will be made before funds from our subsidiaries are available to us. The availability of distributions from such entities is also subject to: o their earnings and capital requirements, o the satisfaction of various covenants and conditions contained in financing documents by which they are bound or in their organizational documents, and o in the case of our regulated utility subsidiaries, regulatory restrictions which restrict their ability to distribute profits to us. Our subsidiaries and joint ventures are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes or to make any funds available, whether by dividends, loans or other payments, for payment of the notes, and do not guarantee the payment of interest or premium, if any, on or principal of the notes. WE ARE SUBSTANTIALLY LEVERAGED AND THE NOTES ARE STRUCTURALLY SUBORDINATED TO THE INDEBTEDNESS OF OUR SUBSIDIARIES. Our substantial leverage level presents the risk that we might not generate sufficient cash to service our indebtedness, including the notes, or that our leveraged capital structure could limit our ability to finance future acquisitions, develop additional projects, compete effectively and operate successfully under adverse economic conditions. At September 30, 2002, our outstanding indebtedness was approximately $2.0 billion (excluding $2.1 billion in aggregate principal amount of our trust preferred securities, our guarantees and letters of credit in respect of subsidiary indebtedness aggregating approximately $235 million and our completion guarantee issued in favor of the lenders under Kern River's $875 million construction loan facility in connection with Kern River's 2003 Expansion Project). In addition, our subsidiaries have significant amounts of indebtedness. At September 30, 2002, our consolidated subsidiaries' and joint ventures' total outstanding indebtedness was approximately $7.1 billion, which does not include $453 million, representing our share of outstanding indebtedness of CE Generation, LLC, or CE Gen. This amount also does not include trade debt of our subsidiaries. The terms of the notes do not limit our ability or the ability of our subsidiaries or joint ventures to incur additional debt or issue additional preferred stock. Claims of creditors of our subsidiaries and joint ventures have priority over your claims with respect to the assets and earnings of our subsidiaries and joint ventures. In addition, the stock or assets of substantially all of our operating subsidiaries and joint ventures is directly or indirectly pledged to secure their financings and, therefore, may be unavailable as potential sources of repayment of the notes. 14 RISKS ASSOCIATED WITH OUR BUSINESS OUR RECENT GROWTH HAS BEEN ACHIEVED, IN PART, THROUGH STRATEGIC ACQUISITIONS, AND ADDITIONAL ACQUISITIONS MAY NOT BE SUCCESSFUL. Because our industry is rapidly changing, there are opportunities for acquisitions of assets and businesses, as well as for business combinations. We investigate opportunities that may increase shareholder value and build on existing businesses. We have participated in the past and our security holders may assume that at any time we may be participating in bidding or other negotiations for such transactions. This participation may or may not result in a transaction for us. Any transaction that does take place may involve consideration in the form of cash, debt or equity securities. In the past six years, we have completed several significant acquisitions, including the acquisitions of Northern Electric, Yorkshire Electricity, MidAmerican Energy, Kern River and Northern Natural Gas. We have successfully integrated Northern Electric, Yorkshire Electricity, MidAmerican Energy and Kern River. We closed on the Northern Natural Gas acquisition in August 2002 and are in the process of integrating its operations. We intend to continue to actively pursue acquisitions in the energy industry to complement and diversify our existing business for the foreseeable future. The successful integration of Northern Natural Gas and any businesses we may acquire in the future will entail numerous risks, including, among others, the risk of diverting management's attention from day-to-day operations, the risk that the acquired businesses will require substantial capital and financial investments and the risk that the investments will fail to perform in accordance with expectations. Any substantial diversion of management attention and any substantial difficulties encountered in the transition and integration process could have a material adverse effect on the revenues, levels of expenses and operating results of the combined company. In addition, it has been publicly reported over the past year that many of the participants in the United States energy industry, including the prior owners of Kern River and Northern Natural Gas and potentially including other industry participants from whom we may choose to purchase additional businesses in the future, have recently had or may have liquidity, creditworthiness and other financial difficulties. As a consequence, there can be no assurance that any such sellers will not enter into bankruptcy or insolvency proceedings or that they will otherwise be able, required or willing to perform on their indemnification obligations to us if we should elect to pursue any such claims we may have against any of them under our acquisition agreements in the future. If our due diligence efforts were or are unsuccessful in identifying and analyzing all material liabilities relating to acquired companies and if there were to be any material undisclosed liabilities, or if there were to be other unexpected consequences from any such bankruptcy or insolvency proceeding, such as a successful challenge as to whether the prices paid by us constituted reasonably equivalent value within the meaning of the relevant bankruptcy laws, then any such bankruptcy or insolvency, or failure by any of these sellers to perform their indemnification obligations to us, could have a material adverse effect on our business, financial condition, results of operations and the market prices and rates for our securities. We cannot assure you that future acquisitions, if any, or any related integration efforts will be successful, or that our ability to repay the notes will not be adversely affected by any future acquisitions. WE ARE ACTIVELY PURSUING, DEVELOPING AND CONSTRUCTING NEW OR EXPANDED FACILITIES, THE COMPLETION AND EXPECTED COST OF WHICH IS SUBJECT TO SIGNIFICANT RISK. Through our operating subsidiaries, we are continuing to develop, construct, own and operate new or expanded facilities, including Kern River's 2003 Expansion Project, the Zinc Recovery Project and two planned electric generating plants in Iowa, and in the future we expect to pursue the development, construction, ownership and operation of additional new or expanded energy projects (including, without limitation, generation, distribution, transmission, exploration/production, storage and supply projects and related activities, infrastructure and services), both domestically and internationally, the completion of any of which, including any future projects, is subject to substantial risk and may expose us to significant costs. We cannot assure you that our development or construction efforts on any particular project, or our efforts generally, will be successful. 15 Also, a proposed expansion or project may cost more than planned to complete, and such excess costs, if related to a regulated asset and found to be imprudent, may not be recoverable in rates. The inability to successfully and timely complete a project or avoid unexpected costs may require us to perform under guarantees (such as the Kern River completion guarantee), and the inability to avoid unsuccessful projects or to recover any excess costs may materially affect our ability to service our obligations under the notes. Our Kern River completion guarantee also contains a potential acceleration event based on our credit ratings and certain other potential acceleration events which are more fully described elsewhere in this prospectus. OUR SUBSIDIARIES ARE SUBJECT TO CERTAIN OPERATING UNCERTAINTIES WHICH MAY ADVERSELY AFFECT REVENUES, EXPENSES OR DISTRIBUTIONS. The operation of complex electric and gas utility (including transmission and distribution systems), pipeline or power generating facilities involves many operating uncertainties and events beyond our control. Operating risks include the breakdown or failure of power generation equipment, compressors, pipelines, transmission and distribution lines or other equipment or processes, fuel interruption, performance below expected levels of output, capacity or efficiency, operator error and catastrophic events such as severe storms, fires, earthquakes or explosions. A casualty occurrence might result in injury or loss of life, extensive property damage or environmental damage. Revenues, expenses and distributions may also be adversely affected by general economic, business, regulatory and weather conditions. The realization of any of these risks could significantly reduce or eliminate our affiliates' revenues or significantly increase our affiliates' expenses, thereby adversely affecting the ability to receive distributions from subsidiaries and joint ventures. We currently possess property, business interruption, catastrophic and general liability insurance, but proceeds from such insurance coverage may not be adequate for all liabilities incurred, lost revenue or increased expenses. Moreover, such insurance may not be available in the future at commercially reasonable costs and on commercially reasonable terms. Changes in the insurance markets subsequent to the September 11, 2001 terrorist attacks have made it more difficult for us to obtain certain types of coverage. There can be no assurance that we will be able to obtain the levels or types of insurance we would otherwise have obtained prior to these market changes or that the insurance coverage we do obtain will not contain large deductibles or fail to cover certain hazards or that it will otherwise cover all potential losses. ACTS OF SABOTAGE AND TERRORISM AIMED AT OUR FACILITIES COULD ADVERSELY EFFECT OUR BUSINESS. Since the September 11, 2001 terrorist attacks, the United States government has issued warnings that energy assets, specifically our nation's pipeline and utility infrastructure, may be the future targets of terrorist organizations. These developments have subjected our operations to increased risks. Any future acts of sabotage or terrorism aimed at our facilities, or those of our customers, could have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. Any resulting acts of war or the threat of war as a result of such terrorist attacks could adversely affect the economy and energy consumption. Instability in the financial markets as a result of terrorism or war could also materially adversely affect our ability to raise capital. WE ARE SUBJECT TO COMPREHENSIVE ENERGY REGULATION AND CHANGES IN REGULATION AND RATES MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND ABILITY TO SERVICE THE NOTES. We are subject to comprehensive governmental regulation, including regulation in the United States by various federal, state and local regulatory agencies, regulation in the United Kingdom and regulation in the Philippines, all of which significantly influences our operating environment, our rates, our capital structure, our costs and our ability to recover our costs from customers. These regulatory agencies include, among others, the Federal Energy Regulatory Commission, or the FERC, the Environmental Protection Agency, or the EPA, the Nuclear Regulatory Commission, the United States Department of Transportation, the Iowa Utilities Board, or the IUB, the Illinois Commerce Commission, other state utility boards, numerous local agencies, the Gas and Electricity Markets Authority, or GEMA, which in discharging certain of its powers acts through its staff within the Office of Gas and Electricity Markets, or Ofgem, in 16 the United Kingdom, and various other governmental agencies in the United Kingdom and the Philippines. The FERC has jurisdiction over, among other things, wholesale rates for electric transmission service and electric energy sold in interstate commerce, interstate natural gas transportation and storage rates, the siting and construction of interstate natural gas transportation facilities and certain other activities of our utility subsidiaries. United States federal, state and local agencies also have jurisdiction over many of our other activities. The utility commissions in the states where our utility subsidiaries operate regulate many aspects of our utility operations including siting and construction of facilities, customer service and the rates that we can charge customers. The revenues of our United Kingdom distribution businesses are subject to review and adjustment by GEMA and many other aspects of our subsidiaries' United Kingdom operations are subject to the jurisdiction of GEMA and other regulators and agencies in the United Kingdom. The structure of federal and state energy regulation is currently undergoing change and has in the past, and may in the future, be the subject of various challenges, initiatives and restructuring proposals by policy makers, utilities and other industry participants. In addition to Congressional initiatives, many states are implementing or considering regulatory initiatives designed to increase competition in the domestic power generation industry and increase access to electric utilities' transmission and distribution systems for independent power producers and electricity consumers. The implementation of regulatory changes in response to such challenges, initiatives and restructuring proposals could result in the imposition of more comprehensive or stringent requirements on us or our subsidiaries or other industry participants, which would result in increased compliance costs and could have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. We are unable to predict the impact on our operating results from the future regulatory activities of any of these agencies or the Securities and Exchange Commission, or SEC, under the Public Utility Holding Company Act of 1935, as amended, or PUHCA. Changes in regulations or the imposition of additional regulations could have a material adverse impact on our results of operations. Recent developments, events and uncertainties which have impacted or could impact our businesses are described below. On July 31, 2002, the FERC issued a notice of proposed rulemaking with respect to Standard Market Design for the electric industry. The FERC has characterized the proposal as portending "sweeping changes" to the use and expansion of the interstate transmission and wholesale bulk power systems in the United States. The proposal includes numerous proposed changes to the current regulation of transmission and generation facilities designed "to promote economic efficiency" and replace the "obsolete patchwork we have today," according to the FERC Chairman. The final rule, if adopted as currently proposed, would require all public utilities operating transmission facilities subject to the FERC jurisdiction to file revised open access transmission tariffs that would require changes to the basic services these public utilities currently provide. The proposed rule may impact the pricing of MidAmerican Energy's electricity and transmission products. The FERC does not envision that a final rule will be fully implemented until September 30, 2004. We are still evaluating the proposed rule, and we believe that the final rule could vary considerably from the initial proposal. Accordingly, we are presently unable to quantify the likely impact of the proposed rule on us. The state utility regulatory environment has to date, in general, given MidAmerican Energy an exclusive right to serve retail electricity customers within its primary service territory in Iowa and, in turn, the obligation to provide electric service to those customers. There can be no assurance that there will not be a change in legislation or regulation in Iowa or in any of the other states in which we operate to allow retail competition in MidAmerican Energy's service territory. Because our Kern River and Northern Natural Gas pipeline systems are interstate natural gas pipelines subject to regulation as natural gas companies under the Natural Gas Act, as amended, the rates we can charge our customers and other terms and conditions of service are subject to review by the FERC and the possibility of modification in periodic rate proceedings or at any time in response to a complaint proceeding initiated by a customer or on the FERC's own initiative. The rates we can charge are required to be just and reasonable. The objective of the rate setting process is to allow us to recover our costs to 17 construct, own, operate and maintain our pipelines which are actually and prudently incurred and to afford us an opportunity to earn a reasonable rate of return. Under the terms of our transportation service contracts and in accordance with the FERC's rate making principles, our current maximum tariff rates are designed to recover costs included in our pipeline systems' regulatory cost of service that are associated with the construction and operation of our pipeline systems that are actually, reasonably and prudently incurred. All costs incurred may not be recoverable through existing or future rates. Failure to recover material costs may have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. Revenue from Northern Electric's and Yorkshire Electricity's distribution business is controlled by a distribution price control formula which determines the maximum average price per unit of electricity that a distribution network operator in Great Britain may charge. The distribution price control formula is expected to have a five-year duration and is subject to review by the British regulatory body for the energy sector, GEMA, at the end of each five-year period and at other times in the discretion of GEMA. At each review, GEMA can propose adjustments to the distribution price control formula. In December 1999, a review resulted in a reduction in allowed revenue of 24% for Northern Electric's distribution business and 23% for Yorkshire Electricity's distribution business, in real terms, with effect from and after April 1, 2000. The next review of the distribution price control formula is expected to become effective in April 2005. Any further price reviews by GEMA, including those it may elect to conduct at any time in its discretion, may have a material adverse effect on our results of operations. The Philippine Congress has passed the Electric Power Reform Act of 2001, which is aimed at restructuring the power industry, including privatization of the National Power Corporation, or the NPC, and introduction of a competitive electricity market, among other initiatives. The implementation of the bill may have an adverse impact on our future operations in the Philippines and the Philippines power industry as a whole. WE ARE SUBJECT TO ENVIRONMENTAL, SAFETY AND OTHER LAWS AND REGULATIONS WHICH MAY ADVERSELY IMPACT US. Through our subsidiaries and joint ventures, we are subject to a number of environmental, safety and other laws and regulations affecting many aspects of our present and future operations, both domestic and foreign, including air emissions, water quality, wastewater discharges, solid wastes, hazardous substances and safety matters. We may incur substantial costs and liabilities in connection with our operations as a result of these regulations. In particular, the cost of future compliance with federal, state and local clean air laws, such as those that require certain generators, including some of our subsidiaries' electric generating facilities, to limit nitrogen oxide emissions and potential other pollutants, may require us to make significant capital expenditures which may not be recoverable through future rates. In addition, these costs and liabilities may include those relating to claims for damages to property and persons resulting from our operations. The implementation of regulatory changes imposing more comprehensive or stringent requirements on us, to the extent such changes would result in increased compliance costs or additional operating restrictions, could have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. In addition, regulatory compliance for existing facilities and the construction of new facilities is a costly and time-consuming process, and intricate and rapidly changing environmental regulations may require major expenditures for permitting and create the risk of expensive delays or material impairment of value if projects cannot function as planned due to changing regulatory requirements or local opposition. Potential pipeline safety legislation and an increase in public expectations on pipeline safety may also require replacement of some of our pipeline segments, addition of monitoring equipment, and more frequent inspection or testing of our pipeline facilities. These requirements coupled with increases in state and federal agency oversight, if adopted, would necessitate additional testing and reporting which may result in higher operating costs and/or capital costs. Our FERC-approved tariffs or competition from other natural gas sources may not allow us to recover these increased costs of compliance. 18 In addition to operational standards, environmental laws also impose obligations to clean up or remediate contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the contamination. Accordingly, we may become liable, either contractually or by operation of law, for remediation costs even if the contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. Given the nature of the past industrial operations conducted by us and others at our properties, there can be no assurance that all potential instances of soil or groundwater contamination have been identified, even for those properties where an environmental site assessment or other investigation has been conducted. Although we have accrued reserves for our known remediation liabilities, future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to additional remediation liabilities which may be material. Any failure to recover increased environmental or safety costs incurred by us may have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. INCREASED COMPETITION RESULTING FROM LEGISLATIVE, REGULATORY AND RESTRUCTURING EFFORTS COULD HAVE A SIGNIFICANT FINANCIAL IMPACT ON US AND OUR UTILITY SUBSIDIARIES AND CONSEQUENTLY DECREASE OUR REVENUE. The energy market continues to move towards a competitive environment and is characterized by numerous strong and capable competitors, many of which have more extensive operating experience and greater financial resources than we and our subsidiaries. Retail competition and the unbundling of regulated energy and gas service could have a significant adverse financial impact on us and our subsidiaries due to an impairment of assets, a loss of customers, lower profit margins and/or increased costs of capital. The total impacts of restructuring may have a significant financial impact on our financial position, results of operations and cash flows. We cannot predict when we will be subject to changes in legislation or regulation, nor can we predict the impacts of these changes on our financial position, results of operations or cash flows. The generation segment of the electric industry has been and will be significantly impacted by competition. The introduction of competition in the wholesale market has resulted in a proliferation of power marketers and a substantial increase in market activity. Many of these marketers have experienced financial difficulties and the market continues to be volatile. As retail competition continues to evolve, margins will be pressured by competition from other utilities, power marketers and self-generation. Many states and the federal government are implementing or considering regulatory initiatives that would increase access to electric utilities' transmission and distribution systems for independent power producers, utilities, power marketers and electricity customers. Although the recent and anticipated changes in the United States electric utility industry may create opportunities, they will also create additional challenges and risks for utilities. Competition will put pressure on margins for traditional electric services. Illinois recently enacted a law that provides for full retail customer choice in 2002. While introduction of retail competition in Iowa is not presently expected, depending upon the terms of any such legislation, if introduced it could have a material adverse effect on us. These types of restructurings and other industry restructuring efforts could materially impact our results of operations in a manner which is difficult to predict, since such efforts will depend on the terms and timing of such restructuring. As a result of the FERC orders, including Order 636, the FERC's policies favoring competition in gas markets, the expansion of existing pipelines and the construction of new pipelines, the interstate pipeline industry has begun to experience some failure to renew, or turn back, of firm capacity, as existing transportation service agreements expire and are terminated. Local distribution companies and end-use customers have more choices in the new, more competitive environment and may be able to obtain service from more than one pipeline to fulfill their natural gas delivery requirements. If a pipeline experiences capacity turn back and is unable to remarket the capacity, the pipeline or its remaining customers may have to bear the costs associated with the capacity that is turned back. Any new pipelines that are constructed could compete with our pipeline subsidiaries for customers' service needs. Increased 19 competition could reduce the volumes of gas transported by our pipeline subsidiaries or, in cases where they do not have long-term fixed rate contracts, could force our pipeline subsidiaries to lower their rates to meet competition. This could adversely affect our pipeline subsidiaries' financial results. A SIGNIFICANT DECREASE IN DEMAND FOR NATURAL GAS IN THE MARKETS SERVED BY OUR SUBSIDIARIES' PIPELINE AND DISTRIBUTION SYSTEMS WOULD SIGNIFICANTLY DECREASE OUR REVENUE AND THEREBY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND ABILITY TO SERVICE THE NOTES. A sustained decrease in demand for natural gas in the markets served by our subsidiaries' pipeline and distribution systems would significantly reduce our revenues. Factors that could lead to a decrease in market demand include: o a recession or other adverse economic condition that results in a lower level of economic activity or reduced spending by consumers on natural gas; o an increase in the market price of natural gas or a decrease in the price of other competing forms of energy, including electricity, coal and fuel oil; o higher fuel taxes or other governmental or regulatory actions that increase, directly or indirectly, the cost of natural gas or that limit the use of natural gas; o a shift by consumers to more fuel-efficient or alternative fuel machinery or an improvement in fuel economy, whether as a result of technological advances by manufacturers, pending legislation proposing to mandate higher fuel economy, or otherwise; and o a shift by our pipeline and distribution customers to the use of alternate fuels, such as fuel oil, due to price differentials or other incentives. FAILURE OF OUR SIGNIFICANT POWER PURCHASERS AND PIPELINE CUSTOMERS TO PAY AMOUNTS DUE UNDER THEIR CONTRACTS COULD REDUCE OUR REVENUES MATERIALLY. Our subsidiaries' non-utility generating facilities and both of our pipeline subsidiaries are dependent upon a relatively small number of customers for a significant portion of their revenues. As a result, our profitability and ability to make payments under the notes generally will depend upon the continued financial performance and creditworthiness of these customers. Accordingly, failure of one or more of our most significant customers to pay for contracted electric generating capacity or pipeline capacity reservation charges, for reasons related to financial distress or otherwise, could reduce our revenues materially if we were not able to make adequate alternate arrangements and therefore could have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. OUR PIPELINE SUBSIDIARIES MAY NOT BE ABLE TO MAINTAIN OR REPLACE LONG-TERM GAS TRANSPORTATION SERVICE AGREEMENTS AT FAVORABLE RATES AS EXISTING CONTRACTS EXPIRE. Our business, financial condition, results of operations and ability to service the notes are dependent in significant part on the ability of Kern River and Northern Natural Gas to maintain long-term transportation service agreements with customers subject to favorable transportation rates. Many of our long-term transportation service agreements will expire before the maturity of the notes. Upon expiration, existing customers may elect not to extend their contracts at rates favorable to our subsidiaries or on a long-term basis, or at all. Our pipeline subsidiaries may also be unable to obtain favorable replacement agreements with other customers. The extension or replacement of the existing long-term contracts depends on a number of factors beyond our control, including: o the availability of economically deliverable natural gas for transport through our pipeline system, including in particular continued availability of adequate supplies from the Rocky Mountains, Hugoton, Permian, Anadarko and Western Canadian supply basins currently accessible to our pipeline subsidiaries; o existing competition to deliver natural gas to the upper Midwest and southern California; 20 o new pipelines or expansions potentially serving the same markets as our pipelines; o the growth in demand for natural gas in the upper Midwest and southern California; o whether transportation of natural gas pursuant to long-term contracts continues to be market practice; and o whether our business strategy, including our expansion strategy, continues to be successful. Any failure to extend or replace a significant portion of these contracts may have a material adverse effect on our business, financial condition, results of operations and ability to service the notes. OUR UTILITY AND NON-UTILITY BUSINESSES ARE SUBJECT TO MARKET AND CREDIT RISK. We are exposed to market and credit risks in our subsidiaries' generation, retail distribution and pipeline operations. Specifically, such risks include commodity price changes, market supply shortages, interest rate changes and counterparty default. In Iowa, MidAmerican Energy does not have an ability to pass through fuel price increases in its rates (an energy adjustment clause), so any significant increase in fuel costs or purchased power costs could have a negative impact on MidAmerican Energy. To minimize these risks, we require collateral to be posted if the creditworthiness of counterparties deteriorates below established levels and enter into financial derivative instrument contracts to hedge purchase and sale commitments, fuel requirements and inventories of natural gas, electricity, coal and emission allowances. However, financial derivative instrument contracts do not eliminate the risk. The impact of these risks could result in our inability to fulfill contractual obligations, significantly higher energy or fuel costs relative to corresponding sales contracts or increased interest expense. WE HAVE SIGNIFICANT OPERATIONS OUTSIDE THE UNITED STATES WHICH MAY BE SUBJECT TO INCREASED RISK BECAUSE OF THE ECONOMIC OR POLITICAL CONDITIONS OF THE COUNTRY IN WHICH THEY OPERATE. We have a number of operations outside of the United States. The acquisition, ownership and operation of businesses outside the United States entail significant political and financial risks (including, without limitation, uncertainties associated with privatization efforts, inflation, currency exchange rate fluctuations, currency repatriation restrictions, changes in law or regulation, changes in government policy, political instability, civil unrest and expropriation) and other risk/structuring issues that have the potential to cause material impairment of the value of the business being operated, which we may not be capable of fully insuring against. The risk of doing business outside of the United States could be greater than in the United States because of specific economic or political conditions of each country. The uncertainty of the legal environment in certain foreign countries in which we operate or may acquire projects or businesses could make it more difficult for us to enforce our rights under agreements relating to such projects or businesses. In addition, the laws and regulations of certain countries may limit our ability to hold a majority interest in some of the projects or businesses that we may acquire. Furthermore, the central bank of any such country may have the authority in certain circumstances to suspend, restrict or otherwise impose conditions on foreign exchange transactions or to restrict distributions to foreign investors. Although we may structure certain project revenue and other agreements to provide for payments to be made in, or indexed to, United States dollars or a currency freely convertible into United States dollars, there can be no assurance that we will be able to obtain sufficient dollars or other hard currency or that available dollars will be allocated to pay such obligations. Our international projects may be subject to the risk of being delayed, suspended or terminated by the applicable foreign governments or may be subject to the risk of contract abrogation, expropriations or other uncertainties resulting from changes in government policy or personnel or changes in general political or economic conditions affecting the country. In this regard, reference is made to the substantial uncertainties associated with one of our non-utility power projects in the Philippines, which is referred to as the Casecnan Project, where certain payments under the primary project agreement are currently not being made by the government of the Philippines and are presently the subject of international arbitration. Specifically, under the terms of a Casecnan Project agreement between CE Casecnan Water and Energy Company, Inc., or CE Casecnan, and the Philippine National Irrigation Administration, or NIA, NIA has the option of timely reimbursing CE Casecnan directly for certain taxes CE Casecnan has 21 paid. If NIA does not so reimburse CE Casecnan, the taxes paid by CE Casecnan result in an increase in the Water Delivery Fee under the Casecnan Project agreement. The payment of certain other taxes by CE Casecnan results automatically in an increase in the Water Delivery Fee. As of June 30, 2002, CE Casecnan has paid approximately $54.4 million in taxes which as a result of the foregoing provisions had resulted in an increase in the Water Delivery Fee. NIA has failed to pay the portion of the Water Delivery Fee each month which relates to the payment of these taxes by CE Casecnan. As a result of this non-payment, on August 19, 2002, CE Casecnan filed a Request for Arbitration against NIA, seeking payment of such portion of the Water Delivery Fee and enforcement of the relevant provision of the Casecnan Project agreement going forward. The arbitration will be conducted in accordance with the rules of the International Chamber of Commerce. WE FACE EXCHANGE RATE RISK. Payments from some of our foreign investments, including without limitation Northern Electric and Yorkshire Electricity, are made in a foreign currency and any dividends or distributions of earnings in respect of such investments may be significantly affected by fluctuations in the exchange rate between the United States dollar and the British pound or other applicable foreign currency. Although we may enter into certain transactions to hedge risks associated with exchange rate fluctuations, there can be no assurance that such transactions will be successful in reducing such risks. RISKS ASSOCIATED WITH THE EXCHANGE OFFER YOU MAY NOT BE ABLE TO SELL YOUR ORIGINAL NOTES IF YOU DO NOT EXCHANGE THEM FOR REGISTERED EXCHANGE NOTES IN THE EXCHANGE OFFER. If you do not exchange your original notes for exchange notes in the exchange offer, your original notes will continue to be subject to the restrictions on transfer as stated in the legends on the original notes. In general, you may not offer, sell or otherwise transfer the original notes in the United States unless they are: o registered under the Securities Act; o offered or sold under an exemption from the Securities Act and applicable state securities laws; or o offered or sold in a transaction not subject to the Securities Act and applicable state securities laws. We do not currently anticipate that we will register the original notes under the Securities Act. Except for limited instances involving the initial purchasers or holders of original notes who are not eligible to participate in the exchange offer or who receive freely transferable exchange notes in the exchange offer, we will not be under any obligation to register the original notes under the Securities Act under the registration rights agreement or otherwise. Also, if the exchange offer is completed on the terms and within the time period contemplated by this prospectus, no liquidated damages will be payable on your original notes. YOUR ABILITY TO SELL YOUR ORIGINAL NOTES MAY BE SIGNIFICANTLY MORE LIMITED AND THE PRICE AT WHICH YOU MAY BE ABLE TO SELL YOUR ORIGINAL NOTES MAY BE SIGNIFICANTLY LOWER IF YOU DO NOT EXCHANGE THEM FOR REGISTERED EXCHANGE NOTES IN THE EXCHANGE OFFER. To the extent that original notes are exchanged in the exchange offer, the trading market for the original notes that remain outstanding may be significantly more limited. As a result, the liquidity of the original notes not tendered for exchange could be adversely affected. The extent of the market for original notes would depend upon a number of factors, including the number of holders of original notes remaining outstanding and the interest of securities firms in maintaining a market in the original notes. An issue of securities with a similar outstanding market value available for trading, which is called the "float," may command a lower price than would be comparable to an issue of securities with a greater float. As a result, the market price for original notes that are not exchanged in the exchange offer may be affected adversely to the extent that original notes exchanged in the exchange offer reduce the float. The reduced float also may make the trading price of the original notes that are not exchanged more volatile. 22 THERE ARE STATE SECURITIES LAW RESTRICTIONS ON THE RESALE OF THE EXCHANGE NOTES. In order to comply with the securities laws of certain jurisdictions, the exchange notes may not be offered or resold by any holder unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and the requirements of such exemption have been satisfied. We do not currently intend to register or qualify the resale of the exchange notes in any such jurisdictions. However, an exemption is generally available for sales to registered broker-dealers and certain institutional buyers. Other exemptions under applicable state securities laws may also be available. WE WILL NOT ACCEPT YOUR ORIGINAL NOTES FOR EXCHANGE IF YOU FAIL TO FOLLOW THE EXCHANGE OFFER PROCEDURES AND, AS A RESULT, YOUR ORIGINAL NOTES WILL CONTINUE TO BE SUBJECT TO EXISTING TRANSFER RESTRICTIONS AND YOU MAY NOT BE ABLE TO SELL YOUR ORIGINAL NOTES. We will issue exchange notes as part of the exchange offer only after a timely receipt of your original notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, if you want to tender your original notes, please allow sufficient time to ensure timely delivery. If we do not receive your original notes, letter of transmittal and other required documents by the expiration date of the exchange offer, we will not accept your original notes for exchange. We are under no duty to give notification of defects or irregularities with respect to the tenders of original notes for exchange. If there are defects or irregularities with respect to your tender of original notes, we will not accept your original notes for exchange. See "The Exchange Offer." 23 FORWARD-LOOKING STATEMENTS This prospectus contains statements that do not directly or exclusively relate to historical facts. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as "may", "will", "could", "project", "believe", "anticipate", "expect", "estimate", "continue", "potential", "plan", "forecast" and similar terms. These statements represent our intentions, plans, expectations and beliefs and are subject to risks, uncertainties and other factors. Many of these factors are outside our control and could cause actual results to differ materially from such forward-looking statements. These factors include, among others: o general economic and business conditions in the jurisdictions in which our facilities are located; o governmental, statutory, regulatory or administrative initiatives or ratemaking actions affecting us or the electric or gas utility, pipeline or power generation industries; o weather effects on sales and revenues; o general industry trends; o increased competition in the power generation, electric utility or pipeline industries; o fuel and power costs and availability; o continued availability of accessible gas reserves; o changes in business strategy, development plans or customer or vendor relationships; o availability, term and deployment of capital; o availability of qualified personnel; o risks relating to nuclear generation; o financial or regulatory accounting principles or policies imposed by the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, the SEC, the FERC and similar entities with regulatory oversight; and o other business or investment considerations that may be disclosed from time to time in our SEC filings or in other publicly disseminated written documents. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exclusive. 24 USE OF PROCEEDS We will not receive any proceeds from the issuance of the exchange notes in the exchange offer. The exchange notes will evidence the same debt as the original notes tendered in exchange for exchange notes. Accordingly, the issuance of the exchange notes will not result in any change in our indebtedness. The net proceeds of the private placement of the original notes were approximately $694 million after deducting the initial purchasers' discount and expenses related to the offering of the original notes. We used these net proceeds for general corporate purposes, including to repay our short term debt in the amount of $167 million; and to make up to $300 million of funds available for an equity contribution to Kern River, to be applied by Kern River to fund a portion of the costs of its 2003 Expansion Project. We also used the net proceeds to make an equity contribution of $150 million to Northern Natural Gas and a loan of $300 million to Northern Natural Gas. Northern Natural Gas used these amounts to repay an equal amount of its outstanding indebtedness under its bank credit agreement. Northern Natural Gas repaid the loan to us from the proceeds of its offering of $300 million of 5.375% Senior Notes due 2012, which was completed on October 15, 2002. 25 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER On October 4, 2002, we privately placed the original notes in a transaction exempt from registration under the Securities Act. Accordingly, the original notes may not be reoffered, resold or otherwise transferred in the United States unless so registered or unless an exemption from the Securities Act registration requirements is available. Pursuant to a registration rights agreement with the initial purchasers of the original notes, we agreed, for the benefit of holders of the notes, to: o prepare and file an exchange offer registration statement with the SEC with respect to a registered offer to exchange each series of original notes for a series of exchange notes that will be issued under the same indenture, in the same aggregate principal amount as and with terms that are substantially identical in all material respects to the original notes except that they will not contain terms with respect to transfer restrictions; o use our reasonable best efforts to cause the exchange offer registration statement to become effective under the Securities Act within 270 days after the date on which we issued the original notes; and o promptly after the exchange offer registration statement is declared effective, offer the exchange notes in exchange for surrender of the original notes. We will be entitled to consummate the exchange offer on the expiration date provided that we have accepted all original notes previously validly tendered in accordance with the terms set forth in this prospectus and the applicable letter of transmittal. In addition, under certain circumstances described below, we may be required to file a shelf registration statement to cover resales of the notes. If we do not comply with certain of our obligations under the registration rights agreement, we must pay liquidated damages on the original notes in addition to the interest that is otherwise due on the notes. See "--Liquidated Damages." The purpose of the exchange offer is to fulfill our obligations with respect to the registration rights agreement. If you are a broker-dealer that receives exchange notes for its own account in exchange for original notes, where you acquired such original notes as a result of market-making activities or other trading activities, you must acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." TERMS OF THE EXCHANGE Upon the terms and subject to the conditions contained in this prospectus and in the letters of transmittal that accompany this prospectus, with respect to each series of original notes, we are offering to exchange $1,000 in principal amount of exchange notes for each $1,000 in principal amount of original notes. The terms of the exchange notes are substantially identical to the terms of the original notes for which they may be exchanged in the exchange offer, except that the exchange notes will generally be freely transferrable. The exchange notes will evidence the same debt as the original notes and will be entitled to the benefits of the indenture. Any original notes of a series that remain outstanding after the consummation of the exchange offer, together with all exchange notes of that series issued in connection with the exchange offer, will be treated as a single class of securities under the indenture. See "Description of Notes." The exchange offer is not conditioned on any minimum aggregate principal amount of original notes being tendered for exchange. Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, we believe that you may offer for resale, resell and otherwise transfer the exchange notes without further compliance with the 26 registration and prospectus delivery provisions of the Securities Act. However, if you are an "affiliate" (within the meaning of the Securities Act) of ours or you intend to participate in the exchange offer for the purpose of distributing the exchange notes or you are a broker-dealer (within the meaning of the Securities Act) that acquired notes in a transaction other than as part of its market-making or other trading activities and who has arranged or has an understanding with any person to participate in the distribution of the exchange notes, you: (1) will not be able to rely on the interpretations by the staff of the SEC set forth in the above-mentioned no-action letters; (2) will not be able to tender your notes in the exchange offer; and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of your notes unless such sale or transfer is made pursuant to an exemption from such requirements. Subject to exceptions for certain holders, to participate in the exchange offer you will be required to represent to us at the time of the consummation of the exchange offer, among other things, that (1) you are not an affiliate of ours; (2) any exchange notes to be received by you will be acquired in the ordinary course of your business; and (3) at the time of commencement of the exchange offer, you have no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the notes. In addition, in connection with any resales of exchange notes, any broker-dealer who acquired exchange notes for its own account as a result of market-making activities or other trading activities must deliver a prospectus meeting the requirements of the Securities Act. The SEC has taken the position that such a broker-dealer may fulfill its prospectus delivery requirements with respect to the exchange notes (other than a resale of an unsold allotment from the initial sale of the original notes) with this prospectus. Under the registration rights agreement, we are required to allow a broker-dealer and other persons with similar prospectus delivery requirements, if any, to use this prospectus connection with the resale of such exchange notes for a period of time not less than 120 days following the consummation of the exchange offer. If you are a broker-dealer that receives exchange notes for its own account in exchange for original notes, where you acquired such original notes as a result of market-making activities or other trading activities, you must acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes. See "Plan of Distribution." You will not be required to pay brokerage commissions or fees or, subject to the instructions in the applicable letter of transmittal, transfer taxes relating to your exchange of original notes for exchange notes in the exchange offer. SHELF REGISTRATION STATEMENT If: o we are not permitted to effect the exchange offer because of any change in law or in applicable interpretations of such law by the staff of the SEC; o the exchange offer is not consummated by the 40th day after the date on which the exchange offer registration statement was declared effective; o any of the initial purchasers of the original notes so requests with respect to the original notes not eligible to be exchanged for exchange notes in the exchange offer and held by it following the consummation of exchange offer; o any holder of notes (other than a broker-dealer electing to exchange original notes acquired for its own account as a result of market-making or other trading activities for exchange securities) is not eligible to participate in the exchange offer and any such holder so requests for any reason other than the failure by such holder to make a timely and valid tender in accordance with the terms of exchange offer; or o any holder of notes (other than a broker-dealer electing to exchange original notes acquired for its own account as a result of market-making or other trading activities for exchange securities) 27 participates in the exchange offer but does not receive freely tradeable exchange notes on the date of the exchange and any such holder so requests for any reason other than the failure by such holder to make a timely and valid tender in accordance with the terms of exchange offer, we will: o as promptly as practicable prepare and file with the SEC a shelf registration statement relating to the offer and sale of notes that are not otherwise freely tradable; and o use our reasonable best efforts to cause the shelf registration statement to be declared effective not later than the later to occur of the date that is 150 days after the date on which our obligation to file the shelf registration arises or 270 days after the date on which we issued the original notes; and o use our reasonable best efforts to keep the shelf registration statement continuously effective until the earlier of two years from the date on which we issued the original notes (subject to extension under certain circumstances) and such shorter period ending when all the notes covered by the shelf registration statement have been sold pursuant to the shelf registration statement or are no longer restricted securities (as defined in Rule 144 under the Securities Act). You will not be entitled, except if you were an initial purchaser of the original notes, to have your notes registered under the shelf registration statement, unless you agree in writing to be bound by the applicable provisions of the registration rights agreement. In order to sell your notes under the shelf registration statement, you generally must be named as a selling security holder in the related prospectus and must deliver a prospectus to purchasers. Consequently, you will be subject to the civil liability provisions under the Securities Act in connection with those sales and indemnification obligations under the registration rights agreements. LIQUIDATED DAMAGES A registration default will be deemed to have occurred if: (1) the exchange offer registration statement is not declared effective within 270 days after the date on which we issued the original notes; (2) the shelf registration statement is not declared effective by the later to occur of the date that is 150 days after the date on which our obligation to file the shelf registration arises or 270 days after the date on which we issued the original notes; or (3) after either the exchange offer registration statement or the shelf registration statement is declared effective, such registration statement or the related prospectus thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of original notes or exchange notes for the periods specified and in accordance with the registration rights agreement. Additional interest will accrue on the notes subject to such registration default at a rate of 0.5% from and including the date on which any such registration default occurs to but excluding the date on which all such registration defaults have ceased to be continuing. In each case, such additional interest is payable in addition to any other interest payable from time to time with respect to the original notes and the exchange notes. The exchange notes will not contain any provisions regarding the payment of liquidated damages. EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS The exchange offer expires on the expiration date. The expiration date is 5:00 p.m., New York City time, on , 200 , unless we in our sole discretion extend the period during which the exchange offer is open, in which event the expiration date is the latest time and date on which the exchange offer, as so extended by us, expires. We reserve the right to extend the exchange offer at any time and from time to time prior to the expiration date by giving written notice to The Bank of New York, as the exchange agent, and by timely public announcement communicated in accordance with applicable law or regulation. During any extension of the exchange offer, all original notes previously tendered pursuant to the exchange offer and not validly withdrawn will remain subject to the exchange offer. 28 The exchange date will occur promptly after the expiration date. We expressly reserve the right to (i) terminate the exchange offer and not accept for exchange any original notes for any reason, including if any of the events set forth below under "--Conditions to the Exchange Offer" shall have occurred and shall not have been waived by us and (ii) amend the terms of the exchange offer in any manner, whether before or after any tender of the original notes. If any such termination or amendment occurs, we will notify the exchange agent in writing and will either issue a press release or give written notice to the holders of the original notes as promptly as practicable. Unless we terminate the exchange offer prior to 5:00 p.m., New York City time, on the expiration date, we will exchange the exchange notes for the original notes on the exchange date. If we waive any material condition to the exchange offer, or amend the exchange offer in any other material respect, and if at the time that notice of such waiver or amendment is first published, sent or given to holders of original notes in the manner specified above, the exchange offer is scheduled to expire at any time earlier than the expiration of a period ending on the fifth business day from, and including, the date that such notice is first so published, sent or given, then the exchange offer will be extended until the expiration of such period of five business days. This prospectus and the related letters of transmittal and other relevant materials will be mailed by us to record holders of original notes and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the lists of holders for subsequent transmittal to beneficial owners of original notes. HOW TO TENDER The tender to us of original notes by you pursuant to one of the procedures set forth below will constitute an agreement between you and us in accordance with the terms and subject to the conditions set forth herein and in the applicable letter of transmittal. General Procedures. A holder of an original note may tender the same by (i) properly completing and signing the applicable letter of transmittal or a facsimile thereof (all references in this prospectus to the letter of transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate or certificates representing the original notes being tendered and any required signature guarantees (or a timely confirmation of a book-entry transfer, which we refer to as a Book-Entry Confirmation, pursuant to the procedure described below), to the exchange agent at its address set forth on the back cover of this prospectus on or prior to the expiration date or (ii) complying with the guaranteed delivery procedures described below. If tendered original notes are registered in the name of the signer of the letter of transmittal and the exchange notes to be issued in exchange therefor are to be issued (and any untendered original notes are to be reissued) in the name of the registered holder, the signature of such signer need not be guaranteed. In any other case, the tendered original notes must be endorsed or accompanied by written instruments of transfer in form satisfactory to us and duly executed by the registered holder and the signature on the endorsement or instrument of transfer must be guaranteed by a firm, which we refer to as an Eligible Institution, that is a member of a recognized signature guarantee medallion program, which we refer to as an Eligible Program, within the meaning of Rule 17Ad-15 under the Exchange Act. If the exchange notes and/or original notes not exchanged are to be delivered to an address other than that of the registered holder appearing on the note register for the original notes, the signature on the letter of transmittal must be guaranteed by an Eligible Institution. Any beneficial owner whose original notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender original notes should contact such holder promptly and instruct such holder to tender original notes on such beneficial owner's behalf. If such beneficial owner wishes to tender such original notes himself, such beneficial owner must, prior to completing and executing the letter of transmittal and delivering such original notes, either make appropriate arrangements to register ownership of the original notes in such beneficial owner's name or follow the procedures described in the immediately preceding paragraph. The transfer of record ownership may take considerable time. 29 Book-Entry Transfer. The exchange agent will make a request to establish an account with respect to the original notes at The Depository Trust Company, which we refer to as the Book-Entry Transfer Facility, for purposes of the exchange offer within two business days after receipt of this prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's systems may make book-entry delivery of original notes by causing the Book-Entry Transfer Facility to transfer such original notes into the exchange agent's account at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer Facility's procedures for transfer. However, although delivery of original notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the letter of transmittal, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the exchange agent at the address specified on the back cover page of this prospectus on or prior to the expiration date or the guaranteed delivery procedures described below must be complied with. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND ALL OTHER DOCUMENTS IS AT YOUR ELECTION AND RISK. IF SENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL, RETURN RECEIPT REQUESTED, OBTAIN PROPER INSURANCE, AND COMPLETE THE MAILING SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE. Unless an exemption applies under the applicable law and regulations concerning "backup withholding" of federal income tax, the exchange agent will be required to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a holder pursuant to the exchange offer if the holder does not provide its taxpayer identification number (social security number or employer identification number) and certify that such number is correct. Each tendering holder should complete and sign the main signature form and the Substitute Form W-9 included as part of the letter of transmittal, so as to provide the information and certification necessary to avoid backup withholding, unless an applicable exemption exists and is proved in a manner satisfactory to us and the exchange agent. Guaranteed Delivery Procedures. If a holder desires to accept the exchange offer and time will not permit a letter of transmittal or original notes to reach the exchange agent before the expiration date, a tender may be effected if the exchange agent has received at its office listed on the back cover hereof on or prior to the expiration date a letter, telegram or facsimile transmission from an Eligible Institution setting forth the name and address of the tendering holder, the names in which the original notes are registered, the principal amount of the original notes and, if possible, the certificate numbers of the original notes to be tendered, and stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the date of execution of such letter, telegram or facsimile transmission by the Eligible Institution, the original notes, in proper form for transfer, will be delivered by such Eligible Institution together with a properly completed and duly executed letter of transmittal (and any other required documents). Unless original notes being tendered by the above-described method (or a timely Book-Entry Confirmation) are deposited with the exchange agent within the time period set forth above (accompanied or preceded by a properly completed letter of transmittal and any other required documents), we may, at our option, reject the tender. Copies of a Notice of Guaranteed Delivery which may be used by Eligible Institutions for the purposes described in this paragraph are being delivered with this prospectus and the related letter of transmittal. A tender will be deemed to have been received as of the date when the tendering holder's properly completed and duly signed letter of transmittal accompanied by the original notes (or a timely Book-Entry Confirmation) is received by the exchange agent. Issuances of exchange notes in exchange for original notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to similar effect (as provided above) by an Eligible Institution will be made only against deposit of the letter of transmittal (and any other required documents) and the tendered original notes (or a timely Book-Entry Confirmation). All questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of original notes will be determined by us and our determination will be final and binding. We reserve the absolute right to reject any or all tenders not in proper form or the acceptances for exchange of which may, in the opinion of our counsel, be unlawful. We also reserve the absolute right 30 to waive any of the conditions of the exchange offer or any defect or irregularities in tenders of any particular holder whether or not similar defects or irregularities are waived in the case of other holders. None of us, the exchange agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or shall incur any liability for failure to give any such notification. Our interpretation of the terms and conditions of the exchange offer (including the letters of transmittal and the instructions thereto) will be final and binding. TERMS AND CONDITIONS OF THE LETTERS OF TRANSMITTAL The letters of transmittal contain, among other things, the following terms and conditions, which are part of the exchange offer. The party tendering original notes for exchange, to whom we refer to as the Transferor, exchanges, assigns and transfers the original notes to us and irrevocably constitutes and appoints the exchange agent as the Transferor's agent and attorney-in-fact to cause the original notes to be assigned, transferred and exchanged. The Transferor represents and warrants that it has full power and authority to tender, exchange, assign and transfer the original notes and to acquire exchange notes issuable upon the exchange of such tendered original notes, and that, when the same are accepted for exchange, we will acquire good and unencumbered title to the tendered original notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The Transferor also warrants that it will, upon request, execute and deliver any additional documents deemed by us to be necessary or desirable to complete the exchange, assignment and transfer of tendered original notes. The Transferor further agrees that acceptance of any tendered original notes by us and the issuance of exchange notes in exchange therefor shall constitute performance in full by us of our obligations under the registration rights agreement and that we shall have no further obligations or liabilities thereunder (except in certain limited circumstances). All authority conferred by the Transferor will survive the death or incapacity of the Transferor and every obligation of the Transferor shall be binding upon the heirs, legal representatives, successors, assigns, executors and administrators of such Transferor. See "--Terms of the Exchange." WITHDRAWAL RIGHTS Original notes tendered pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the exchange agent at its address set forth on the back cover of this prospectus. Any such notice of withdrawal must specify the person named in the letter of transmittal as having tendered original notes to be withdrawn, the certificate numbers of original notes to be withdrawn, the principal amount of original notes to be withdrawn (which must be an authorized denomination), a statement that such holder is withdrawing his election to have such original notes exchanged, and the name of the registered holder of such original notes, and must be signed by the holder in the same manner as the original signature on the letter of transmittal (including any required signature guarantees) or be accompanied by evidence satisfactory to us that the person withdrawing the tender has succeeded to the beneficial ownership of the original notes being withdrawn. The exchange agent will return the properly withdrawn original notes promptly following receipt of notice of withdrawal. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by us, and our determination will be final and binding on all parties. ACCEPTANCE OF ORIGINAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES Upon the terms and subject to the conditions of the exchange offer, the acceptance for exchange of original notes validly tendered and not withdrawn and the issuance of the exchange notes will be made on the exchange date. For the purposes of the exchange offer, we shall be deemed to have accepted for exchange validly tendered original notes when, as and if we have given written notice thereof to the exchange agent. The exchange agent will act as agent for the tendering holders of original notes for the purposes of receiving exchange notes from us and causing the original notes to be assigned, transferred and 31 exchanged. Upon the terms and subject to the conditions of the exchange offer, delivery of exchange notes to be issued in exchange for accepted original notes will be made by the exchange agent promptly after acceptance of the tendered original notes. Original notes not accepted for exchange by us will be returned without expense to the tendering holders (or in the case of original notes tendered by book-entry transfer into the exchange agent's account at the Book-Entry Transfer Facility pursuant to the procedures described above, such non-exchanged original notes will be credited to an account maintained with such Book-Entry Transfer Facility) promptly following the expiration date or, if we terminate the exchange offer prior to the expiration date, promptly after the exchange offer is so terminated. CONDITIONS TO THE EXCHANGE OFFER We are not required to accept for exchange, or to issue exchange notes in exchange for, any outstanding original notes. We may terminate or extend the exchange offer by oral or written notice to the exchange agent and by timely public announcement communicated in accordance with applicable law or regulation, if: o any federal law, statute, rule, regulation or interpretation of the staff of the SEC has been proposed, adopted or enacted that, in our judgment, might impair our ability to proceed with the exchange offer or otherwise make it inadvisable to proceed with the exchange offer; o an action or proceeding has been instituted or threatened in any court or by any governmental agency that, in our judgement might impair our ability to proceed with the exchange offer or otherwise make it inadvisable to proceed with the exchange offer; o there has occurred a material adverse development in any existing action or proceeding that might impair our ability to proceed with the exchange offer or otherwise make it inadvisable to proceed with the exchange offer; o any stop order is threatened or in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indenture under the Trust Indenture Act of 1939; o all governmental approvals that we deem necessary for the consummation of the exchange offer have not been obtained; o there is a change in the current interpretation by the staff of the SEC which permits holders who have made the required representations to us to resell, offer for resale, or otherwise transfer exchange notes issued in the exchange offer without registration of the exchange notes and delivery of a prospectus; or o a material adverse change shall have occurred in our business, condition, operations or prospects. The foregoing conditions are for our sole benefit and may be asserted by us with respect to all or any portion of the exchange offer regardless of the circumstances (including any action or inaction by us) giving rise to such condition or may be waived by us in whole or in part at any time or from time to time in our sole discretion. The failure by us at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right, and each right will be deemed an ongoing right which may be asserted at any time or from time to time. In addition, we have reserved the right, notwithstanding the satisfaction of each of the foregoing conditions, to terminate or amend the exchange offer. Any determination by us concerning the fulfillment or non-fulfillment of any conditions will be final and binding upon all parties. EXCHANGE AGENT The Bank of New York has been appointed as the exchange agent for the exchange offer. Letters of transmittal must be addressed to the exchange agent at its address set forth on the back cover page of this prospectus. Delivery to an address other than as set forth herein, or transmissions of instructions via a facsimile or telex number other than the ones set forth herein, will not constitute a valid delivery. 32 SOLICITATION OF TENDERS; EXPENSES We have not retained any dealer-manager or similar agent in connection with the exchange offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse it for reasonable out-of-pocket expenses in connection therewith. We will also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding tenders for their customers. The expenses to be incurred in connection with the exchange offer, including the fees and expenses of the exchange agent and printing, accounting and legal fees, will be paid by us and are estimated at approximately $250,000. No dealer, salesperson or other individual has been authorized to give any information or to make any representations not contained in this prospectus in connection with the exchange offer. If given or made, such information or representations must not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in our affairs since the respective dates as of which information is given herein. The exchange offer is not being made to (nor will tenders be accepted from or on behalf of) holders of original notes in any jurisdiction in which the making of the exchange offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take such action as we may deem necessary to make the exchange offer in any such jurisdiction and extend the exchange offer to holders of original notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the exchange offer to be made by a licensed broker or dealer, the exchange offer is being made on behalf of us by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. APPRAISAL RIGHTS You will not have dissenters' rights or appraisal rights in connection with the exchange offer. FEDERAL INCOME TAX CONSEQUENCES The exchange of original notes for exchange notes by holders should not be a taxable exchange for federal income tax purposes, and holders should not recognize any taxable gain or loss or any interest income as a result of such exchange. See "Certain United States Federal Income Tax Considerations." OTHER Participation in the exchange offer is voluntary and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decisions on what action to take. As a result of the making of, and upon acceptance for exchange of all validly tendered original notes pursuant to the terms of this exchange offer, we will have fulfilled a covenant contained in the terms of the original notes and the registration rights agreement. Holders of the original notes who do not tender their original notes in the exchange offer will continue to hold such original notes and will be entitled to all the rights, and limitations applicable thereto, under the indenture, except for any such rights under the registration rights agreement which by their terms terminate or cease to have further effect as a result of the making of this exchange offer. See "Description of Notes." All untendered original notes will continue to be subject to the restriction on transfer set forth in the indenture. To the extent that original notes are tendered and accepted in the exchange offer, the trading market, if any, for the original notes could be adversely affected. See "Risk Factors -- Your ability to sell your original notes may be significantly more limited and the price at which you may be able to sell your original notes may be significantly lower if you do not exchange them for registered exchange notes in the exchange offer." We may in the future seek to acquire untendered original notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plan to acquire any original notes which are not tendered in the exchange offer. 33 CAPITALIZATION The following table sets forth our consolidated capitalization at September 30, 2002 and our pro forma consolidated capitalization at September 30, 2002 as if (a) all of the original notes had been issued on September 30, 2002, and (b) our $300 million loan to Northern Natural Gas and the subsequent repayment to us from the proceeds of its offering of $300 million of 5.375% Senior Notes due 2012 was completed on September 30, 2002. The table should be read in conjunction with our historical consolidated financial statements and the notes hereto appearing elsewhere in this prospectus.
SEPTEMBER 30, 2002 ------------------- PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA -------------- ------------------- -------------- (ALL DATA IN THOUSANDS) Indebtedness: Parent company short-term debt ...................... $ 167,000 $ (167,000) $ -- Subsidiary short-term debt .......................... 475,031 (450,000) 25,031 Parent company long-term debt (2) ................... 1,838,178 700,000(1) 2,538,178 Subsidiary long-term debt (3) (4) ................... 6,656,275 300,000 6,956,275 ----------- ------------ ----------- Total consolidated indebtedness ..................... 9,136,484 383,000 9,519,484 Parent company-obligated mandatorily redeemable preferred securities of subsidiary trusts held by Berkshire Hathaway ................................. 1,727,772 1,727,772 Parent company-obligated mandatorily redeemable preferred securities of subsidiary trusts held by others ............................................. 335,043 335,043 Preferred securities of subsidiaries ................ 93,619 93,619 Shareholders' equity: Zero-coupon convertible preferred stock--authorized 50,000 shares, no par value, 41,263 shares issued and outstanding .................................... -- -- Common stock--authorized 60,000 shares, no par value, 9,281 shares issued and outstanding ......... -- -- Additional paid-in capital .......................... 1,956,509 1,956,509 Retained earnings ................................... 510,766 510,766 Accumulated other comprehensive income .............. 24,240 24,420 ----------- ------------ ----------- Total shareholders' equity .......................... 2,491,515 2,491,515 ----------- ------------ ----------- Total capitalization ................................ $13,784,433 $ 383,000 $14,167,433 =========== ============ ===========
- ---------- (1) Represents the notes being registered hereby. (2) Includes approximately $215 million current portion of parent long-term debt. (3) Represents debt for which the repayment obligation is at our subsidiary level and that is non-recourse to us except as it relates to our guarantee of approximately $47 million of the Cordova Funding Corporation Senior Secured Bonds, our guarantee of approximately $139 million for the Salton Sea Funding Series F Bonds, our letters of credit of approximately $49 million for our geothermal facilities located on the island of Leyte in the Philippines, and our completion guarantee as it potentially relates to Kern River's $875 million construction loan facility, of which approximately $385 million was drawn as of September 30, 2002. (4) Includes approximately $268 million current portion of subsidiary long-term debt. 34 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following tables set forth selected historical consolidated financial and operating data, which should be read in conjunction with our financial statements and the related notes to those statements included in this prospectus and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus. The selected consolidated data as of and for each of the five years in the period ended December 31, 2001 have been derived from our audited historical consolidated financial statements. The selected consolidated data as of September 30, 2002 and for the nine months ended September 30, 2002 and 2001 have been derived from our unaudited historical consolidated financial statements and reflect all adjustments necessary in the opinion our management (consisting of normal recurring accruals) for a fair presentation of such data. All data (except for ratios) is presented in thousands.
MARCH 14, YEAR ENDED 2000 THROUGH DECEMBER 31, DECEMBER 31, 2001 (1) 2000 (2) ------------------ --------------- STATEMENT OF OPERATIONS DATA: Operating revenues ........................ $ 5,060,605 $ 4,147,867 Total revenue ............................. 5,336,804 4,242,749 Cost of sales and operating expenses ................................. 3,881,424 3,328,790 Depreciation and amortization ............. 538,702 383,351 Interest expense, net of capitalized interest ................................. 412,794 311,404 Provision for income taxes ................ 250,064 53,277 Minority interest ......................... 106,547 84,670 Income before extraordinary item and cumulative effect of change in accounting principle .................. 147,273 81,257 Extraordinary item, net of tax ............ -- -- Cumulative effect of change in accounting principle, net of tax ......... (4,604) -- Net income (loss) ......................... 142,669 (5) 81,257 OTHER FINANCIAL DATA: Capital expenditures ...................... $ 398,165 $ 301,948 Ratio of earnings to fixed charges (9) .............................. 1.8 1.3 Net cash flows from operating activities ............................... 846,998 246,407 Net cash flows from investing activities ............................... (238,544) (2,389,160) Net cash flows from financing activities ............................... (258,467) 1,878,849 EBITDA (10) ............................... 1,455,380 913,959 Adjusted EBITDA (10) ...................... 1,275,887 913,959 EBIT (11) ................................. 916,678 530,608 Adjusted EBIT (11) ........................ 737,185 530,608 OUR PREDECESSOR ------------------------------------------------------------------------- JANUARY 1, 2000 THROUGH MARCH 13, YEAR ENDED DECEMBER 31, 2000 1999 (3) 1998 (4) 1997 ----------------- ------------------ --------------- -------------------- STATEMENT OF OPERATIONS DATA: Operating revenues ........................ $1,087,125 $ 4,184,546 $ 2,555,206 $ 2,166,338 Total revenue ............................. 1,106,609 4,466,425 2,682,711 2,270,911 Cost of sales and operating expenses ................................. 824,742 3,201,084 1,729,944 1,453,733 Depreciation and amortization ............. 97,278 427,690 333,422 276,041 Interest expense, net of capitalized interest ................................. 85,814 426,173 347,292 251,305 Provision for income taxes ................ 31,008 93,475 93,265 99,044 Minority interest ......................... 8,850 46,923 41,276 45,993 Income before extraordinary item and cumulative effect of change in accounting principle .................. 51,312 216,671 137,512 51,823 Extraordinary item, net of tax ............ -- (49,441) (7,146) (135,850) Cumulative effect of change in accounting principle, net of tax ......... -- -- (3,363) -- Net income (loss) ......................... 51,312 (6) 167,230 (7) 127,003 (84,027) (8) OTHER FINANCIAL DATA: Capital expenditures ...................... $ 44,355 $ 360,898 $ 227,071 $ 194,224 Ratio of earnings to fixed charges (9) .............................. 1.7 1.6 1.5 1.5 Net cash flows from operating activities ............................... 171,083 554,959 361,546 336,548 Net cash flows from investing activities ............................... (54,874) (1,960,820) (1,007,780) (1,066,061) Net cash flows from financing activities ............................... (128,501) 115,875 797,338 1,741,906 EBITDA (10) ............................... 274,262 1,210,932 952,767 724,206 Adjusted EBITDA (10) ...................... 281,867 1,126,637 952,767 811,206 EBIT (11) ................................. 176,984 783,242 619,345 448,165 Adjusted EBIT (11) ........................ 184,589 698,947 619,345 535,165
35
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------- 2002 2001 -------------------- -------------------- STATEMENT OF OPERATIONS DATA: Operating revenues ...................................................... $ 3,404,533 $ 3,756,931 Total revenue ........................................................... 3,549,744 4,043,075 Cost of sales and operating expenses .................................... 2,232,151 2,854,940 Depreciation and amortization ........................................... 386,531 395,253 Interest expense, net of capitalized interest ........................... 438,870 290,153 Provision for income taxes .............................................. 80,226 296,088 Minority interest ....................................................... 105,166 79,952 Income before cumulative effect of change in accounting principle ....... 306,800 126,689 Cumulative effect of change in accounting principle, net of tax ......... -- (4,604) Net income .............................................................. 306,800 (12) 122,085 (13) OTHER FINANCIAL DATA: Capital expenditures .................................................... $ 778,750 $ 376,962 Ratio of earnings to fixed charges (9) .................................. 1.9 2.1 Net cash flows from operating activities ................................ 682,782 790,990 Net cash flows from investing activities ................................ (2,263,656) (48,697) Net cash flows from financing activities ................................ 1,814,900 (197,961) EBITDA (10) ............................................................. 1,317,593 1,188,135 Adjusted EBITDA (10) .................................................... 1,263,253 967,027 EBIT (11) ............................................................... 931,062 792,882 Adjusted EBIT (11) ...................................................... 876,722 571,774
AS OF SEPTEMBER 30, 2002 -------------------- BALANCE SHEET DATA: Property, plant, contracts and equipment, net ........................... $ 9,168,940 Total assets .............................. 16,984,050 Short-term debt ........................... 642,031 Parent company debt ....................... 1,623,178 Subsidiary and project debt ............... 6,388,169 Current portion of long-term debt ......... 483,106 Total liabilities ......................... 12,247,784 Parent company-obligated mandatorily redeemable preferred securities held by Berkshire Hathaway ................................. 1,727,772 Parent company-obligated mandatorily redeemable preferred securities held by others ................ 335,043 Total shareholders' equity ................ 2,491,515 OUR PREDECESSOR ----------------------------------------- AS OF DECEMBER 31, 2001 2000 1999 1998 1997 ------------- ------------- ------------- ------------- ------------- BALANCE SHEET DATA: Property, plant, contracts and equipment, net ........................... $ 6,527,448 $ 5,348,647 $ 5,463,329 $4,236,039 $3,528,910 Total assets .............................. 12,615,333 11,610,939 10,766,352 9,103,524 7,487,626 Short-term debt ........................... 256,012 261,656 379,523 -- -- Parent company debt ....................... 1,834,498 1,829,971 1,856,318 2,645,991 1,303,845 Subsidiary and project debt ............... 4,754,811 3,388,696 3,642,703 2,712,319 2,189,007 Current portion of long-term debt ......... 317,180 438,978 235,202 381,491 -- Total liabilities ......................... 9,767,438 8,911,349 8,978,924 7,598,040 5,282,162 Parent company-obligated mandatorily redeemable preferred securities held by Berkshire Hathaway ................................. 454,772 454,772 -- -- -- Parent company-obligated mandatorily redeemable preferred securities held by others ................ 333,379 331,751 450,000 553,930 553,930 Total shareholders' equity ................ 1,708,167 1,576,401 994,588 827,053 765,326
- ---------- (1) Reflects the acquisition of the Yorkshire Electricity electricity distribution business and the simultaneous sale of the Northern Electric electricity and gas supply business on September 21, 2001. (2) Reflects our acquisition by a private investor group on March 14, 2000. (3) Reflects our acquisition of MidAmerican Energy on March 12, 1999, our disposition of the Coso Joint Ventures on February 26, 1999, and our disposition of a 50% ownership interest in CE Gen on March 3, 1999. (4) Reflects the acquisition from Kiewit Diversified Group on January 2, 1998. (5) Includes $15.2 million of non-recurring net income related to the sale of the Northern Electric electricity and gas supply business, the sale of the Telephone Flat Project, the sale of Western States Geothermal, the transfer of Bali Energy Ltd. shares, and the TPL asset valuation impairment charge. 36 (6) Includes $7.6 million of net non-recurring expenses for the costs related to our acquisition by a private investor group on March 14, 2000. (7) Includes $81.5 million of non-recurring net income related to the settlement of political risk insurance proceeds related to our investment in Indonesia, gains on sales of shares of McLeodUSA, our disposition of the Coso Joint Ventures, our disposition of a 50% ownership interest of CE Gen, CE Electric UK restructuring charges and transaction costs related to our acquisition by a private investor group. (8) Includes an $87 million non-recurring Indonesia asset impairment charge. (9) For purposes of computing the ratio of earnings to fixed charges, earnings are divided by fixed charges. Earnings represent the aggregate of (a) our pre-tax income and (b) fixed charges, less capitalized interest. Fixed charges represent interest (whether expensed or capitalized), amortization of deferred financing and bank fees, and the estimated interest component of rentals. (10) EBITDA represents earnings before interest, taxes, depreciation, and amortization. Adjusted EBITDA represents EBITDA adjusted for non-recurring income and expense items as follows: (a) items discussed in (5), which are $179.4 million before tax; (b) item discussed in (6); (c) items discussed in (7), which are $84.3 million before tax; (d) item discussed in (8). (e) items discussed in (12), which are $54.3 million before tax; and (f) items discussed in (13), which are $221.1 million before tax. Information concerning EBITDA and adjusted EBITDA is presented not as a measure of operating results, but rather as a measure of our ability to service debt. EBITDA and adjusted EBITDA should not be construed as an alternative to either (a) operating income (determined in accordance with GAAP) or (b) cash flow from operating activities (determined in accordance with GAAP). Since EBITDA and adjusted EBITDA are not defined by GAAP, they may not be calculated on the same basis as similarly titled measures of other companies. (11) EBIT represents earnings before interest and taxes. Adjusted EBIT represents EBIT adjusted for non-recurring income and expense items. Information concerning EBIT and adjusted EBIT is presented not as a measure of operating results, but rather as a measure of our ability to service debt. EBIT and adjusted EBIT should not be construed as an alternative to either (a) operating income (determined in accordance with GAAP) or (b) cash flow from operating activities (determined in accordance with GAAP). Since EBIT and adjusted EBIT are not defined by GAAP, they may not be calculated on the same basis as similarly titled measures of other companies. (12) Includes $41.3 million of non-recurring net income related to the sale of assets by CE Gas Holdings. (13) Includes $13.7 million of non-recurring net income related to the sale of Western States Geothermal and the sale of Northern Supply. 37 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the financial condition and results of operations of MidAmerican Energy Holdings Company, or the Company, during the periods included in the accompanying statements of operations. This discussion should be read in conjunction with "Selected Consolidated Financial and Operating Data" and the Company's historical financial statements and the notes to those statements included elsewhere in this prospectus. As a result of the recent acquisitions of Northern Natural Gas and Kern River, the acquisition of the electricity distribution business of Yorkshire Electricity and the simultaneous sale of the electricity and gas supply business of Northern Electric to the former owner of Yorkshire Electricity, which together are referred to as the Northern Electric/Yorkshire Electricity swap, and the acquisition by a private investor group on March 14, 2000, the Company's future results will differ from the Company's historical results. GENERAL The Company is a United States-based privately owned global energy company with publicly held fixed income securities that generates, distributes and supplies energy to utilities, government entities, retail customers and other customers located throughout the world. Through the Company's subsidiaries, the Company's operations are organized and managed on seven distinct platforms: MidAmerican Energy, Northern Natural Gas, Kern River, CE Electric UK (which includes Northern Electric and Yorkshire Electricity), CalEnergy Generation-Domestic, CalEnergy Generation-Foreign and HomeServices. These platforms, with the exception of Northern Natural Gas and Kern River, are discussed in detail in the notes to the Company's financial statements included in this prospectus. NORTHERN NATURAL GAS COMPANY On August 16, 2002, the Company acquired all of the outstanding capital stock of Northern Natural Gas from Dynegy, Inc. and its affiliates for $899 million, net of cash acquired of $1.4 million, subject to adjustment for working capital. The Company used the proceeds from a $950 million investment in its subsidiary trust's preferred securities by Berkshire Hathaway to finance this acquisition. Northern Natural Gas owns a 16,600-mile interstate natural gas pipeline extending from southwest Texas to the upper Midwest region of the United States with a design capacity of 4.4 Bcf of natural gas per day. Northern Natural Gas also operates three natural gas storage facilities and two liquefied natural gas peaking units with a total storage capacity of 59 Bcf and peak delivery capability of over 1.3 Bcf of natural gas per day. Northern Natural Gas accesses natural gas supply from many of the larger producing regions in North America, including the Rocky Mountains, Hugoton, Permian, Anadarko and Western Canadian basins. The pipeline system provides transportation and storage services to utilities, municipalities, other pipeline companies, gas marketers and industrial and commercial users. KERN RIVER GAS TRANSMISSION COMPANY On March 27, 2002, the Company acquired Kern River from a subsidiary of The Williams Companies, Inc., or Williams. Kern River owns and operates a 926-mile interstate natural gas pipeline extending from Wyoming to markets in California, Nevada and Utah and accessing natural gas supply from large producing regions in the Rocky Mountains and Canada. The Company paid $420 million, net of cash acquired of $7.7 million, including transaction costs and working capital adjustments, for Kern River. At the time of the acquisition, Kern River had $505 million of indebtedness, the unamortized portion of which remains outstanding. The design capacity of the existing Kern River pipeline is 100% contracted through 2011 and 84% contracted through 2016. In connection with the Kern River acquisition, the Company issued $323 million of 11% mandatorily redeemable preferred securities of a subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005, and $127 million of no par, zero coupon convertible preferred stock to 38 Berkshire Hathaway. Each share of such preferred stock is convertible at the option of the holder into one share of Company common stock subject to certain adjustments as described in the Company's amended and restated articles of incorporation. CRITICAL ACCOUNTING POLICIES The preparation of financial statements and related documents in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the consolidated financial statements for the year ended December 31, 2001 included in this prospectus describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, the accounting for revenue, the effects of certain types of regulation, impairment of long-lived assets, and contingent liabilities. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements. REVENUE RECOGNITION Revenues are recorded based upon services rendered and electricity, gas and steam delivered, distributed or supplied to the end of the period. Where there is an over recovery of United Kingdom distribution business revenues against the maximum regulated amount, revenues are deferred in an amount equivalent to the over recovered amount. The deferred amount is deducted from revenue and included in other liabilities. Where there is an under recovery, no anticipation of any potential future recovery is made. MidAmerican Energy records unbilled revenues representing the estimated amounts customers will be billed for services rendered between the meter reading dates in a particular month and the end of that month. The unbilled revenues estimate is reversed in the following month. To the extent the estimated amount differs from that amount subsequently billed, the timing of revenues will be affected. Accrued unbilled revenues are included in accounts receivable on the consolidated balance sheets. Revenues from the transportation and storage of gas are recognized based on contractual terms and the related volumes. Northern Natural Gas and Kern River are subject to the FERC's regulations and, accordingly, certain revenues collected may be subject to possible refunds upon final orders in pending rate cases. Northern Natural Gas and Kern River record rate refund liabilities considering their regulatory proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks. SFAS NO. 71--ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION MidAmerican Energy, Kern River and Northern Natural Gas prepare their financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71, which differs in certain respects from the application of generally accepted accounting principles by non-regulated businesses. In general, SFAS No. 71 recognizes that accounting for rate-regulated enterprises should reflect the economic effects of regulation. As a result, a regulated utility is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, MidAmerican Energy, Kern River and Northern Natural Gas have deferred certain costs, which will be amortized over various future periods. To the extent that collection of such costs or payment of obligations is no longer probable as a result of changes in regulation, the associated regulatory asset or liability is charged or credited to income. A possible consequence of deregulation of the regulated energy industry is that SFAS No. 71 may no longer apply. If portions of the Company's subsidiaries' regulated energy operations no longer meet the criteria of SFAS No. 71, the Company could be required to write off the related regulatory assets and liabilities from its balance sheet, and thus a material adjustment to earnings in that period could result if regulatory assets are not recovered in transition provisions of any deregulation legislation. 39 The Company continues to evaluate the applicability of SFAS No. 71 to its regulated energy operations and the recoverability of these assets and liabilities through rates as there are on-going changes in the regulatory and economic environment. IMPAIRMENT OF LONG-LIVED ASSETS The Company's long-lived assets consist primarily of property, plant and equipment, goodwill and intangible assets that were acquired in business acquisitions. The Company believes the useful lives assigned to the depreciable assets, which generally range from 1 to 87 years, are reasonable. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Triggering events include a significant change in the extent or manner in which long-lived assets are being used or in their physical condition, in legal factors, or in the business climate that could affect the value of the long-lived assets, including changes in regulation. The interpretation of such events requires judgment from management as to whether such an event has occurred and is required. If an event occurs that could affect the carrying value of the asset and management does not identify it as triggering event, future results of operations could be significantly affected. Upon the occurrence of a triggering event, the carrying amount of a long-lived asset is reviewed to assess whether the recoverable amount has declined below its carrying amount. The recoverable amount is the estimated net future cash flows that the Company expects to recover from the future use of the asset, undiscounted and without interest, plus the asset's residual value on disposal. Where the recoverable amount of the long-lived asset is less than the carrying value, an impairment loss would be recognized to write down the asset to its fair value which is based on discounted estimated cash flows from the future use of the asset. The estimate of cash flows arising from future use of the asset that are used in the impairment analysis requires judgment regarding what the Company would expect to recover from future use of the asset. Any changes in the estimates of cash flows arising from future use of the asset or the residual value of the asset on disposal based on changes in the market conditions, changes in the use of the asset, management's plans, the determination of the useful life of the asset and technology changes in the industry could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss, which could significantly affect the results of operations. Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that amortization of goodwill and indefinite-lived intangible assets be discontinued and that these assets be tested for impairment annually. During the second quarter of 2002, the Company completed its initial impairment testing of goodwill primarily using a discounted cash flow methodology. No impairment was indicated as a result of the initial testing. CONTINGENT LIABILITIES The Company establishes reserves for estimated loss contingencies when it is management's assessment that a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Reserves for contingent liabilities are based upon management's assumptions and estimates, and advice of legal counsel or other third parties regarding the probable outcomes of any matters. Should the outcomes differ from the assumptions and estimates, revisions to the estimated reserves for contingent liabilities would be required. RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 Operating revenue for the three months ended September 30, 2002, was $1,238.5 million compared with $1,076.8 million for the same period in 2001, an increase of 15.0%. MidAmerican Energy operating 40 revenue increased for the three months ended September 30, 2002, to $538.7 million from $507.7 million for the same period in 2001, primarily due to higher volumes for regulated electricity. CE Electric UK Funding operating revenue decreased for the three months ended September 30, 2002, to $193.4 million from $316.3 million for the same period in 2001, primarily due to the sale of Northern Supply in September 2001 of $209 million, partially offset by Yorkshire Electricity distribution revenue of $103 million. The remaining change in operating revenue primarily relates to (1) the increase of revenue at HomeServices of $147.6 million primarily due to acquisitions in 2002 and late 2001, (2) the acquisition of Kern River in March 2002, which accounted for $39.9 million of operating revenue and (3) the acquisition of Northern Natural Gas in August 2002, which accounted for $39.1 million of operating revenue. Operating revenue for the nine months ended September 30, 2002, was $3,404.5 million compared with $3,756.9 million for the same period in 2001, a decrease of 9.4%. MidAmerican Energy operating revenue decreased for the nine months ended September 30, 2002, to $1,582.6 million from $1,897.8 million for the same period in 2001, primarily due to lower volumes and rates for regulated and non-regulated gas. CE Electric UK Funding operating revenues decreased for the nine months ended September 30, 2002, to $597.0 million from $1,222.3 million for the same period in 2001, primarily due to the sale of Northern Supply in September 2001 of $889 million, partially offset by Yorkshire Electricity distribution revenue of $276 million. The remaining change in operating revenue primarily relates to (1) the increase of revenue at HomeServices of $382.5 million primarily due to acquisitions in 2002 and late 2001, (2) the acquisition of Kern River in March 2002, which accounted for $87.0 million of operating revenue and (3) the acquisition of Northern Natural Gas in August 2002, which accounted for $39.1 million of operating revenue. The following data represents sales from MidAmerican Energy:
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 2002 2001 2002 2001 ---- ---- ---- ---- Electricity Retail Sales (GWh) ............. 4,987 4,679 13,254 12,502 Electricity Sales for Resale (GWh) ......... 2,506 1,772 7,485 6,341 Regulated and Non-Regulated Gas Supplied (Thousands of MMBtus) ........... 38,936 53,605 169,200 198,789
MidAmerican Energy's electric retail sales and electric sales for resale increased for three months ended September 30, 2002, from the same period in 2001 due to higher temperatures in the third quarter of 2002. Retail gas supplied decreased due to decreased non-regulated activity for the three months ended September 30, 2002, compared to the same period in 2001. MidAmerican Energy electric retail sales increased for the nine months ended September 30, 2002 from the same period in 2001 due primarily to higher temperatures in 2002, primarily in the third quarter of 2002. Electric sales for resale increased for the nine months ended September 30, 2002 from the same period in 2001 due to availability of Cordova Energy Company LLC, or Cordova Energy, an indirect wholly owned subsidiary of the Company, and lower retail usage in the first quarter of 2002, allowing for more energy to be sold in the wholesale markets. Regulated and non-regulated gas supplied decreased due to colder temperatures during the first quarter of 2001 and decreased non-regulated activity. CE Electric UK Funding distributed 9,473 GWh of electricity in the three months ended September 30, 2002, compared with 4,457 GWh of electricity in the same period in 2001. CE Electric UK Funding distributed 30,252 GWh of electricity in the nine months ended September 30, 2002, compared with 13,016 GWh of electricity in the same period in 2001. The increase in electricity distributed for both periods ended September 30, 2002, is primarily due to the acquisition of Yorkshire Electricity distribution. Kern River transported 90,532,000 MMBtus in the three months ended September 30, 2002, and 190,195,000 MMBtus since the Company acquired Kern River on March 27, 2002. 41 Northern Natural Gas transported 121,028,500 MMBtus since the Company acquired Northern Natural Gas on August 16, 2002. Income on equity investments for the three months ended September 30, 2002, was $10.9 million compared with $6.3 million for the same period in 2001. The increase was primarily due to higher earnings at CE Gen as a result of higher energy prices in 2002 and the allowance for doubtful accounts accrual in 2001, and income from a HomeServices' joint venture which was fully consolidated in 2001, partially offset by lower equity earnings due to impairment of alternative energy project funds in 2002. Income on equity investments for the nine months ended September 30, 2002, was $29.9 million compared with $23.6 million for the same period in 2001. The increase was primarily due to income from a HomeServices' joint venture that was fully consolidated in 2001. Interest and other income for the three months ended September 30, 2002, was $32.7 million compared with $223.9 million for the same period in 2001. The decrease was primarily due to the $200.3 million gain on the sale of Northern Supply in September 2001. Interest and other income for the nine months ended September 30, 2002, was $115.3 million compared with $262.5 million for the same period in 2001. The decrease was primarily due to the gain on sale of Northern Supply in September 2001, partially offset by the $54.3 million gain on the sale of various CE Gas Holdings assets in May 2002. Cost of sales for the three months ended September 30, 2002, was $443.1 million compared with $473.0 million for the same period in 2001, a decrease of 6.3%. Cost of sales for the nine months ended September 30, 2002, was $1,283.2 million compared with $2,010.2 million for the same period in 2001, a decrease of 36.2%. The decreases for both periods relates primarily to the sale of Northern Supply and decreased gas revenue at MidAmerican Energy, partially offset by increase cost of sales at HomeServices due to higher commission on the higher revenues as a result of acquisitions. Operating expenses for the three months ended September 30, 2002, were $343.3 million compared with $293.9 million for the same period in 2001. The increase was primarily due to higher costs at HomeServices of $32.3 million as a result of acquisitions and operating expenses due to the acquisition of Northern Natural Gas of $26.6 million, partially offset by lower costs at MidAmerican Energy of $23.4 million due to the restructuring of the Cooper Nuclear Station contract with the Nebraska Public Power District, or NPPD, and lower energy efficiency expenses. Operating expenses for the nine months ended September 30, 2002, were $948.9 million compared with $844.8 million for the same period in 2001. The increase was primarily due to higher costs at HomeServices of $77.5 million as a result of acquisitions and operating expenses due to the acquisitions of Northern Natural Gas of $26.6 million and Kern River of $18.2 million, partially offset by lower costs at MidAmerican Energy of $22.0 million due to the restructuring of the Cooper Nuclear Station contract and lower energy efficiency expenses. Depreciation and amortization for the three months ended September 30, 2002, was $129.4 million compared with $122.7 million for the same period in 2001. The increase was primarily due to higher depreciation at MidAmerican Energy of $12.5 million primarily due to higher Iowa revenue sharing accruals, the commencement of commercial operation at CE Casecnan of $5.8 million, and depreciation expense due to the acquisitions of Northern Natural Gas of $5.8 million and Kern River of $4.9 million, partially offset by the discontinuance of amortizing goodwill beginning January 1, 2002 of $24.8 million. Depreciation and amortization for the nine months ended September 30, 2002, was $386.5 million compared with $395.3 million for the same period in 2001. The decrease was primarily due to discontinuance of amortizing goodwill beginning January 1, 2002 of $74.7 million, partially offset by the commencement of commercial operations at CE Casecnan of $17.6 million, higher depreciation at MidAmerican Energy of $17.3 million primarily due to higher Iowa revenue sharing accruals, depreciation expense due to the acquisitions of Kern River of $12.2 million and Northern Natural Gas of $5.8 million and increased amortization at HomeServices of $8.9 million due to intangible assets amortization related to acquisitions. 42 Interest expense, less amounts capitalized, for the three months ended September 30, 2002, was $159.3 million compared with $99.9 million for the same period in 2001, an increase of 59.5%. The increase was due primarily to the increase of interest expense at CE Electric UK Funding of $24.4 million predominantly due to the debt related to the Yorkshire Electricity acquisition, the discontinuance of capitalizing interest related to the Casecnan Project of $13.0 million, and interest expense due to the acquisitions of Kern River and Northern Natural Gas of $12.9 million and $8.1 million, respectively. Interest expense, less amounts capitalized, for the nine months ended September 30, 2002, was $438.9 million compared with $290.2 million for the same period in 2001, an increase of 51.2%. The increase was primarily due to the increase of interest expense at CE Electric UK Funding of $68.4 million predominantly due to the debt related to the Yorkshire Electricity acquisition, the discontinuance of capitalizing interest related to the Casecnan Project and the Cordova Project of $37.7 million and $9.7 million, respectively, and interest expense due to debt related to the acquisitions of Kern River and Northern Natural Gas of $22.4 million and $8.1 million, respectively. Tax expense for the three months ended September 30, 2002, was $26.8 million compared with $241.9 million for the same period in 2001. The decrease is due primarily to the tax expense of $199.9 million related to the sale of the Northern Supply business in September 2001 and the recognition of a tax benefit of $21.1 million in connection with the sale of the CE Gas Holdings assets in May 2002. Tax expense for the nine months ended September 30, 2002, was $80.2 million compared to $296.1 million for the same period in 2001. The decrease is due primarily to the tax expense related to the sale of the Northern Supply business in September 2001, the release of the tax obligation of $35.7 million in connection with the execution of the TPL restructuring agreement in the U.K., and the recognition of a tax benefit in connection with the sale of the CE Gas Holdings assets in 2002. Minority interest for the three months ended September 30, 2002, was $45.3 million compared with $27.8 million for the same period in 2001. Minority interest for the nine months ended September 30, 2002, was $105.2 million compared with $80.0 million for the same periods in 2001. Minority interest includes the dividends on the Company-obligated mandatorily redeemable preferred securities of subsidiary trusts. The increases in minority interest for both periods is primarily due to the issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts relating to the Kern River and Northern Natural Gas acquisitions. Effective January 1, 2001, the Company changed its accounting policy regarding major maintenance and repairs for nonregulated gas projects, nonregulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of monthly accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle for 2001 was $4.6 million, net of taxes of $0.7 million. RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 AND THE PERIODS MARCH 14, 2000 THROUGH DECEMBER 31, 2000, AND JANUARY 1, 2000 THROUGH MARCH 13, 2000 The following is a discussion of the historical results of the Company for the year ended December 31, 2001 and the period March 14, 2000 through December 31, 2000, and of the Company's predecessor, MEHC (Predecessor), for the period January 1, 2000 through March 13, 2000. Results for the Company include the impact of the Company's acquisition by a private investor group beginning March 14, 2000 which are predominately the minority interest costs on issuance of Company-obligated mandatorily redeemable preferred securities of a subsidiary trust and the effects of purchase accounting, including goodwill amortization and fair value adjustments to the carrying value of assets and liabilities. In order to provide comparability between periods, the Company has prepared pro forma results as if the Company's acquisition by a private investor group had occurred at the beginning of each year after giving effect to pro forma adjustments related to the acquisition, including the issuance of the 11% trust preferred securities. The discussion therefore will highlight any significant variances on a pro forma basis from the year ended December 31, 2000 to the year ended December 31, 2001. 43 Pro forma operating revenue for the year ended December 31, 2001 was $5,060.6 million compared with $5,235.0 million for the same period in 2000, a decrease of 3.3%. MidAmerican Energy operating revenue increased for the year ended December 31, 2001 to $2,752.5 million from $2,576.9 million for the same period in 2000, primarily due to increases in volumes of non-regulated gas sold and increases in volumes and prices on off-system electricity sales. CE Electric UK operating revenue decreased for the year ended December 31, 2001 to $1,444.0 million from $1,997.9 million for the same period in 2000, primarily due to the Northern Electric/Yorkshire Electricity swap and changes in foreign exchange rates. The supply business that was sold is generally a high volume business that tends to operate at lower profitability levels than the distribution business. The remaining increase primarily relates to the increase of revenue at HomeServices due to acquisitions and the inclusion of a joint venture which was previously accounted for as an equity investment and the commencement of operations of the Cordova project in June 2001. The following data represents sales from MidAmerican Energy:
YEAR ENDED DECEMBER 31, --------------------- 2001 2000 --------- --------- Electricity Retail Sales (GWh) ............ 17,207 16,715 Electricity Wholesale Sales (GWh) ......... 7,755 6,941 Regulated and Non-Regulated Gas Supplied (Thousands of MMBtus) .................... 264,338 174,385
MidAmerican Energy electric retail sales increased for the year ended December 31, 2001 from the same period in 2000 due to the more extreme temperatures substantially offset by a decrease in non-weather related sales. Electric wholesale sales increased for the year ended December 31, 2001 from the same period in 2000 due to higher production at the Cooper and Neal power plants and favorable market conditions. Regulated and non-regulated gas supplied increased due principally to growth in the non-regulated markets for the year ended December 31, 2001 compared to the same period in 2000. The following data represents the supply and distribution operations in the United Kingdom:
YEAR ENDED DECEMBER 31, ------------------ 2001 2000 -------- ------- Electricity Supplied (GWh) ................. 12,745 19,925 Gas Supplied (Thousands of MMBtus) ......... 40,738 51,035 Electricity Distributed (GWh) .............. 23,770 16,350
The decrease in electricity and gas supplied for the year ended December 31, 2001 is due to the sale of Northern Electric's electricity and gas supply business in September 2001. The increase in electricity distributed for the year ended December 31, 2001 was due to the addition of Yorkshire Electricity and changes in demand in the distribution area. Pro forma interest and other income for the year ended December 31, 2001 was $96.7 million compared with $114.4 million for the same period in 2000. The decrease was due primarily to reduced interest income and lower income from equity investments. The non-recurring gains in 2001 are comprised mainly of the pre-tax gain on the sale of Northern Electric's electricity and gas supply business of $196.7 million, the loss on the impairment of TPL of $58.8 million, the gain on the sale of Telephone Flat, a geothermal development project, of $20.7 million, the gain on the transfer of shares of Bali, an indirect wholly owned subsidiary of the Company, of $10.4 million, and the gain on the sale of Western States Geothermal Company, an indirect wholly owned subsidiary of the Company, of $9.8 million. The after-tax gains and (losses) for the sale of Northern Electric's electricity and gas supply business, the TPL impairment, the Telephone Flat sale, the transfer of the Bali shares, and the Western States Geothermal sale were $10.8 million, ($20.7) million, $12.2 million, $6.5 million and $6.4 million, respectively. 44 Pro forma cost of sales for the year ended December 31, 2001 was $2,705.0 million compared with $3,029.7 million for the same period in 2000, a decrease of 10.7%. The decrease relates primarily to decreased cost of sales at CE Electric UK due to the sale of Northern Electric's electricity and gas supply business, lower foreign exchange rates and lower electricity volumes and prices, partially offset by increased volumes and prices for both regulated and non-regulated gas at MidAmerican Energy, and acquisitions at HomeServices. Pro forma operating expenses for the year ended December 31, 2001 were $1,176.4 million compared with $1,123.6 million for the same period in 2000. The increase was primarily due to higher costs at HomeServices due to acquisitions and the inclusion of a joint venture which was previously accounted for as an equity investment and higher costs at MidAmerican Energy due to costs related to Cooper Nuclear Station, accounts receivable discounts and bad debts, partially offset by lower costs at CE Electric UK due to the sale of Northern Electric's electricity and gas supply business, lower pension costs and a lower exchange rate, partially offset by the addition of Yorkshire Electricity. Pro forma depreciation and amortization for the year ended December 31, 2001 was $538.7 million compared with $479.6 million for the same period in 2000. This increase was due to higher depreciation at MidAmerican Energy due to inclusion of an Iowa revenue sharing accrual and an increase in depreciation rates implemented in 2001 and amortization of intangible assets related to the HomeServices acquisitions, partially offset by lower depreciation at CE Electric UK due to lower amortization of operational assets and a lower exchange rate, partially offset by the addition of Yorkshire Electricity. Pro forma interest expense, less amounts capitalized, for the year ended December 31, 2001 was $412.8 million compared with $398.1 million for the same period in 2000, an increase of 3.7%. This increase is due to increased interest expense associated with the debt acquired with Yorkshire Electricity and lower capitalized interest on the mineral extraction process, partially offset by lower average outstanding debt balances and lower foreign exchange rates at Northern Electric. The loss on non-recurring items of $7.6 million in the period from January 1, 2000 through March 13, 2000 represents the costs incurred related to the Company's acquisition by a private investor group. Pro forma tax expense for the year ended December 31, 2001 was $250.1 million compared with $81.6 million for the same period in 2000. The increase is due primarily to the tax on the gain related to the sale of Northern Electric's electricity and gas supply business and higher pre-tax income. Pro forma minority interest for the year ended December 31, 2001 was $106.5 million compared with $104.3 million for the same period in 2000. The increase is primarily due to increased minority interest at HomeServices. The cumulative effect of change in accounting principle of $4.6 million in 2001 represents the change in accounting for major maintenance and overhauls. Pro forma net income for the year ended December 31, 2001 was $142.7 million compared with $124.9 million for the same period in 2000. RESULTS OF OPERATIONS FOR THE PERIODS MARCH 14, 2000 THROUGH DECEMBER 31, 2000, JANUARY 1, 2000 THROUGH MARCH 13, 2000 AND FOR THE YEAR ENDED DECEMBER 31, 1999 The following is a discussion of the historical results of the Company for the period March 14, 2000 through December 31, 2000, and of MEHC (Predecessor) for the period January 1, 2000 through March 13, 2000, and for the year ended December 31, 1999. Results for the Company include the results of MEHC (Predecessor) beginning March 14, 2000, in conjunction with the Company's acquisition by a private investor group. The impact of the transaction is reflected in the Company's results of operations, predominately minority interest costs on issuance of Company-obligated mandatorily redeemable preferred securities of a subsidiary trust and the effects of purchase accounting, including goodwill amortization and fair value adjustments to the carrying value of assets and liabilities. In order to provide comparability between periods, the Company has prepared pro forma results as if the Company's acquisition by a private investor group and the MidAmerican Energy acquisition had occurred at the 45 beginning of each year after giving effect to pro forma adjustments related to the acquisitions, including the sales of the qualified facilities, the redemption of limited recourse notes, the redemption of the senior discount notes and the issuance of the 11% trust preferred securities. The discussion therefore will highlight any significant variances on a pro forma basis from the year ended December 31, 1999 to the year ended December 31, 2000. Pro forma operating revenue for the year ended December 31, 2000 was $5,235.0 million compared with $4,572.8 million for the same period in 1999, an increase of 14.5%. MidAmerican Energy operating revenue increased for the year ended December 31, 2000 to $2,576.9 million from $1,871.9 million for the same period in 1999, primarily due to increases in non-regulated gas sales and higher prices in regulated gas. CE Electric UK operating revenue decreased for the year ended December 31, 2000 to $1,997.9 million from $2,072.2 million for the same period in 1999, primarily due to lower volumes of electricity supplied in the franchise area and lower foreign exchange rates partially offset by higher volumes of electricity supplied out of the franchise area and distribution revenue from access charges. The remaining increase primarily related to the increase of revenue at HomeServices due to acquisitions in late 1999. The following data represents sales from MidAmerican Energy:
YEAR ENDED DECEMBER 31, --------------------- 2000 1999 --------- --------- Electricity Retail Sales (GWh) ............ 16,715 16,007 Electricity Wholesale Sales (GWh) ......... 6,941 7,168 Regulated and Non-Regulated Gas Supplied (Thousands of MMBtus) .................... 174,385 138,387
MidAmerican Energy electricity retail sales increased for the year ended December 31, 2000 from the same period in 1999 due to increased customers and non-weather related sales partially offset by more moderate temperatures. Electricity wholesale sales decreased for the year ended December 31, 2000 from the same period in 1999 due to a lower power plant output primarily from the Cooper Nuclear Station which results in lower energy available for resale. Gas supplied increased due to an increase in customers, an increase in heating degree days and an increase in trading activity of non-regulated sales. The following data represents the supply and distribution operations in the United Kingdom:
YEAR ENDED DECEMBER 31, ------------------ 2000 1999 -------- ------- Electricity Supplied (GWh) ................. 19,925 17,984 Electricity Distributed (GWh) .............. 16,350 15,943 Gas Supplied (Thousands of MMBtus) ......... 51,035 48,435
The increase in electricity supplied for the year ended December 31, 2000 was due primarily to the increase in volumes for customers outside of the franchise area. The increase in electricity distributed for the year ended December 31, 2000 was due to changes in demand in the franchise area. The increase in gas supplied in 2000 from 1999 reflected higher volume in the industrial and commercial markets. Pro forma interest and other income for the year ended December 31, 2000 was $114.4 million compared with $145.4 million for the same period in 1999. The decrease was due primarily to the reduced interest income resulting from lower cash balances, lower dividends from TPL and gains on other asset sales in 1999, partially offset by proceeds of Company-owned life insurance of $7.5 million received in 2000. The 1999 gain on non-recurring items resulted from the sale of approximately 6.74 million shares of McLeodUSA Class A common stock, through a secondary offering by McLeodUSA, at $55.625 per share. Proceeds from the sale exceeded $375 million, with a resulting after-tax gain to the Company of approximately $47.1 million. 46 As a result of the sales of the Coso Joint Ventures geothermal projects previously owned by the Company, and an interest in CE Gen, the Company recorded a gain of $20.2 million in the first quarter of 1999. In the fourth quarter of 1999, the Company recorded a pre-tax gain of $40.3 million relating to insurance proceeds received from an arbitration settlement between Himpurna California Energy Ltd. and Patuha Power Ltd., former subsidiaries of the Company, and P.T. PLN (Persero), an Indonesian national electric utility. Pro forma cost of sales for the year ended December 31, 2000 was $3,029.7 million compared with $2,398.6 million for the same period in 1999, an increase of 26.3%. The increase related to increased sales at MidAmerican Energy and HomeServices. Pro forma operating expense for the year ended December 31, 2000 was $1,123.6 million compared with $1,115.8 million for the same period in 1999. The increase primarily relates to the increase of operating expenses at HomeServices due to acquisitions in late 1999. Pro forma depreciation and amortization for the year ended December 31, 2000 was $479.6 million compared with $462.0 million for the same period in 1999. The increase was primarily due to higher depreciation at CE Electric UK primarily due to higher production at CE Gas Holdings, the Company's United Kingdom gas exploration subsidiary. Pro forma interest expense, less amounts capitalized, for the year ended December 31, 2000 was $398.1 million compared with $447.0 million for the same period in 1999, a decrease of 10.9%. This decrease was due to the repayment of the 9.5% Senior Notes in 1999 and other reduced indebtedness and an increase in capitalized interest related to the construction of the Casecnan, Cordova and Zinc projects. The loss on non-recurring items of $7.6 million in the period from January 1, 2000 through March 13, 2000 represents the costs related to the Company's acquisition by a private investor group. Pro forma tax expense for the year ended December 31, 2000 was $81.6 million compared with $89.4 million for the same period in 1999. The decrease was due primarily to lower pretax income in 2000. Pro forma minority interest for the year ended December 31, 2000 was $104.3 million compared with $101.9 million for the same period in 1999. Minority interest included the dividends on the $455 million of Company-obligated mandatorily redeemable preferred securities of subsidiary trusts. Pro forma net income for the year ended December 31, 2000 was $124.9 million compared with $138.3 million for the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES The Company has available a variety of sources of liquidity and capital resources, both internal and external. These resources provide funds required for current operations, construction expenditures, debt retirement and other capital requirements. The Company may from time to time seek to retire its outstanding debt through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. The Company's cash and cash equivalents were $662 million at September 30, 2002, compared to $387 million at December 31, 2001. Each of the Company's direct or indirect subsidiaries is organized as a legal entity separate and apart from the Company and its other subsidiaries. Pursuant to separate financing agreements at each subsidiary, the assets of each subsidiary may be pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any subsidiary of the Company will be available to satisfy the obligations of the Company or any of its other subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements for such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to the Company or affiliates thereof. 47 The Company generated cash flows from operations of $683 million for the nine months ended September 30, 2002, compared with $791 million for the same period in 2001. The decrease was primarily due to timing of changes in working capital activities, partially offset by positive impacts of the Kern River and real estate companies acquisitions. The remaining increase to cash and cash equivalents is primarily due to the issuances of convertible preferred stock, trust preferred securities and subsidiary and project debt and cash proceeds from sale of assets, partially offset by the Kern River and Northern Natural Gas acquisitions, purchase of convertible preferred securities, repayment of subsidiary and project debt and capital expenditures for operating and construction projects. In addition, the Company recorded separately restricted cash and investments of $63.9 million and $54.8 million at September 30, 2002, and December 31, 2001, respectively. The restricted cash balance as of September 30, 2002, is comprised primarily of amounts deposited in restricted accounts which is reserved for the service of debt obligations. OTHER INVESTMENTS On March 27, 2002, a newly formed subsidiary of the Company invested $275 million in Williams in exchange for shares of 9 7/8% cumulative convertible preferred stock of Williams. In connection with this investment, the Company issued $275 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway. Dividends on the Williams' preferred stock are scheduled to be received quarterly, and commenced on July 1, 2002. This investment is accounted for under the cost method. The Company is aware that there have been public announcements that Williams' financial condition has deteriorated as a result of, among other factors, reduced liquidity. The Company had not recorded an impairment on this investment as of September 30, 2002, and is monitoring the situation. DEBT ISSUANCES AND REDEMPTIONS On February 8, 2002, MidAmerican Energy issued $400 million of 6.75% medium-term notes due in 2031. The proceeds were used to refinance existing debt and preferred securities and for other corporate purposes. On March 11, 2002, MidAmerican Energy redeemed all $100 million of its 7.98% MidAmerican Energy-obligated preferred securities of a subsidiary trust at 100% of the principal amount plus accrued interest. On May 1, 2002, MidAmerican Energy reacquired all $26.7 million of its $7.80 series of preferred securities. Of this amount, $13.3 million of preferred securities were redeemed at 100% of the principal amount plus accrued dividends, and the remaining $13.4 million was redeemed at 103.9% of the principal amount plus accrued dividends. On June 21, 2002, Kern River closed on a bank loan facility providing for aggregate loans of up to $875 million to be used for the construction of the Kern River 2003 Expansion Project. The facility, which matures 15 years after the 2003 Expansion Project commences operation, has a variable interest rate which increases over the term of the facility from 1.375% to 4.5% over LIBOR. Kern River had drawn $385 million on this facility as of September 30, 2002. In connection with this facility, the Company guaranteed the completion of the 2003 Expansion Project as described below in "Kern River's 2003 Expansion Project Financing." On March 1, 2001, MidAmerican Funding, LLC retired $200 million of 5.85% senior secured notes due 2001. On March 19, 2001, MidAmerican Funding, LLC issued $200 million of 6.75% senior secured notes due March 1, 2011. YORKSHIRE ELECTRICITY In August 2002, CE Electric UK Funding acquired the remaining 5.25% of Yorkshire Electricity that it did not already own from Xcel Energy International, an affiliate of Xcel Energy Inc., for $33.3 million. 48 REAL ESTATE COMPANIES 2002 ACQUISITIONS In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $100.0 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356.0 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $18.5 million calculated based on 2002 financial performance measures. These purchases were financed using HomeServices' $65.0 million revolving credit facility and the Company's corporate revolver for $40.0 million, which was contributed to HomeServices as equity. The Company is in the process of completing the allocation of the purchase prices to the assets and liabilities acquired. CALENERGY GAS HOLDING DISPOSAL In May 2002, CE Gas Holdings, an indirect wholly owned subsidiary of the Company, completed the sale of several of its U.K. natural gas assets to Gaz de France for (pounds sterling)137.0 million (approximately $200.0 million). CE Gas Holdings sold four natural gas-producing fields located in the southern basin of the U.K. North Sea including Anglia, Johnston, Schooner and Windermere. The transaction also included the sale of rights in four gas fields in development and construction and three exploration blocks owned by CE Gas Holdings. ACCOUNTS RECEIVABLE SOLD In 1997, MidAmerican Energy entered into a revolving agreement, which expired on October 29, 2002, to sell all of its right, title and interest in the majority of its billed accounts receivable to MidAmerican Energy Funding Corporation, a special purpose entity established to purchase accounts receivable from MidAmerican Energy. MidAmerican Energy Funding Corporation in turn sold receivable interests to outside investors. In consideration for the sale, MidAmerican Energy received cash and a subordinated note, bearing interest at 8%, from MidAmerican Energy Funding Corporation. As of September 30, 2002, the revolving cash balance was $36.0 million and the amount outstanding under the subordinated note was $89.2 million. The agreement was structured as a true sale, under which the creditors of MidAmerican Energy Funding Corporation were entitled to be satisfied out of the assets of MidAmerican Energy Funding Corporation prior to any value being returned to MidAmerican Energy or its creditors. Therefore, the accounts receivable sold are not reflected on the Company's consolidated balance sheets. As of September 30, 2002, $126.0 million of accounts receivable, net of reserves, were sold under the agreement. MidAmerican Energy did not extend or replace this agreement. CONSTRUCTION MIDAMERICAN ENERGY MidAmerican Energy's primary need for capital is for utility construction expenditures. For the first nine months of 2002, utility construction expenditures totaled $228.8 million, including allowance for funds used during construction, or capitalized financing costs, and Quad Cities Station nuclear fuel purchases. All such expenditures were met with cash generated from utility operations. Forecasted MidAmerican Energy utility construction expenditures, including allowances for funds used during construction are $382.0 million for 2002 and $1.614 billion for 2003 through 2006. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of such reviews. MidAmerican Energy has announced plans to construct an electric generating plant, the Greater Des Moines Energy Center, in Iowa. The plant will provide service to regulated retail electricity customers and be included in MidAmerican Energy's regulated rate base in Iowa, Illinois and South Dakota. Wholesale sales may also be made from the plant to the extent the power is not needed for regulated retail service. The plant will be a 540 MW (500 MW based on expected accreditation) natural gas-fired plant with an estimated cost of $415.0 million. MidAmerican Energy will own 100% of the plant and will operate it. The 49 plant will be operated in simple cycle mode during 2003 and 2004, with combined cycle operation commencing in 2005. MidAmerican Energy commenced construction of the plant in 2002 following receipt of two orders from the IUB. The first order authorized construction of the plant. The second order, issued May 29, 2002, specified the principles that will apply to the plant over its life for purposes of Iowa ratemaking and was sought by MidAmerican Energy to limit regulatory risk. MidAmerican Energy presently expects that all utility construction expenditures through 2007 will be met with the issuance of long-term debt and cash generated from utility operations, net of dividends. The actual level of cash generated from utility operations is affected by, among other things, economic conditions in the utility service territory, weather and federal and state legislation and regulatory actions. KERN RIVER'S 2003 EXPANSION PROJECT FINANCING On July 17, 2002, Kern River received approval from the FERC to construct, own and operate the 2003 Expansion Project. The 2003 Expansion Project will loop most of Kern River's existing mainline, construct three new compressor stations and upgrade or modify Kern River's six existing compressor stations. The 2003 Expansion Project, which is expected to be completed and operational by May 2003, will increase Kern River's capacity by approximately 900mmcf/day. Service will be provided under long-term contracts subject to incremental rates. The estimated cost of the expansion is approximately $1.2 billion, which will be financed with 70% debt and 30% equity, consistent with Kern River's existing capital structure, the application for the FERC approval described above and the limitations contained in the indenture for Kern River's existing secured senior notes. Construction will initially be funded with the proceeds of an $875.0 million credit facility entered into by Kern River on June 21, 2002, until 70% of the projected capitalized costs of the 2003 Expansion Project has been spent. The final 30% of the capitalized costs of the 2003 Expansion Project will be funded with equity from the Company. The credit facility is structured as a two-year construction facility followed by a term loan with a final maturity 15 years after completion of the 2003 Expansion Project. However, Kern River presently intends to refinance the credit facility through a bond offering or other capital markets transaction following completion of the 2003 Expansion Project. Prior to completion of the 2003 Expansion Project, the credit facility lenders will have limited recourse to Kern River and its assets and cash flow, and will have recourse to the Company's completion guarantee described below. Following completion of the 2003 Expansion Project, until such time as the Kern River credit facility is refinanced, the lenders under the credit facility will share equally and ratably with the existing Kern River senior secured noteholders in all of the collateral pledged to such senior secured noteholders. Pursuant to the Company's completion guarantee, it has guaranteed that "completion" of the 2003 Expansion Project will occur on or prior to the earliest of any abandonment by Kern River of the project, the occurrence of certain other acceleration events and June 30, 2004. The potential acceleration events include any downgrading of the Company's public debt rating to below investment grade by either S&P or Moody's unless a satisfactory substitute guarantor assumes the Company's obligations under the completion guarantee within 60 days after any such downgrade; Berkshire Hathaway ceasing to own at least a majority of the outstanding capital stock of the Company; and certain other customary events of default by the Company. In the completion guarantee, the Company has also agreed to cause capital contributions to be made to Kern River in a minimum aggregate amount of at least $375 million by June 30, 2004 or upon any earlier event of abandonment of the project. For purposes of the Company's completion guarantee, the term "completion" is defined in the Kern River credit agreement to mean satisfaction of a number of conditions, the most significant of which include the requirements that the 2003 Expansion Project be substantially complete and operable and able to permit Kern River to perform its obligations under all of the long-term firm gas transportation service agreements entered into in connection with the 2003 Expansion Project; that the shippers under such agreements shall have begun to incur the obligation to pay reservation fees thereunder; and that the FERC shall have authorized Kern River to begin collecting rates under its tariff and its shipper agreements; provided that the 2003 Expansion Project shall still be deemed to have been completed if it is less than substantially complete but it demonstrates at least 80% design capacity and Kern River's debt service coverage ratios as defined in its senior secured note indenture are not less than 1:55 to 1:0. There are a number of other conditions to 50 completion, including requirements that all conditions to completion of the expansion contained in Kern River's senior secured note indenture be satisfied and all of Kern River's obligations under its credit agreement then share pari passu in all collateral available to Kern River's senior secured noteholders. The Company's completion guarantee shall terminate upon the earlier of completion of the 2003 Expansion Project or repayment in full of all obligations under the Kern River credit facility. ZINC RECOVERY PROJECT CalEnergy Minerals LLC, our indirect wholly owned subsidiary, is constructing the Zinc Recovery Project. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tons per year, and commenced initial commercial operations in 2002. We expect the Zinc Recovery Project to be at 100% production in mid-2003. Total project costs of the Zinc Recovery Project are expected to be approximately $244.0 million, net of settlement proceeds from a dispute with the contractor, which is being funded by $140.5 million of debt and the balance from funds provided by the Company. The Zinc Recovery Project has incurred $213.9 million, net of settlement proceeds from a dispute with the contractor, of such costs through September 30, 2002. DEVELOPMENT ACTIVITY MidAmerican Energy has announced plans to develop a 750 MW super- critical-temperature, coal-fired plant fueled with Powder River low-sulfur coal in Pottawattamie County, Iowa. If constructed, MidAmerican Energy will operate the plant and expects to own 450 MW of the plant. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large baseload plants in Iowa. MidAmerican Energy's investment in the plant is projected to be approximately $785.0 million, including the cost of related transmission facilities, taxes and allowance for funds used during construction. The plant will provide service to regulated customers and be included in MidAmerican Energy's regulated rate base in Iowa, Illinois and South Dakota. Wholesale sales may also be made from the plant to the extent the power is not needed for regulated retail service. MidAmerican Energy has made a filing with the IUB for a certificate to construct this plant and has made a filing with the IUB for approval of ratemaking principles for this plant during the fourth quarter of 2002. The development of this plant is subject to obtaining environmental and other required permits, as well as to receiving orders from the IUB approving construction of the plant and associated transmission facilities and establishing ratemaking principles which are satisfactory to MidAmerican Energy. The Company's subsidiary, Fox Energy Company LLC, is developing a 635 net MW gas fired power generating facility in Kaukanna, Outagamie County, Wisconsin. A subsidiary of TransAlta Corporation has agreed to participate in the development of this project at a level of 50% and has an option to own 50% of the project. The Company's subsidiary, CE Obsidian Energy LLC, or Obsidian, is developing a 185 net MW geothermal facility in Imperial Valley, California, known as Salton Sea VI. An affiliate of El Paso Corporation, or El Paso, has elected to participate in the ownership and development of this project at a level of 50%. The Company is actively seeking to develop, construct, own and operate additional new energy projects, both domestically and internationally, the completion of any of which is subject to substantial risk. Development can require the Company to expend significant sums for preliminary engineering, permitting, fuel supply, resource exploration, legal and other expenses in preparation for competitive bids which the Company may not win or before it can be determined whether a project is feasible, economically attractive or capable of being financed. Successful development and construction is contingent upon, among other things, negotiation on terms satisfactory to the Company of engineering, construction, fuel supply, sales contracts and, if the Company intends to own less than 100% of the project, joint venture or similar agreements, with other project participants, receipt of required governmental permits and consents and timely implementation of construction. There can be no assurance that development efforts on any particular project, or the Company's development efforts generally, will be successful. See "Risk Factors." 51 COOPER NUCLEAR STATION CONTRACT RESTRUCTURING On July 31, 2002, MidAmerican Energy and the NPPD signed an agreement on the restructuring of the power purchase contract for Cooper Nuclear Station. Under the terms of the restructured contract, MidAmerican Energy will pay NPPD through December 31, 2004, a scheduled amount per unit for 380 MW of the accredited capacity of Cooper Nuclear Station and a minimum of approximately 1.2 million MWh in the last five months of 2002 and approximately 2.5 million MWh in each of 2003 and 2004. NPPD also paid MidAmerican Energy $39.1 million on August 1, 2002. In December 2000, MidAmerican Energy ceased contributing decommissioning funds to NPPD and maintained a separate fund for estimated Cooper Nuclear Station decommissioning costs. Through July 31, 2002, $18.3 million had been accrued and retained by MidAmerican Energy in this separate fund. In conjunction with the power purchase contract restructuring, MidAmerican Energy is recognizing the $39.1 million cash payment and the $18.3 million previously accrued for decommissioning into income based on the estimated energy expected to be received for the remainder of the contract. Finally, both parties agreed to release each other from any and all claims, past or present, each might have under the power purchase contract prior to being restructured and file to dismiss the litigation currently pending in U.S. District Court. Under the terms of MidAmerican Energy's power purchase contract with NPPD prior to its restructuring, MidAmerican Energy paid NPPD one-half of the fixed and operating costs of Cooper Nuclear Station, excluding depreciation but including debt service, and MidAmerican Energy's share of the nuclear fuel cost, including Department of Energy disposal fees, based on energy delivered. In addition, prior to December 2000, MidAmerican Energy contributed toward payment of one-half of Cooper Nuclear Station's project decommissioning costs based on an assumed 2004 shutdown of the plant. These obligations ceased pursuant to the restructuring of the power purchase contract for Cooper Nuclear Station. OBLIGATIONS AND COMMITMENTS The Company has contractual obligations and commercial commitments that may affect its financial condition. Based on management's assessment of the underlying provisions and circumstances of the material contractual obligations and commercial commitments of the Company, including material off-balance sheet and structured finance arrangements, there is no known trend, demand, commitment, event or uncertainty that is reasonably likely to occur which would have a material effect on the Company's financial condition or results of operations. The following tables identify material obligations and commitments as of December 31, 2001:
PERIOD PAYMENTS ARE DUE ---------------------------------------------------------------------- TOTAL 2002 2003-2004 2005-2006 AFTER 2006 CONTRACTUAL CASH OBLIGATIONS (IN MILLIONS) ------------- ---------- ----------- ----------- ------------- Parent company long-term debt (1) ................. $ 1,850.0 $ -- $ 215.0 $ 260.0 $ 1,375.0 Subsidiary and project debt (1) ................... 5,078.3 317.2 571.6 620.9 3,568.6 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts ........ 880.3 -- -- 136.4 743.9 Subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts (2)..... 100.0 100.0 -- -- -- Mandatorily redeemable preferred securities of subsidiaries .................................. 26.7 6.7 13.3 6.7 -- Power purchase contract (3) ....................... 25.9 17.4 8.5 -- -- Coal, electricity and natural gas contract commitments (4) .................................. 479.4 163.9 207.3 67.9 40.3 Operating leases (4) .............................. 135.6 31.2 46.7 24.2 33.5 ---------- ------ --------- --------- ---------- Total ............................................ $ 8,576.2 $ 636.4 $ 1,062.4 $ 1,116.1 $ 5,761.3 ========== ======= ========= ========= ==========
- ---------- (1) Excludes unamortized debt premiums and discounts. (2) These subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts were redeemed on March 11, 2002. 52 (3) This liability was eliminated with the execution of the Settlement Agreement and Release related to the restructured Cooper Nuclear Station power purchase agreement effective August 1, 2002. (4) The fuel and energy commitments and operating leases are not reflected on the consolidated balance sheets.
COMMITMENT EXPIRATION PER PERIOD ------------------------------------------------------------------ TOTAL 2002 2003-2004 2005-2006 AFTER 2006 OTHER COMMERCIAL COMMITMENTS (IN MILLIONS) ----------- ---------- ----------- ----------- ----------- Unused parent company revolving lines of credit ........................................ $ 200.7 $ 86.5 $ 114.2 $ -- $ -- Parent company letters of credit ............... 45.8 -- 45.8 -- -- Unused subsidiary lines of credit .............. 541.8 511.3 30.5 -- -- Parent company guarantee of subsidiary debt..... 176.9 2.1 3.2 3.6 168.0 Subsidiary lines of credit from parent company ....................................... 10.0 -- -- -- 10.0 -------- ------- -------- ---- ------ Total ......................................... $ 975.7 $ 599.9 $ 193.7 $ 3.6 $ 178.0 ======== ======= ======== ===== =======
As of September 30, 2002, Northern Natural Gas had $13.8 million of obligations to deliver 4.0 Bcf of natural gas in 2002 and $46.0 million of obligations to deliver 12.2 Bcf of natural gas in 2003. The obligations are revalued based on market prices for natural gas, with changes in value included in the statement of operations. In 2002, Northern Natural Gas entered into natural gas commodity price swaps and index basis swaps to effectively fix the deferred obligation balance. Any further changes in the market value of the deferred obligations will be offset by a corresponding change in the opposite direction in the market value of the swaps. Other than the delivery of natural gas issue described above, the issuance of Company-obligated mandatorily redeemable preferred securities of subsidiary trust in connection with the Northern Natural Gas and Kern River acquisitions as described in note 2 in the notes to the consolidated financial statements for the nine months ended September 30, 2002, and the issuance of long-term debt as described in note 8 in the notes to the consolidated financial statements for the nine months ended September 30, 2002, there have been no other material changes to the obligations and commitments as described in the Annual Report on Form 10-K for the year ended December 31, 2001. OFF-BALANCE SHEET ARRANGEMENTS The Company has certain investments that are accounted for under the equity method in accordance with GAAP. Accordingly, an amount is recorded on the Company's balance sheet as an equity investment and is increased or decreased for the Company's pro-rata share of earnings or losses, respectively, less any dividend distribution from such investments. As of September 30, 2002, the Company's investments which are accounted for under the equity method had an aggregate $1,060.2 million of debt and $70.3 million in outstanding letters of credit. As of September 30, 2002, the Company's pro-rata share of the debt was $524.9 million and was non-recourse to the Company, except for $138.8 million of such debt which the Company has guaranteed on the Salton Sea Funding Series F Bonds and which was included in the Company's consolidated balance sheet at September 30, 2002. (See note 8 to the notes to the consolidated financial statements for the year ended December 31, 2001 included in this prospectus for further discussion). The Company's pro-rata share of the outstanding letters of credit was $35.1 million as of September 30, 2002. The Company is generally not required to support the debt service obligations of these investments. However, default with respect to this non-recourse debt could result in a loss of invested equity. STANDARD ELECTRICITY MARKET DESIGN On July 31, 2002, the FERC issued a notice of proposed rulemaking with respect to Standard Market Design for the electric industry. The FERC has characterized the proposal as portending "sweeping changes" to the use and expansion of the interstate transmission and the wholesale bulk power systems in the United States. The proposal includes numerous proposed changes to the current regulation of 53 transmission and generation facilities designed "to promote economic efficiency" and replace the "obsolete patchwork we have today," according to the FERC Chairman. The final rule, if adopted as currently proposed, would require all public utilities operating transmission facilities subject to the FERC jurisdiction to file revised open access transmission tariffs that would require changes to the basic services these public utilities currently provide. The proposed rule may impact the pricing of MidAmerican Energy's electricity and transmission products. The FERC does not envision that a final rule will be fully implemented until September 30, 2004. The Company is still evaluating the proposed rule and the Company believes that the final rule could vary considerably from the initial proposal. Accordingly, the Company is presently unable to quantify the likely impact of the proposed rule on the Company and its subsidiaries. DOMESTIC GAS RATES MATTERS On March 15, 2002, MidAmerican Energy made a filing with the IUB requesting an increase in rates of approximately $26.6 million for its Iowa retail natural gas customers. As part of the filing, MidAmerican Energy requested an interim rate increase of approximately $20.4 million annually. On June 12, 2002, the IUB issued an order granting an interim rate increase of approximately $13.8 million annually, effective immediately and subject to refund with interest. On July 15, 2002, MidAmerican Energy and the Office of Consumer Advocate filed a proposed settlement agreement with the IUB. The settlement agreement, which was approved by the IUB on November 8, 2002, provides for an increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas customers and freezes such rates for two years after the date the IUB approves tariffs implementing the settlement agreement. MidAmerican Energy implemented the new rates effective November 25, 2002. PHILIPPINES REGULATORY MATTERS The Philippine Congress has passed the Electric Power Industry Reform Act of 2001, which is aimed at restructuring the Philippine power industry, privatization of the NPC and introduction of a competitive electricity market, among other initiatives. The implementation of the bill may have an impact on the Company's future operations in the Philippines and the Philippines power industry as a whole, the effect of which is not yet determinable and estimable. In connection with an interagency review of approximately 40 independent power project contracts in the Philippines, the Casecnan Project (along with four other unrelated projects) has reportedly been identified as raising legal and financial questions and, with those projects, has been prioritized for renegotiation. The Company's subsidiaries' Upper Mahiao, Malitbog, and Mahanagdong projects, which, together with the Casecnan Project, collectively referred to as the Philippine Projects, have also reportedly been identified as raising financial questions. No written report has yet been issued with respect to the interagency review, and the timing and nature of steps, if any, that the Philippine Government may take in this regard are not known. To the extent disputes arise under the Philippine Projects' agreements with respect to the Philippines Projects' obligations, rights and remedies thereunder, such disputes will be determined by international arbitration in a neutral forum conducted in accordance with the rules of the International Chamber of Commerce or UNCITRAL, as applicable. Representatives of CE Casecnan together with certain current and former Philippine government officials, also have been requested to appear, and have appeared, before a Philippine Senate committee which has independently raised questions and made allegations with respect to the Casecnan Project's tariff structure and implementation. No further hearings are scheduled at this time. NEW ACCOUNTING PRONOUNCEMENTS AND REPORTING ISSUES In August 2001, the Financial Accounting Standards Board, or FASB, issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires recognition on the balance sheet of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of such assets. Additionally, at the time an asset retirement obligation, or ARO, is recognized, an ARO asset of the same amount is recorded and depreciated. This pronouncement is effective for fiscal years beginning after June 15, 2002. The Company is evaluating the impact that adoption of this standard will have on its consolidated financial statements. 54 In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002, did not have any impact on the Company's consolidated financial statements. The Emerging Issues Task Force, or EITF, recently issued EITF Issue No. 02-3, "Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17." In accordance with EITF No. 02-3, all gains and losses on energy trading contracts must be reported net on the income statement, effective for reporting periods ending after July 15, 2002, with all prior periods presented being reclassified to a consistent presentation. MidAmerican Energy's nonregulated wholesale gas and electric marketing activities qualify as "energy trading" contracts under the guidance of EITF No. 98-10. In accordance with EITF Issue No. 02-3, effective September 30, 2002, for MidAmerican Energy, all trading revenues are reported net of the cost of such sales. Previously, such amounts were recorded gross. All prior periods have been reclassified to conform to the net presentation. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is exposed to market risk, including changes in the market price of certain commodities and interest rates. To manage the price volatility relating to these exposures, the Company enters into various financial derivative instruments. Senior management provides the overall direction, structure, conduct and control of the Company's risk management activities, including the use of financial derivative instruments, authorization and communication of risk management policies and procedures, strategic hedging program guidelines, appropriate market and credit risk limits, and appropriate systems for recording, monitoring and reporting the results of transactional and risk management activities. During the nine months ended September 30, 2002, the Company issued long-term debt as described in note 8 of our notes to the consolidated financial statements for the nine months ended September 30, 2002 and assumed additional debt with the acquisitions of Northern Natural Gas and Kern River. However, the Company does not believe it has any material change in regard to exposure to interest rate risk. Refer to note 16 of our notes to the consolidated financial statements for the year ended December 31, 2001 included in this prospectus for discussion on derivatives used to hedge price risk. The Company's exposure to commodity price risk has not changed materially from December 31, 2001. 55 BUSINESS GENERAL MidAmerican Energy Holdings Company is a United States-based privately owned global energy company. Our subsidiaries' principal businesses are regulated electric and natural gas utilities, regulated interstate natural gas transmission and electric power generation. Our operations are organized on seven distinct platforms which we refer to as: MidAmerican Energy, Northern Natural Gas, Kern River, CE Electric UK (which includes Northern Electric and Yorkshire Electricity), CalEnergy Generation-Domestic, CalEnergy Generation-Foreign and HomeServices. Through six of these platforms, we own and operate a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, and a diversified portfolio of domestic and international independent power projects. We also own the second largest residential real estate brokerage firm in the United States. Financial information for each of our seven operating platforms is contained in note 22 to our consolidated financial statements for the year ended December 31, 2001 and note 14 to our consolidated financial statements for the nine month period ended September 30, 2002 included in this prospectus. Financial information for Kern River and Northern Natural Gas is included in note 14 to our consolidated financial statements for the nine month period ended September 30, 2002, from their respective dates of acquisition. Financial information for our utility platforms may differ from the amounts included in the notes to the financial statements due to the effects of fair value adjustments associated with our acquisition of these entities. The following is a chart of our operating platforms and the principal lines of business in which they are engaged:
---------------------- MidAmerican Energy Holdings Company ---------------------- | | ------------------------------------------------------------------------------------------------- | | | | | | | | | | | | | | - ------------ ----------- ------------- ---------------------- ------------ ------------ ------------- MidAmerican Northern Kern River CE Electric UK CalEnergy CalEnergy HomeServices Energy Natural Gas ---------------------- Generation- Generation- Northern | Yorkshire Domestic Foreign Electric | Electricity - ------------ ----------- ------------- ----------------------- ------------ ------------ ------------- Regulated Regulated Regulated Regulated electricity Non-utility Non-utility Real estate gas and natural gas natural gas distribution power power brokerage and electric transmission transmission generation generation related utility services
Our senior unsecured obligations have received investment grade ratings of Baa3, BBB-- and BBB from Moody's Investors Service Inc., Standard & Poors Ratings Services and Fitch, Inc., respectively. Our utility subsidiaries also have investment grade ratings by Moody's, S&P and Fitch, respectively: MidAmerican Energy (A3, A- and A-), Northern Natural Gas (Baa2, A- and BBB+), Kern River (A3, A- and A-), Northern Electric (A3, A- and A) and Yorkshire Electricity (A3, A- and A), respectively. However, these ratings are subject to change. We initially incorporated in 1971 under the laws of the State of Delaware. We were reincorporated in 1999 in Iowa, at which time we changed our name from CalEnergy Company, Inc. to MidAmerican Energy Holdings Company. STRATEGY Our business strategy is focused upon the successful operation, management and growth of our diversified portfolio of energy assets and on the pursuit of strategic utility acquisitions and selected other investment opportunities, principally in the United States. As a privately owned company, we are able to focus on long-term risk-adjusted cash flow returns from our businesses. We seek to manage and operate our energy assets such that their cost structure makes us a low-cost provider of energy and energy services. 56 In order to implement this strategy, we plan to: PURSUE OPERATING EFFICIENCIES AND INTERNAL INVESTMENT OPPORTUNITIES IN OUR BUSINESSES, WHILE MAINTAINING QUALITY AND RELIABILITY OF SERVICE. Our management philosophy emphasizes the efficient operation of our businesses through strict attention to the operational performance of our assets, continuous review and implementation of cost reduction initiatives and the active pursuit of opportunities to earn reasonable returns by making incremental capital investments within our existing operations. Following each of our utility acquisitions, we have implemented operational improvements and cost reductions that have enhanced asset performance and service reliability. These and other initiatives have helped us to pursue our goal of being a low-cost provider of energy and energy services to our customers and have strengthened our competitive position in the marketplace, while also increasing the returns on our investments. In addition, we have worked closely and successfully with customers and with regulatory and legislative authorities to ensure that our business initiatives are consistent with our obligations to serve customers and with the requirements of the regulatory regimes under which we operate. We have identified and are proceeding with a number of significant capital investment opportunities that we believe offer attractive risk-adjusted returns. These opportunities include a $1.2 billion program to expand MidAmerican Energy's base of electric generation facilities in Iowa and a $1.2 billion investment in Kern River's 2003 Expansion Project. GROW AND DIVERSIFY THROUGH ACQUISITIONS OF HIGH QUALITY REGULATED UTILITY BUSINESSES. We believe that well managed regulated utility businesses can provide a stable cash flow profile and a reasonable risk-adjusted equity return to their owners. Our acquisitions of Northern Electric in 1997 and MidAmerican Energy in 1999 provided us with specialized skills and expertise, particularly in operations and regulatory affairs, which have enhanced our competitive position and positioned us favorably for future growth in our targeted sectors. In the past fifteen months, we completed three acquisitions of utility operating companies, Yorkshire Electricity, Kern River and Northern Natural Gas, each of which has added substantially to our base of utility operating assets and cash flows. We believe that these acquisitions helped us achieve additional diversification of our utility business with respect to sources of cash flow, types of utility operations, geography and regulatory regimes. CAPITALIZE ON CHANGE IN OUR INDUSTRY AND ON OUR SUPERIOR ACCESS TO CAPITAL IN ORDER TO MAKE ATTRACTIVE INVESTMENTS. The global energy markets, particularly those in the United States, are experiencing a period of significant change due to various factors, including the macroeconomic environment, fluctuating commodity prices, regulatory and legislative developments and financial restructurings by many market participants. We and our shareholders believe that such an environment provides opportunities for disciplined companies with access to investment capital to achieve reasonable risk-adjusted returns by acquiring high quality companies and assets at reasonable prices. Warren Buffett, Chairman of the Board and Chief Executive Officer of Berkshire Hathaway, has publicly stated that we are a core holding of Berkshire Hathaway and are expected to be its principal vehicle for investments in the energy sector. In 2002 to date, we completed two acquisitions of interstate natural gas transmission pipelines, which we funded with a majority of the proceeds of Berkshire Hathaway's investment in $1.273 billion of our trust preferred securities and $402 million of our zero coupon convertible preferred stock, all of which is subordinated to our senior indebtedness. We believe that our ability to successfully negotiate and complete these acquisitions was facilitated by our access to capital from Berkshire Hathaway and that there continue to be opportunities in the current environment to make additional acquisitions that further enhance our business mix, risk profile, capitalization and investment returns. ENHANCE OUR INVESTMENT GRADE CREDIT PROFILE AND THAT OF OUR SUBSIDIARIES. Our financing strategy is focused on capitalizing and managing our utility subsidiaries in a manner consistent with maintenance of strong credit ratings, thereby supporting our credit profile with more predictable underlying cash flows from these subsidiaries. This strategy is driven by our belief that strong credit ratings allow us to minimize our financing costs over the long term and to optimize our investment returns, while also retaining the financial flexibility to pursue attractive capital investment opportunities as and when they are available. Our strategy is to finance our operating subsidiaries with debt that in almost all cases is non-recourse to us, which has allowed us to reduce financing costs by taking advantage of the stable, investment grade characteristics of our subsidiaries' utility assets. 57 MAINTAIN PRUDENT FINANCIAL AND RISK MANAGEMENT POLICIES AND PRACTICES. Through our focus on regulated utility businesses, we strive to minimize the underlying risks of our portfolio of assets. Substantially all of our net owned MW in our non-utility power generation business have long-term (greater than one year) contracts for the sale of their energy and/or capacity, and substantially all of these assets are financed by non-recourse project finance debt. We seek to limit our exposure to movements in the commodity prices of energy products and are not a significant trader of energy commodities. Our activities in the marketing and supply of energy to customers outside of our regulated customer base are not a material part of our business and are conducted pursuant to closely monitored risk management policies and practices that are intended to minimize our exposure to fluctuations in energy commodity prices and to counterparty credit risk. A core tenet of our acquisition and investment philosophy is that we will only pursue opportunities that meet our strict requirements for an acceptable risk profile and attractive potential cash flow returns. If we do not believe that such opportunities are available, we prefer to reduce our acquisition activities and focus on the optimization of our existing portfolio rather than pursue growth by accepting greater risks or inferior returns. MIDAMERICAN ENERGY MidAmerican Energy is the largest energy company headquartered in Iowa. MidAmerican Energy is principally engaged in the business of generating, transmitting, distributing and selling electric energy and in distributing, selling and transporting natural gas. MidAmerican Energy distributes electricity at retail in Iowa, Illinois and South Dakota. It also distributes natural gas at retail in Iowa, Illinois, South Dakota and Nebraska. MidAmerican Energy's utility operations are providing regulated retail electric service to approximately 678,000 customers and regulated retail natural gas service to approximately 653,000 customers. MidAmerican Energy also provides competitive natural gas service in several Midwestern states and competitive electric service in Illinois and Ohio. In addition to retail sales, MidAmerican Energy sells electric energy and natural gas to other utilities, marketers and municipalities outside of MidAmerican Energy's delivery system. These sales are referred to as wholesale sales. It also transports natural gas through its distribution system for a number of end-use customers who have independently secured their supply of natural gas. MidAmerican Energy's electric and gas utility operations are conducted under franchises, certificates, permits and licenses obtained from state and local authorities. The franchises, with various expiration dates, are typically for 25-year terms. MidAmerican Energy has a residential, agricultural, commercial and diversified industrial customer group, in which no single industry or customer accounted for more than 4% of its total 2001 electric operating revenues or 4% of its total 2001 gas operating margin. Among the primary industries served by MidAmerican Energy are those which are concerned with food products, the manufacturing, processing and fabrication of primary metals, real estate, farm and other non-electrical machinery, and cement and gypsum products. For the nine months ended September 30, 2002, MidAmerican Energy derived approximately 67% of its gross operating revenues from its electric utility business, 28% from its gas utility business and 5% from its non-regulated business activities. For 2001, 2000 and 1999, the corresponding percentages were 56% electric, 37% gas and 7% non-regulated, 53% electric, 41% gas and 6% non-regulated and 67% electric, 32% gas and 1% non-regulated, respectively. The change in revenue mix is principally driven by changes in natural gas prices and seasonality. There are seasonal variations in MidAmerican Energy's electric and gas businesses, which are principally related to the use of energy for air conditioning and heating. In 2001, 38% of MidAmerican Energy's electric utility revenues were reported in the months of June, July, August and September, and 59% of MidAmerican Energy's gas utility revenues were reported in the months of January, February, March and December. ELECTRIC OPERATIONS The electric utility industry continues to undergo regulatory change. Traditionally, prices charged by electric utility companies have been regulated by federal and state commissions and have been based on 58 cost of service. In recent years, changes have been occurring that move the electric utility industry toward a more competitive, market-based pricing environment. These changes may have a significant impact on the way MidAmerican Energy does business. MidAmerican Energy manages its operations as four separate business units: generation, energy delivery, transmission, and marketing and sales. The generation segment derives most of its revenue from the sale of regulated wholesale electricity and non-regulated wholesale and retail natural gas. The energy delivery segment derives its revenue principally from the delivery of regulated electricity and natural gas, while the transmission segment obtains most of its revenue from the sale of transmission capacity. The marketing and sales segment receives its revenue principally from non-regulated sales of natural gas and electricity. For the year ended December 31, 2001, regulated electric sales by MidAmerican Energy by customer class were as follows: 20.6% were to residential customers, 15.3% were to small general service customers, 25.8% were to large general service customers, 7.3% were to other customers, and 31.0% were wholesale sales. For the year ended December 31, 2001, regulated electric sales by MidAmerican Energy by jurisdiction were as follows: 88.6% to Iowa, 10.6% to Illinois and 0.8% to South Dakota. The annual hourly peak demand on MidAmerican Energy's electric system occurs principally as a result of air conditioning use during the cooling season. In July 2002, MidAmerican Energy recorded an hourly peak demand of 3,887 MW, which is 54 MW greater than MidAmerican Energy's previous record hourly peak of 3,833 MW set in 1999. The following table sets out information concerning MidAmerican Energy's power generation facilities as of November 1, 2002:
FACILITY NET CAPACITY NET MW COMMERCIAL OPERATING PROJECT (1) (MW) (2) OWNED (2) FUEL LOCATION OPERATION - ---------------------------------------------- ---------- ----------- --------- ---------- ----------- Council Bluffs Energy Center units 1 & 2 ..... 133 133 Coal Iowa 1954, 1958 Council Bluffs Energy Center unit 3 .......... 690 546 Coal Iowa 1978 Louisa Generation Station .................... 700 616 Coal Iowa 1983 Neal Generation Station units 1 & 2 .......... 435 435 Coal Iowa 1964, 1972 Neal Generation Station unit 3 ............... 515 371 Coal Iowa 1975 Neal Generation Station unit 4 ............... 624 261 Coal Iowa 1979 Ottumwa Generation Station ................... 708 368 Coal Iowa 1981 Quad Cities Generating Station ............... 1,636 409 Nuclear Illinois 1972 Riverside Generation Station ................. 135 135 Coal Iowa 1925-61 Combustion Turbines .......................... 785 785 Gas/Oil Iowa 1969-95 Moline Water Power ........................... 3 3 Hydro Illinois 1970 Portable Power Modules ....................... 56 56 Oil Iowa 2000 ----- --- Total Operating Power Generation Facilities .................................. 6,420 4,118 PROJECTS UNDER CONSTRUCTION: - ----------------------------------------------- Greater Des Moines Energy Center ............. 500 500 Gas Iowa 2003-05 ----- ----- Total Power Generation Facilities ............ 6,920 4,618 ===== =====
- ---------- (1) We operate all such power generation facilities other than Quad Cities Generating Station and Ottumwa Generation Station. (2) Represents accredited net generating capability. Actual MW may vary depending on operating conditions and plant design. Net MW owned indicates ownership of accredited capacity for the summer of 2002 as approved by the Mid-Continent Area Power Pool (MAPP). MidAmerican Energy's accredited net generating capability in the summer of 2002 was 4,724 MW, which included its 4,118 net MW owned and its accredited net MW capability pursuant to the restructured Cooper Nuclear Station power purchase agreement for a minimum guaranteed amount of energy from 59 any source and the Cordova power purchase agreement. Accredited net generating capability represents the amount of generation available to meet the requirements on MidAmerican Energy's energy system, including the net amount of capacity purchases less capacity sales from company-owned generation and generation under power purchase contracts. The net generating capability at any time may be less than it would otherwise be due to regulatory restrictions, fuel restrictions and generating units being temporarily out of service for inspection, maintenance, refueling or modifications. MidAmerican Energy has announced plans regarding two electric generating plants in Iowa. Both plants would provide service to regulated retail electricity customers and be included in regulated rate base in Iowa, Illinois and South Dakota. Wholesale sales may also be made from the plants to the extent the power is not needed for regulated retail service. The first plant, which is the Greater Des Moines Energy Center described above, will be a 540 MW (500 MW based on expected accreditation) natural gas-fired plant with an estimated cost of $415 million. MidAmerican Energy will own 100% of the plant and will operate it. The plant will be operated in simple cycle mode during 2003 and 2004, with combined cycle operation commencing in 2005. MidAmerican Energy commenced construction of the plant in 2002 following receipt of two orders from the IUB. The first order authorized construction of the plant. The second order, issued May 29, 2002, specified the principles that will apply to the plant over its life for purposes of Iowa ratemaking and was sought by MidAmerican Energy to limit regulatory risk. The second plant is currently under development and is expected to be a 750 MW super-critical-temperature, coal-fired plant fueled with Powder River low-sulfur coal in Pottawattamie County, Iowa. If constructed, MidAmerican Energy will operate the plant and expects to own 450 MW of the plant. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large baseload plants in Iowa. MidAmerican Energy has made a filing with the IUB for a certificate to construct this plant and has made a filing with the IUB for approval of ratemaking principles for this second plant during the fourth quarter of 2002. The development of this plant is subject to obtaining environmental and other required permits, as well as to receiving orders from the IUB approving construction of the plant and associated transmission facilities and establishing ratemaking principles which are satisfactory to MidAmerican Energy. MidAmerican Energy presently expects that all utility construction expenditures through 2007 will be met with the issuance of long-term debt and cash generated from utility operations, net of dividends. The actual level of cash generated from utility operations is affected by, among other things, economic conditions in the utility service territory, weather and federal and state legislation and regulatory actions. MidAmerican Energy is interconnected with Iowa utilities and utilities in neighboring states and is involved in an electric power pooling agreement known as Mid-Continent Area Power Pool, or MAPP. MAPP is a voluntary association of electric utilities doing business in Minnesota, Nebraska, North Dakota and the Canadian provinces of Saskatchewan and Manitoba and portions of Iowa, Montana, South Dakota and Wisconsin. Its membership also includes power marketers, regulatory agencies and independent power producers. MAPP facilitates operation of the transmission system and is responsible for the safety and reliability of the bulk electric system. In November 2001, MAPPCOR, the contractor to MAPP, sold its transmission-related assets to the Midwest Independent Transmission System Operator, Inc., or Midwest ISO. The Midwest ISO now has responsibility for administration of MAPP's Open-Access Transmission Tariff. Each MAPP participant is required to maintain for emergency purposes a net generating capability reserve of at least 15% above its system peak demand. MidAmerican Energy's reserve margin at peak demand for 2002 was approximately 22%. However, significantly higher-than-normal temperatures during the cooling season could cause MidAmerican Energy's reserve to fall below the 15% minimum. If MidAmerican Energy fails to maintain the appropriate reserve, significant penalties could be contractually imposed by MAPP. MidAmerican Energy's transmission system connects its generating facilities with distribution substations and interconnects with 14 other transmission providers in Iowa and five adjacent states. Under 60 normal operating conditions, MidAmerican Energy's transmission system is unconstrained and has adequate capacity to deliver energy to MidAmerican Energy's distribution system and to export and import energy with other interconnected systems. In December 1999, the FERC issued Order No. 2000 establishing, among other things, minimum characteristics and functions for regional transmission organizations. Public utilities that were not a member of an independent system operator at the time of the order were required to submit a plan by which its transmission facilities would be transferred to a regional transmission organization. On September 28, 2001, MidAmerican Energy and five other electric utilities filed with the FERC a plan to create TRANSLink Transmission Company LLC, or TRANSLink, and to integrate their electric transmission systems into a single, coordinated system operating as a for-profit independent transmission company in conjunction with a FERC-approved regional transmission organization. On April 25, 2002, the FERC issued an order approving the transfer of control of MidAmerican Energy's and other utilities' transmission assets to TRANSLink in conjunction with TRANSLink's participation in the Midwest ISO. Additional state regulatory approval is required from states in which TRANSLink will be operating and those applications have not yet been filed. Once filed, MidAmerican Energy does not anticipate rulings in the state proceedings until some time in 2003. Transferring operation and control of MidAmerican Energy's transmission assets to other entities could increase costs for MidAmerican Energy; however, the actual impact of TRANSLink on MidAmerican Energy's future transmission costs is not yet known. GAS OPERATIONS For the year ended December 31, 2001, regulated gas sales by MidAmerican Energy, excluding transportation throughput, by customer class were as follows: 34.5% were to residential customers, 18.2% were to small general service customers, 1.5% were to large general service customers, 1.7% were to other customers, and 44.1% were wholesale sales. For the year ended December 31, 2001, regulated gas sales by MidAmerican Energy, excluding transportation throughput, by jurisdiction were as follows: 78.9% to Iowa, 10.5% to South Dakota, 9.8% to Illinois, and 0.8% to Nebraska. MidAmerican Energy purchases gas supplies from producers and third party marketers. To ensure system reliability, a geographically diverse supply portfolio with varying terms and contract conditions is utilized for the gas supplies. MidAmerican Energy has rights to firm pipeline capacity to transport gas to its service territory through direct interconnects to the pipeline systems of Northern Natural Gas, Natural Gas Pipeline Company of America, Northern Border Pipeline Company and ANR Pipeline Company. Firm capacity in excess of MidAmerican Energy's system needs, resulting from differences between the capacity portfolio and seasonal system demand, can be resold to other companies to achieve optimum use of the available capacity. Past IUB, and South Dakota Public Utilities Commission rulings have allowed MidAmerican Energy to retain 30% of Iowa and South Dakota margins, respectively, earned on the resold capacity, with the remaining 70% being returned to customers through a purchased gas adjustment clause as described below. MidAmerican Energy's cost of gas is recovered from customers through purchased gas adjustment clauses. In 1995, the IUB gave initial approval of MidAmerican Energy's Incentive Gas Supply Procurement Program. Under the program, as amended, MidAmerican Energy is required to file with the IUB every six months a comparison of its gas procurement costs to an index-based and historical reference price. If MidAmerican Energy's costs of gas for the period are less or greater than an established tolerance band around the reference price, then MidAmerican Energy shares a portion of the savings or costs with customers. In October 2002, the IUB approved a one year extension of the program through October 31, 2003. A similar program is currently in effect in South Dakota through October 31, 2005. Since the implementation of the program, MidAmerican Energy has successfully achieved and shared savings with its natural gas customers. MidAmerican Energy utilizes leased gas storage to meet peak day requirements and to manage the daily changes in demand due to changes in weather. The storage gas is typically replaced during the summer months. In addition, MidAmerican Energy also utilizes three liquefied natural gas plants and two propane-air plants to meet peak day demands. 61 MidAmerican Energy has strategically built multiple pipeline interconnections into several of its larger communities. Multiple pipeline interconnects create competition among pipeline suppliers for transportation capacity to serve those communities, thus reducing costs. In addition, multiple pipeline interconnects give MidAmerican Energy the ability to optimize delivery of the lowest cost supply from the various pipeline supply basins into these communities and increase delivery reliability. Benefits to MidAmerican Energy's system customers are shared with all jurisdictions through a consolidated purchased gas adjustment clause. NORTHERN NATURAL GAS COMPANY EXISTING FACILITIES AND BUSINESS Northern Natural Gas is one of the largest interstate natural gas pipeline systems in the United States. It reaches from Texas to Michigan's Upper Peninsula and is engaged in the transmission and storage of natural gas for utilities, municipalities, other pipeline companies, gas marketers, industrial and commercial users and other end users. Northern Natural Gas' revenues are derived from the interstate transportation and storage of natural gas for third parties. Except for small quantities of natural gas owned for system operations, Northern Natural Gas does not own the natural gas that is transported through its system. Northern Natural Gas' transportation and storage operations are subject to a FERC-regulated tariff that is designed to allow it an opportunity to recover its costs together with a regulated return on equity. Northern Natural Gas' system is comprised of two distinct areas, its traditional end-use and distribution market area at the northern end of the system, including delivery points in Michigan, Illinois, Iowa, Minnesota, Kansas, Nebraska, Wisconsin and South Dakota, which we refer to as the Market Area, and the natural gas supply and market area at the southern end of the system, including Kansas, Oklahoma, Texas and New Mexico, which we refer to as the Field Area. Northern Natural Gas' Field Area is interconnected with many interstate and intrastate pipelines in the national grid system. A majority of Northern Natural Gas' capacity in both the Market Area and the Field Area is dedicated to Market Area customers under long-term firm transportation contracts. Approximately 49% of Northern Natural Gas' capacity subject to firm transportation contracts is under contracts which extend beyond 2005. Northern Natural Gas' strategic plan is focused on taking advantage of the system's bi-directional and relatively flexible natural gas transportation capabilities and its storage assets to maximize economic returns. A key component of this strategic plan is to build upon Northern Natural Gas' asset base located in the center of the North American natural gas grid by increasing flexibility through additional pipeline interconnects. Through existing interconnections, Northern Natural Gas' shippers have supply access to Canadian, Rocky Mountain, Hugoton, Anadarko and Permian supplies. Northern Natural Gas also expects to pursue selective pipeline expansions, storage service enhancement and improved utilization of existing systems. In addition, Northern Natural Gas is focused on utilizing its ability to transport both dry natural gas and processable natural gas to take advantage of opportunities presented by natural gas processing facility consolidations in the Mid-continent. Northern Natural Gas expects to be able to meet the expected demand growth in its Market Area with only modest investment in new facilities as a result of the flexibility in Northern Natural Gas' system. Furthermore, Northern Natural Gas' access to supply diversity is expected to provide it with a significant competitive advantage because of the ability of the system to provide shippers access to many sources of low cost natural gas. Northern Natural Gas operates approximately 16,600 miles of natural gas pipelines which deliver approximately 5.0% of the total natural gas consumed in the United States. The Northern Natural Gas system is believed to be the largest in the United States as measured by pipeline miles and the eighth largest as measured by throughput. The pipeline system is powered by 92 transmission compressor stations with an aggregate of approximately 840,000 horsepower. Northern Natural Gas operates three natural gas storage facilities and two liquefied natural gas, or LNG, storage peaking units for a total storage capacity of 59 Bcf and peak delivery capability of over 1.3 Bcf/day. Northern Natural Gas' pipeline system is configured with approximately 3,500 receipt and delivery points (excluding farm taps) which are 62 integrated with the facilities of local distribution companies, or LDCs. Natural gas deliveries from Northern Natural Gas to the Market Area and Field Area totaled approximately 1.4 Tcf in 2001. The northern portion of Northern Natural Gas' pipeline system transports natural gas primarily to end-user and local distributor markets in the Market Area. Customers consist of LDCs, municipalities, other pipeline companies, gas marketers and end-users. While approximately ten large LDCs account for the majority of Market Area volumes, Northern Natural Gas also serves numerous small communities through these large LDCs as well as municipalities or smaller LDCs and directly serves several large end-users. In 2001, approximately 85% of Northern Natural Gas' revenues were from capacity charges under firm transportation and storage contracts and approximately 85% of those revenues were from LDCs. In 2001, approximately 69% of Northern Natural Gas' revenues were generated from Market Area customer contracts. The following customers, all of whom were utility LDCs located in the Market Area, each accounted for approximately 10% or more of Northern Natural Gas' transportation revenues for the year ended December 31, 2001: Reliant Energy Minnegasco (18%); UtiliCorp United Inc., now Aquila, Inc. (12%); Northern States Power Company--Minnesota (10%); and MidAmerican Energy (10%). As noted above, the Field Area of Northern Natural Gas' system provides access to natural gas supply from key production areas such as the Hugoton, Permian and Anadarko Basins. In each of these areas, Northern Natural Gas has numerous interconnecting receipt and delivery points, with volumes received in the Field Area consisting of both directly connected supply and volumes from interconnections with other pipeline systems. In addition, Northern Natural Gas has the ability to aggregate processable natural gas for deliveries to various gas processing facilities. In the Field Area, customers holding transportation capacity consist of LDCs, marketers, producers, and end-users. The majority of Northern Natural Gas' Field Area firm transportation is provided to Northern Natural Gas' Market Area firm customers under long-term firm transportation contracts with such volumes supplemented by volumes transported on an interruptible basis or pursuant to short-term firm contracts. In 2001, approximately 20% of Northern Natural Gas' revenues were generated from Field Area customer transportation contracts. Northern Natural Gas' system is characterized by significant seasonal swings in demand, which provide opportunities to deliver high value-added services. Because of its location and multiple interconnections with other interstate and intrastate pipelines, Northern Natural Gas is able to access natural gas both from traditional production areas, such as the Hugoton, Permian and Anadarko Basins, as well as growing supply areas such as the Rocky Mountains through Trailblazer Pipeline Company, Pony Express Pipeline and Colorado Interstate Gas Company, and from Canadian production areas through Northern Border Pipeline Company, Great Lakes Gas Transmission Limited Partnership and Viking Gas Transmission Company. As a result of Northern Natural Gas' geographic location in the middle of the United States and its many interconnections with other pipelines, Northern Natural Gas augments its steady end-user and LDC revenues by taking advantage of opportunities to provide intermediate transportation through pipeline interconnections for customers in other markets including Chicago, other parts of the Midwest, Texas and California. Northern Natural Gas' storage services are provided through the operation of three underground storage fields (one in Iowa and two in Kansas) and two LNG storage peaking units. The three underground natural gas storage facilities and Northern Natural Gas' two LNG storage peaking units have a total storage capacity of approximately 59 Bcf and over 1.3 Bcf/day of peak day deliverability. These storage facilities provide Northern Natural Gas with operational flexibility for daily balancing of its system and providing services to customers for meeting their year-round loadswing requirements. In 2001, approximately 11% of Northern Natural Gas' revenues were generated from storage services. COMPETITION Pipelines compete on the basis of cost, flexibility, reliability of service and overall customer service. Historically, Northern Natural Gas has been able to provide competitive cost service because of its access to a variety of low cost supply basins, its cost control measures and its relatively high load factor through-put, which lowers the cost per unit of transportation. Although Northern Natural Gas has 63 experienced pipeline system bypass affecting a small percentage of its market, to date Northern Natural Gas has been able to more than offset any load lost to bypass in the Market Area through expansion projects such as the Peak Day 2000 project (described below). Major competitors in the Market Area include ANR Pipeline Company and Natural Gas Pipeline Company of America. Other competitors include Northern Border Pipeline Company, Great Lakes Gas Transmission Limited Partnership and Viking Gas Transmission Company. In the Field Area, Northern Natural Gas competes with a large number of other competitors. Particularly in the Field Area, a significant amount of Northern Natural Gas' capacity is used on an interruptible or short-term basis. In summer months, Northern Natural Gas's Market Area customers often release significant amounts of their unused firm capacity to other shippers, which competes with Northern Natural Gas' short-term or interruptible services. Natural gas competes with other forms of energy, including electricity, coal and fuel oil, primarily on the basis of price. The price of natural gas is influenced by legislation and governmental regulations, the weather, the futures market, production costs, and other factors beyond the control of Northern Natural Gas. Industrial end-users often have the ability to choose from alternative fuel sources in addition to natural gas, such as fuel oil and coal. Northern Natural Gas attempts to maintain its competitive position through discounting transportation to keep delivered natural gas prices in line with prices for alternative fuels and by using flexible short-term and interruptible transportation services that are contracted for on an as needed basis. Northern Natural Gas believes that current and anticipated changes in its competitive environment have created opportunities to serve existing customers more efficiently and to meet certain growing supply needs. While LDCs provide peak day delivery growth driven by population growth and alternative fuel replacement, new off-peak demand growth is being driven primarily by power and ethanol plant expansion. Off-peak demand growth is important to Northern Natural Gas as this demand can generally be satisfied with little or no requirement for the construction of new facilities. Approximately 3,000 MW of natural gas-fired electric power plants in development have been announced in close proximity to Northern Natural Gas' system. Northern Natural Gas has been successful in competing for a significant amount of the increased demand related to the construction of new power and ethanol plants. Over the last five years, Northern Natural Gas has contracted approximately 528 mmcf/day of volume on its system from such new facilities, of which approximately 346 mmcf/day is currently in service and approximately 182 mmcf/day is scheduled to begin service between 2002 and 2005. PIPELINE EXPANSIONS Northern Natural Gas expects to continue evaluating potential additional pipeline expansions on an opportunistic basis. Northern Natural Gas recently completed the final year of its $110 million Peak Day 2000 Project. The Peak Day 2000 Project was designed to serve incremental load over a five-year period beginning in 1997. The Peak Day 2000 Project consists of pipeline expansion that added approximately 267 mmcf/day of capacity to serve a portion of the 528 mmcf/day of volume Northern Natural Gas has added to its system in the Market Area. Northern Natural Gas is currently negotiating precedent agreements with respect to an approximately $11 million Market Area expansion project, which we refer to as Project Max. Project Max is projected to provide Northern Natural Gas with an incremental 135 mmcf/day of capacity, primarily beginning service in 2003, including service to the MidAmerican Energy Greater Des Moines Energy Center that is currently under construction. Northern Natural Gas has a firm transportation service agreement with MidAmerican Energy to provide 96 mmcf/day of capacity to transport volumes to this plant. The plant is capable of taking up to 180 mmcf/day, all of which can be transported on Northern Natural Gas. OVERVIEW OF REGULATION AND CONTRACTS The FERC regulates Northern Natural Gas under the Natural Gas Act, the Natural Gas Policy Act of 1978 and other applicable statutes and regulations. The Natural Gas Act grants the FERC authority over the construction and operation of pipelines and related facilities utilized in the transportation, 64 storage and sale of natural gas in interstate commerce, including the extension, enlargement or abandonment of such facilities. The FERC also has authority to regulate rates for natural gas in interstate commerce. Northern Natural Gas holds several Certificates of Public Convenience and Necessity issued by the FERC authorizing Northern Natural Gas to construct, operate and maintain its pipeline and related facilities and services and to transport and store natural gas in interstate commerce. Northern Natural Gas' rates and terms and conditions of service are regulated by the FERC. FERC regulations and Northern Natural Gas' tariff allow Northern Natural Gas to charge up to maximum approved rates for particular services as set forth in its tariff. Northern Natural Gas' rates are designed to provide it with the ability to recover prudently incurred operations and maintenance costs, taxes, interest, depreciation and amortization and a regulated return on equity. Natural gas companies may not grant any undue preference to any person, or maintain any unreasonable difference in their rates or other terms of service. On August 1, 2002, the FERC issued an Order to Respond to Northern Natural Gas related to Northern Natural Gas' existing $450 million revolving credit facility and to cash management record keeping by Northern Natural Gas. Pursuant to a Stipulation and Consent Agreement dated August 8, 2002, Northern Natural Gas agreed to comply with the FERC's cash management practices and to not include the costs associated with its existing $450 million revolving credit facility in any future rate proceeding. See "Regulation--Northern Natural Gas and Kern River." TRANSITION SERVICES FROM DYNEGY When Dynegy Inc. assumed ownership of Northern Natural Gas from Enron Corp. on February 1, 2002, Enron Operations Services Corp., or EOS, agreed to temporarily continue to provide certain services which it had previously provided to operate Northern Natural Gas through a transition services agreement. These services initially included physical operations, gas logistics, engineering, financial, accounting and other corporate services required to maintain and operate the system. Certain of these services, including the physical operation of the pipeline, were provided through June 30, 2002. Through January 31, 2003, EOS, pursuant to an assignment of the transition services agreement from Dynegy to us, is continuing to provide services necessary to operate the pipeline, including gas logistics, which involves gas nominations, gas scheduling and gas control and other required services, including information technology services. Additionally, on July 1, 2002, Dynegy assumed responsibility for the operations, engineering and corporate functions of Northern Natural Gas. In connection with our purchase of Northern Natural Gas from Dynegy on August 16, 2002, Dynegy has agreed to continue to provide limited support services to Northern Natural Gas pursuant to a new transition services agreement for a period ending January 31, 2003. KERN RIVER GAS TRANSMISSION COMPANY EXISTING FACILITIES AND BUSINESS Kern River's principal asset is a 926-mile interstate natural gas transmission pipeline system, with an original approximate capacity of 700 mmcf/day, extending from supply areas in the Rocky Mountains to consuming markets in Utah, Nevada and California. Following the completion of several recent expansion projects, including the 2002 expansion project and the California Action Project, the design capacity of the pipeline is currently 845.5 mmcf/day. Construction of the original pipeline began on January 2, 1991 and was completed in early 1992. Kern River's pipeline is comprised of two distinguishable sections: the mainline and the common facilities. The 707-mile mainline section extends from the pipeline's point of origination in Opal, Wyoming through the Central Rocky Mountains area into Daggett, California and is owned entirely by Kern River. The common facilities consist of the 219-mile section of pipeline that extends from Daggett to Bakersfield, California. The common facilities are jointly owned by Kern River (currently approximately 67.9%) and Mojave Pipeline Company (currently approximately 32.1%), as tenants-in-common. Kern River's ownership percentage in the common facilities will increase or decrease pursuant to subsequently completed expansions by the respective joint owners. 65 COMPETITION Generally, Kern River competes on a similar basis as other pipelines as is discussed above under the heading "Business--Northern Natural Gas Company." Pipelines compete on the basis of cost, flexibility, reliability of service and overall customer service. More specifically, Kern River competes with various interstate pipelines and its shippers in serving the southern California, Las Vegas and Salt Lake City market areas, in order to market any unsubscribed capacity and expansion capacity. Kern River provides customers with supply diversity through pipeline interconnects with Northwest pipeline, the Colorado Interstate Gas pipeline, the Overland Trail pipeline, and Questar pipeline. These interconnects allow Kern River to access natural gas reserves in Colorado, northwestern New Mexico, Wyoming, Utah and the Western Canadian Sedimentary Basin. Approximately 100% of Kern River's original pipeline capacity is contractually committed with 14 extended term rate shippers until September 30, 2011. Beyond that, approximately 84% of the original pipeline capacity is contractually committed until September 30, 2016. Nearly 100% of the additional permanent capacity constructed in connection with the 2002 expansion and to be constructed for the 2003 Expansion Project is contractually committed under 10- and 15-year agreements. Even though Kern River does not market natural gas supply, in each market area the purchaser evaluates the total cost of natural gas supply, including transportation rates, from each alternative supplier/transporter. Based on published rates and fuel percentages, we believe Kern River currently has the lowest transportation costs from well-head to burner tip of any interstate pipeline serving our direct markets in southern California, with gas transportation costs of approximately $0.39-0.44/MMBtu compared to approximately $0.77-$1.10/MMBtu on competing pipelines. There can be no assurance that our competitors do not or will not charge rates which are discounted to these published rates, particularly on a short-term basis. The 2003 Expansion Project shippers' initial tariff rates in the original FERC filing were $0.57-$0.70/MMBtu. These rates are expected to be reduced in a FERC compliance filing Kern River is required to make 60 days prior to placing the 2003 Expansion Project in service. Kern River is the only interstate pipeline that presently delivers natural gas directly from a gas supply basin into the intrastate California market, which enables its customers to avoid paying a "rate stack" (i.e., additional transportation costs attributable to the movement from an interstate system to an intrastate system within California). We believe that Kern River's rate structure and access to downstream pipelines/storage facilities and to low-cost Rocky Mountain gas reserves increases its competitiveness and attractiveness to end-users. Kern River believes it is advantaged relative to other competing interstate pipelines because its relatively new pipeline can be expanded at lower costs than those that apply to other systems. Its levelized rate structures under expansion rates and settlement rates also provide Kern River's customers with future rate certainty. OVERVIEW OF REGULATION AND CONTRACTS The FERC regulates Kern River under the Natural Gas Act, the Natural Gas Policy Act of 1978 and other applicable FERC regulations. The Natural Gas Act grants the FERC authority over the construction and operation of pipelines and related facilities utilized in the transportation and sale of natural gas in interstate commerce, including the extension, enlargement, or abandonment of such facilities, as well as the transportation and wholesale sales of natural gas. The FERC also has authority to regulate rates for natural gas in interstate commerce. Kern River holds several Certificates of Public Convenience and Necessity issued by the FERC authorizing Kern River to construct, operate and maintain its pipeline and related facilities and to transport natural gas in interstate commerce. Kern River's rates, charges and terms and conditions of service are regulated by the FERC. FERC regulations and Kern River's tariff allow Kern River to charge up to maximum approved rates for particular services as set forth in its tariff. Kern River's rates are designed to provide it with the ability to recover prudently incurred operations and maintenance costs, taxes, interest, depreciation and amortization and a regulated return on equity. Natural gas companies may not grant any undue preference to any person, or maintain any unreasonable difference in their rates or other terms of service. 66 Kern River's rates are set using a "levelized cost-of-service" methodology so that the rate is constant over the contract period. This is achieved by using a FERC-approved depreciation schedule in which depreciation increases as interest expenses decrease. When Kern River commenced service in 1992, shippers signed 15-year long-term firm transportation contracts that were to expire in 2007. Under terms of a 1995 rate settlement, Kern River agreed that new rates would be filed by May 1, 1999. Instead of filing a rate case, Kern River negotiated a "pre-settlement" of the rate case with its shippers. This was approved by the FERC pursuant to a 1999 rate settlement in Docket No. RP99-274, which included an agreement for a moratorium on rate cases until May 1, 2002 under which Kern River may be required to file a rate case by May 1, 2004. In order to reduce transportation rates further and extend contract terms beyond 2007, Kern River initiated an open season in October 1998 to measure interest in lower, extended term rates for extended term contracts. Shippers were offered the choice of new 10- or 15-year contracts (4-9 year extensions of their existing contracts) with both options starting on October 1, 2001 and expiring on either September 30, 2011 or September 30, 2016. On February 8, 2001 the FERC approved implementation of the extended term rates. All existing shippers have signed up under the extended term rates program. See "Regulation--Northern Natural Gas and Kern River." KERN RIVER'S 2003 EXPANSION PROJECT The 2003 Expansion Project includes the primary 2003 Expansion Project and the High Desert Lateral. Kern River filed for FERC approval of the primary 2003 Expansion Project on August 1, 2001 and the High Desert Lateral on July 18, 2001. Primary 2003 Expansion Project. Construction commenced on August 6, 2002, and the primary 2003 Expansion Project is expected to be completed and operational by May 1, 2003 at a total cost of approximately $1.2 billion. The primary 2003 Expansion Project is a new parallel 717-mile loop pipeline that will begin in Lincoln County, Wyoming and terminate in Kern County, California. The project is designed to more than double the amount of natural gas transported on the Kern River system. The pipeline will include 36- and 42-inch diameter pipe, most of which will be laid in the existing Kern River right-of-way at a 25-foot offset from the existing pipeline, and new above ground facilities. Three segments along the right-of-way, approximately 205 miles in Utah, Nevada and California, will not require additional pipeline but will instead be areas where the gas will be compressed and transported through the existing pipeline. The existing pipeline rights-of-way, compressor facilities and receipt/delivery facilities will all be utilized by the 2003 Expansion Project, streamlining the permitting, acquisition of rights-of-way and ultimately the construction and operations of the 2003 Expansion Project. The primary 2003 Expansion Project includes the construction of three new compressor stations and the installation of additional compression and other modifications at six existing facilities. When completed, the Kern River system will have a summer day design capacity of approximately 1.73 Bcf/day, an increase of approximately 900 mmcf/day. Kern River has 18 long-term firm transportation service agreements with 17 shippers for 100% of the primary 2003 Expansion Project's capacity. The term for all these service agreements is either 10 or 15 years from the date on which transportation services on the 2003 Expansion Project commence. In addition to the FERC certificate process discussed above, Kern River requires several federal and state land use, air, water and other environmental permits in order to construct and ultimately operate the 2003 Expansion Project. All required permits have been applied for and have been obtained. High Desert Lateral. High Desert Power Project, LLC, or High Desert LLC, has commenced construction of a natural gas-fired 750 MW power plant owned by a subsidiary of Constellation Energy Group in Victorville, California. High Desert LLC has advised us that the plant is scheduled to start commercial operation by July 1, 2003. The High Desert Lateral is a 32-mile lateral and associated meter stations designed to transport up to 282 mmcf/day of natural gas to the High Desert power plant for High Desert LLC's affiliate, Victorville Gas, LLC, from interconnects with the common facilities and PG&E Corporation near Kramer Junction. 67 Victorville Gas, LLC will be seeking to acquire gas supply and/or upstream transportation capacity from shippers on the common facilities. Kern River began construction on the High Desert Lateral in May 2002 and placed the facilities in service on August 31, 2002. 2003 Expansion Project Financing. The 2003 Expansion Project will be financed with 70% debt and 30% equity, consistent with Kern River's existing capital structure, the application for FERC approval of the 2003 Expansion Project and the limitations contained in the indenture for Kern River's existing secured senior notes. On June 21, 2002, Kern River entered into an $875 million credit facility to fund a portion of the costs of the 2003 Expansion Project and we issued a completion guarantee in favor of the lenders under that credit facility. For a more complete description of the Kern River credit facility and our completion guarantee, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Construction--Kern River's 2003 Expansion Project Financing." CE ELECTRIC UK The business of CE Electric UK consists primarily of the distribution of electricity in the United Kingdom by Northern Electric and Yorkshire Electricity. In February 1997, CE Electric UK Ltd., an indirect wholly owned subsidiary of CE Electric UK, acquired Northern Electric. Northern Electric was one of the twelve original United Kingdom regional electric companies which came into existence in 1990 as a result of the restructuring and subsequent privatization of the electricity industry that occurred in the United Kingdom. On September 21, 2001, CE Electric UK Ltd. acquired 94.75% of Yorkshire Electricity from Innogy Holdings plc, or Innogy, and simultaneously sold Northern's electricity and gas supply and metering businesses to Innogy. We sometimes refer to these transactions as the Northern Electric/Yorkshire Electricity swap. In August 2002, CE Electric UK acquired the remaining 5.25% of Yorkshire Electricity that it did not already own from Xcel Energy International, an affiliate of Xcel Energy Inc. With the acquisition of Yorkshire Electricity and the disposal of the electricity and gas supply and metering businesses of Northern Electric and certain other recent or pending strategic disposals, CE Electric UK is positioned to continue to bring together the skills and resources of two neighboring distribution businesses to create one of the largest distribution companies in the United Kingdom, serving more than 3.6 million customers in an area of approximately 10,000 square miles. CE Electric UK has also implemented a number of initiatives which have produced savings in ongoing operating and capital costs at its businesses. BUSINESS OF CE ELECTRIC UK Descriptions of the functional business units of each of Northern Electric's and Yorkshire Electricity's distribution businesses are set forth below. For a summary description of the deregulated energy market in the United Kingdom, see "Regulation--CE Electric UK." ELECTRICITY DISTRIBUTION Northern Electric's and Yorkshire Electricity's operations consist primarily of the distribution of electricity and other auxiliary businesses in the United Kingdom. Northern Electric's and Yorkshire Electricity's distribution licensee companies, Northern Electric Distribution Limited, or NED, and Yorkshire Electricity Distribution plc, or YED, receive electricity from the national grid transmission system and distribute it to their customers' premises using their network of transformers, switchgear and cables. Substantially all of the customers in NED's and YED's distribution service areas are connected to the NED and YED networks and electricity can only be delivered through their distribution system, thus providing NED and YED with distribution volume that is relatively stable from year to year. NED and YED charge fees for the use of the distribution system to the suppliers of electricity. The suppliers, which purchase electricity from generators and sell the electricity to end-user customers, use NED's and YED's distribution networks pursuant to an industry standard "Uses of System Agreement" which NED and YED separately entered into with the various suppliers of electricity in their respective distribution areas. 68 The fees that may be charged by NED and YED for use of their distribution systems are controlled by a prescribed formula that limits increases (and may require decreases) based upon the rate of inflation in the United Kingdom and other regulatory action. For a more detailed description of this pricing formula, see "Regulation--CE Electric UK." At September 30, 2002, NED's and YED's electricity distribution network (excluding service connections to consumers) on a combined basis included approximately 31,000 kilometers of overhead lines and approximately 65,000 kilometers of underground cables. In addition to the circuits referred to above, at September 30, 2002, NED's and YED's distribution facilities also included approximately 56,600 transformers and approximately 58,000 substations. Substantially all substations are owned in freehold, and most of the balance are held on leases which will not expire within 10 years. UTILITY SERVICES Integrated Utility Services Limited, or IUS, a subsidiary of Northern Electric, is an engineering contracting company whose main business is providing electrical connection services on behalf of NED's and YED's distribution businesses and providing electrical infrastructure contracting services to third parties. The acquisition of Yorkshire Electricity by CE Electric UK Ltd. in 2001 has given IUS the opportunity to integrate Yorkshire Electricity's engineering contracting activities into IUS. GENERATION Northern Electric Generation Limited, or Northern Generation, a CE Electric UK subsidiary, presently maintains ownership interests in TPL. Teesside Power Limited. TPL owns and operates a 1,875 net MW combined cycle gas-fired power plant at Wilton in northeast England. Northern Generation owns a 15.4% interest in TPL, but does not operate the plant. The project was initiated in the early 1990s by Enron and at the time of the Enron bankruptcy filing in December 2001, Enron, through its subsidiaries, owned a 42.5% interest in the plant, operated the plant, and contracted to purchase 668 MW of capacity from the plant. In May 2002, TPL executed a restructuring and stabilization agreement with its lenders. It is anticipated that there will be no further dividends arising from this investment and, as a result, Northern Generation wrote off its equity investment in TPL as of December 31, 2001. Viking. In October 2002, Northern Generation sold its 50% interest in a 50MW gas fired mid-merit power plant known as Viking, located at Seal Sands in northeast England, to a subsidiary of Rolls-Royce plc. RETAIL DISPOSAL In August 2002, Northern Electric disposed of its non-core business of selling electrical and gas appliances which had been conducted through Northern Electric Retail Limited, a subsidiary of CE Electric UK. GAS EXPLORATION AND PRODUCTION CE Gas Holdings is a gas exploration and production company which is focused on developing integrated upstream gas projects. Its upstream gas business consists of the exploration, development and production, including transportation and storage, of gas for delivery to a point of sale into either a gas supply market or a power generation facility. In May 2002, CE Gas Holdings completed the sale of most of its United Kingdom natural gas assets to Gaz de France for approximately $200 million ( (pounds sterling)137.0 million). As part of the sale, CE Gas Holdings disposed of all of its interest in the natural gas-producing fields of Anglia, Johnston, Schooner and Windermere, each of which is located in the southern basin of the United Kingdom North Sea. The sale also included all of CE Gas Holdings' rights in four gas fields in development/construction and three exploration blocks owned by CE Gas Holdings. CE Gas Holdings retained its 5% working interest in the Victor Field and its 25% interest in the ETS gas pipeline. During 2001, the Victor Field produced on average 3.5 mmcf/day of gas, and CE Gas Holdings' share of the estimated remaining gas reserves in the Victor Field is 7 Bcf. 69 In addition to retaining its interest in the Victor Field and the ETS pipeline, CE Gas Holdings retained certain development interests in Poland (Polish Trough) and Australia (Perth, Bass and Otway Basins). CE Gas Holdings' interest in the retained fields is estimated to equal approximately 150 Bcf of gas. CALENERGY GENERATION--DOMESTIC OPERATING PROJECTS We own interests in 15 operating non-utility power projects in the United States. The following table sets out certain information concerning our domestic non-utility power projects in operation as of November 1, 2002:
FACILITY NET CONTRACT CAPACITY NET MW EXPIRATION PROJECT (MW)(1) OWNED(1) FUEL LOCATION DATE POWER PURCHASER(2) - ---------------------------------- ---------- ---------- ------ ------------ -------------- ------------------- Cordova .......................... 537 537 Gas Illinois 2019 El Paso/MEC Salton Sea I ..................... 10 5 Geo California 2017 Edison Salton Sea II .................... 20 10 Geo California 2020 Edison Salton Sea III ................... 50 25 Geo California 2019 Edison Salton Sea IV .................... 40 20 Geo California 2026 Edison Salton Sea V ..................... 49 25 Geo California Year-to-year El Paso/Zinc(3) Vulcan ........................... 34 17 Geo California 2016 Edison Elmore ........................... 38 19 Geo California 2018 Edison Leathers ......................... 38 19 Geo California 2019 Edison Del Ranch ........................ 38 19 Geo California 2019 Edison CE Turbo ......................... 10 5 Geo California Year-to-year El Paso/Zinc(3) Saranac .......................... 240 90 Gas New York 2009 NYSEG Power Resources .................. 200 100 Gas Texas 2003 TXU Yuma ............................. 50 25 Gas Arizona 2024 SDG&E Roosevelt Hot Springs(4) ......... 23 17 Geo Utah 2020 UP&L --- --- Total CalEnergy Generation-- Domestic Operations ............. 1,377 933 ===== ===
- ---------- (1) Actual MW may vary depending on operating and reservoir conditions and plant design. Facility Net Capacity (in MW) represents facility gross capacity (in MW) less parasitic load. Parasitic load is electrical output used by the facility and not made available for sale to utilities or other outside purchasers. Net MW owned indicates current legal ownership, but, in some cases, does not reflect the current allocation of partnership distributions. (2) Southern California Edison Company; San Diego Gas & Electric Company; Utah Power & Light Company; New York State Electric & Gas Corporation; TXU Generation Company LP; Zinc Recovery Project; El Paso Corporation; and MidAmerican Energy. (3) Each contract governing power purchases by the Zinc Recovery Project will expire 33 years from the date of the initial power delivery under such contract. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Construction--Zinc Recovery Project" and "Business--CalEnergy Generation--Domestic--Zinc Recovery Project." (4) Our subsidiary owns an approximately 70% indirect interest in this project which supplies geothermal steam to a power plant owned by UP&L. We obtained a cash prepayment under a pre-sale agreement with UP&L whereby UP&L paid in advance for the steam produced by this steam field. Cordova Project. Cordova Energy owns a 537 MW gas-fired power plant in the Quad Cities, Illinois area which we refer to as the Cordova Project. CalEnergy Generation Operating Company, our indirect wholly owned subsidiary, operates the Cordova Project. The Cordova Project commenced commercial operations in June 2001. Cordova Energy entered into a power purchase agreement with a unit of El Paso, under which El Paso will purchase all of the capacity and energy from the project until December 31, 2019. Cordova Energy has exercised an option to recall from El Paso 50% of the output through May 14, 2004, reducing El Paso's purchase obligation to 50% of the output during such period. The recalled output 70 is being sold to MidAmerican Energy. We are aware there have been public announcements that El Paso's financial condition has deteriorated as a result of, among other things, reduced liquidity. We will continue to monitor the situation. We have a 50% ownership interest in CE Gen, which has interests in ten geothermal plants in the Imperial Valley in California (commonly referred to as the Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV, Salton Sea V, Vulcan, Elmore, Leathers, Del Ranch and CE Turbo projects), and three natural gas-fired cogeneration plants (Saranac, Power Resources and Yuma). A subsidiary of El Paso owns the other 50% ownership interest in CE Gen. An indirect wholly owned subsidiary of CE Gen operates each of the ten Imperial Valley geothermal plants and each of the three natural gas-fired cogeneration plants. Each plant possesses an operating margin that allows for production in excess of the facility net MW amount listed in the table above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary between calendar quarters, under normal operating conditions. Imperial Valley Projects. Six of the Imperial Valley geothermal plants sell electricity to Southern California Edison Company, or Edison, under 30-year Standard Offer No. 4 Agreements, which we refer to as the SO4 Agreements. Under the SO4 Agreements, Edison is obligated to pay capacity payments, capacity bonus payments and energy payments. The price for contract capacity payments is fixed for the life of such SO4 Agreement. The energy payments are based on the cost Edison avoids by purchasing energy from the projects instead of obtaining the energy from other sources. This cost is referred to as the Avoided Cost of Energy. In June and November 2001, six of these projects entered into agreements that provide for amended energy payments under the SO4 Agreements. The amendments provide for fixed energy payments of 5.37 cents per kWh commencing May 1, 2002 for a five year period in lieu of Edison's Avoided Cost of Energy. Following the five year period, the energy payments revert to Edison's Avoided Cost of Energy. Two of the Imperial Valley projects have negotiated contracts with Edison. The Salton Sea I contract provides for a capacity payment and energy payment for the life of the contract. Both payments are based upon an initial value that is subject to quarterly adjustment by reference to various inflation-related indices. The Salton Sea IV contract also provides for fixed price capacity payments for the life of the contract and fixed energy prices, which are subject, in part, to quarterly adjustment by reference to various inflation-related indices, through June 20, 2017 (and at Edison's Avoided Cost of Energy thereafter), and, in part, to Edison's Avoided Cost of Energy. The Salton Sea V and Turbo projects began operations in 2000 and, when the Zinc Recovery Project achieves 100% production, the Salton Sea V Project and the Turbo Project would expect to sell approximately 20 MW to the Zinc Recovery Project at a price based on market transactions. The remainder is being sold through other market transactions. Saranac Project. The Saranac Project is a 240 net MW natural gas-fired cogeneration facility located in Plattsburgh, New York. The Saranac Project has entered into a 15-year power purchase agreement with New York State Electric & Gas Company expiring in 2009. The Saranac Project is a qualifying facility, or QF, and has entered into 15-year steam purchase agreements with Georgia-Pacific Corporation and Pactiv Corporation. The Saranac Project has a 15-year natural gas supply agreement with Shell Canada Limited, to supply 100% of the Saranac Project's fuel requirements. Each of the Saranac power purchase agreement, the Saranac steam purchase agreements and the Saranac gas supply agreement contains rates that are fixed for their respective contract terms. Revenues escalate at a higher rate than fuel costs. The Saranac partnership is indirectly owned by subsidiaries of CE Gen, ArcLight Capital Partners LLC and General Electric Capital Corporation. Power Resources Project. The Power Resources Project is a 200 net MW natural gas-fired cogeneration project located near Big Spring, Texas, which has a 15-year power purchase agreement with TXU Generation Company LP, formerly known as Texas Utilities Electric Company expiring in 2003. The Power Resources Project is a QF and has a steam purchase agreement with Alon USA, L.P. 71 Yuma Project. The Yuma Project is a 50 net MW natural gas-fired cogeneration project in Yuma, Arizona providing 50 MW of electricity to San Diego Gas & Electric Company under an existing 30-year power purchase agreement which expires in 2024. The Yuma project is a QF and has executed steam sales contracts with an adjacent industrial entity to act as its thermal host. Roosevelt Hot Springs. One of our subsidiaries operates and owns an approximately 70% indirect interest in a geothermal steam field which supplies geothermal steam to a 23 net MW power plant owned by Utah Power & Light Company, or UP&L, located on the Roosevelt Hot Springs property under a 30-year steam sales contract expiring in 2020. We obtained a cash prepayment under a pre-sale agreement with UP&L whereby UP&L paid in advance for the steam produced by the steam field. We guarantee the performance of this subsidiary. We must make certain penalty payments to UP&L if the steam produced does not meet certain quantity and quality requirements. Zinc Recovery Project. CalEnergy Minerals LLC is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine. Facilities are being installed near the Imperial Valley project's sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is operated by an indirect wholly owned subsidiary of CE Gen, is designed to have a capacity of approximately 30,000 metric tons per year, and has commenced initial commercial operations in 2002. The Zinc Recovery Project is expected to be at 100% production in mid- 2003. DEVELOPMENT PROJECTS Fox Energy. Our subsidiary, Fox, is developing a 635 net MW gas fired power generating facility in Kaukanna, Outagamie County, Wisconsin. A subsidiary of TransAlta Corporation has agreed to participate in the development of this project at a level of 50% and has an option to own 50% of the project. A Certificate of Public Convenience and Necessity was issued by the Public Service Commission of Wisconsin on November 8, 2002. An air permit for construction and initial operations was issued by the Wisconsin Department of Natural Resources on November 4, 2000 and such application was deemed complete on April 25, 2002. A final environmental impact statement was issued by the Wisconsin Department of Natural Resources on August 19, 2002. Electrical and natural gas interconnection agreements and a water supply agreement have also been executed for this project. Salton Sea VI. Our subsidiary, Obsidian, is developing a 185 net MW geothermal facility in Imperial Valley, California. Substantially all the output of the facility will be sold to the Imperial Irrigation District pursuant to a power purchase agreement. An affiliate of El Paso has elected to participate in the ownership and development of this project at a level of 50%. On July 29, 2002, Obsidian filed an application for certification seeking approval from the California Energy Commission to construct and operate the facility. CALENERGY GENERATION--FOREIGN The following table sets out information concerning CalEnergy Generation's principal foreign non-utility power projects in operation as of November 1, 2002:
FACILITY NET POLITICAL CAPACITY NET MW COMMERCIAL U.S. $ POWER PURCHASER/ RISK PROJECT (MW)(1) OWNED(1) FUEL LOCATION OPERATION PAYMENTS GUARANTOR(2) INSURANCE - ------------------- ---------- ------------ ------- ------------- ------------ ---------- ------------------ ---------- Mahanagdong ....... 165 149 Geo Philippines 1997 Yes PNOC-EDC/ROP Yes Malitbog .......... 216 216 Geo Philippines 1996-97 Yes PNOC-EDC/ROP Yes Upper Mahiao ...... 119 119 Geo Philippines 1996 Yes PNOC-EDC/ROP Yes Casecnan .......... 150 150(3) Hydro Philippines 2001 Yes NIA/ROP Yes --- --- Total CalEnergy Generation-- Foreign Operations ....... 650 634 === ===
72 - ---------- (1) Actual MW may vary depending on operating and reservoir conditions and plant design. Facility Net Capacity (in MW) represents the contract capacity for the facility. Net MW owned indicates current legal ownership, but, in some cases, does not reflect the current allocation of distributions. (2) PNOC--Energy Development Corporation, or PNOC-EDC, Republic of the Philippines, or ROP, and NIA (NIA also purchases water from this facility). The government of the Philippines undertaking supports PNOC-EDC's and NIA's respective obligations. (3) Subject to repurchase rights of up to 15% of the project by an initial minority shareholder and a dispute with the other initial minority shareholder regarding an additional 15% of the project. Also see "Legal Proceedings--Casecnan Shareholder Litigation" and note 20 to our consolidated financial statements for the year ended December 31, 2001 for a discussion of legal proceedings regarding this ownership interest. We indirectly own the Upper Mahiao, Malitbog and Mahanagdong projects, which are geothermal power plants located on the island of Leyte in the Philippines, and the Casecnan Project, a combined irrigation and hydroelectric power generation project, which is located in the central part of Island of Luzon in the Philippines. One of our indirect wholly owned subsidiaries operates each of these projects. Each plant possesses an operating margin that allows for production in excess of the amount listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary between calendar quarters, under normal operating conditions. Mahanagdong. The Mahanagdong Project is a 165 net MW geothermal power project owned and operated by CE Luzon Geothermal Power Company, Inc., or CE Luzon, a Philippine corporation of which we indirectly own 100% of the common stock. Another industrial company owns an approximate 10% preferred equity interest in the Mahanagdong Project. The Mahanagdong Project has been in commercial operation since July 25, 1997. The Mahanagdong Project sells 100% of its capacity on a similar basis as described above for the Upper Mahiao Project to PNOC-EDC, which in turn sells the power to the NPC for distribution on the island of Luzon. The terms of the Mahanagdong energy conversion agreement are substantially similar to those of the Upper Mahiao agreement. The Mahanagdong agreement provides for a ten-year cooperation period. At the end of the cooperation period, the facility will be transferred to PNOC-EDC at no cost. All of PNOC-EDC's obligations under the Mahanagdong agreement are supported by the Republic of the Philippines through a performance undertaking. The capacity fees are approximately 97% of total revenues at the design capacity levels and the energy fees are approximately 3% of such total revenues. PNOC-EDC's payment requirements, and its other obligations under the Mahanagdong agreement, are supported by the Republic of the Philippines through a performance undertaking. Malitbog. The Malitbog Project is a 216 net MW geothermal project owned and operated by Visayas Geothermal Power Company, or VGPC, a Philippine general partnership that is wholly owned, indirectly, by us. The three units of the Malitbog facility were put into commercial operation on July 25, 1996 (for Unit I) and July 25, 1997 (for Units II and III). VGPC sells 100% of its capacity on substantially the same basis as described above for the Upper Mahiao Project to PNOC-EDC, which sells the power to the NPC for distribution on the islands of Cebu and Luzon. The electrical energy produced by the facility is sold to PNOC-EDC on a take-or-pay basis. These capacity payments equal approximately 100% of total revenues. A substantial majority of the capacity payments are required to be made by PNOC-EDC in dollars. The portion of capacity payments payable to PNOC-EDC in pesos is expected to vary over the term of the Malitbog energy conversion agreement from 10% of VGPC's revenues in the early years of the 10-year cooperation period to 23% of VGPC's revenues at the end of the cooperation period. Payments made in pesos will generally be made to a peso-dominated account and will be used to pay peso-denominated operation and maintenance expenses with respect to the Malitbog Project and Philippine withholding taxes, if any, on the Malitbog Project's debt service. The government of the Philippines has entered into a performance undertaking, which provides that all of PNOC-EDC's obligations pursuant to the Malitbog energy conversion agreement carry the full faith and credit of, and are affirmed and guaranteed by, the Republic of the Philippines. 73 The Malitbog energy conversion agreement cooperation period expires ten years after the date of commencement of commercial operation of Unit III. At the end of this cooperation period, the facility will be transferred to PNOC-EDC at no cost, on an "as is" basis. See "Legal Proceedings" for a description of legal proceedings related to the Malitbog Project. Upper Mahiao. The Upper Mahiao facility is a 119 net MW geothermal power project owned and operated by CE Cebu Geothermal Power Company, Inc., or CE Cebu, a Philippine corporation that is 100% indirectly owned by us. The Upper Mahiao facility has been in commercial operation since June 17, 1996. Under the terms of the Upper Mahiao energy conversion agreement, CE Cebu owns and operates the Upper Mahiao Project during the ten-year cooperation period, which commenced in June 1996, after which ownership will be transferred to PNOC-Energy Development Corporation, or PNOC-EDC, at no cost. The Upper Mahiao Project is located on land provided by PNOC-EDC at no cost. The project takes geothermal steam and fluid, also provided by PNOC-EDC at no cost, and converts its thermal energy into electrical energy which is sold to PNOC-EDC on a "take-or-pay" basis, which in turn sells the power to the NPC, for distribution on the island of Cebu. PNOC-EDC pays to CE Cebu a fee based on the plant capacity nominated to PNOC-EDC in any year (which, at the plant's design capacity, is approximately 95% of total contract revenues) and a fee based on the electricity actually delivered to PNOC-EDC (approximately 5% of total contract revenues). Payments under the Upper Mahiao agreement are denominated in U.S. dollars, or computed in U.S. dollars and paid in Philippine pesos at the then-current exchange rate, except for the energy fee. PNOC-EDC's payment requirements, and its other obligations under the Upper Mahiao agreement, are supported by the Republic of the Philippines through a performance undertaking. Casecnan. CE Casecnan, our indirectly majority owned subsidiary, operates the Casecnan Project, a combined irrigation and 150 net MW hydroelectric power generation project. The Casecnan Project consists generally of diversion structures in the Casecnan and Taan Rivers that captures and diverts excess water in the Casecnan watershed by means of concrete, in-stream diversion weirs and transfers that water through a transbasin tunnel of approximately 23 kilometers (including the intake audit from the Taan to the Casecnan River), with a diameter of approximately 6.5 meters to an existing underutilized water storage reservoir at Pantabangan. During the water transfer, the elevation differences between the two watersheds allows electrical energy to be generated at a 150 net MW rated capacity power plant, which is located in an underground powerhouse cavern at the end of the water tunnel. A tailrace discharge tunnel of approximately three kilometers delivers water from the water tunnel and the powerhouse to the Pantabangan Reservoir, providing additional water for irrigation and increasing the potential electrical generation at two downstream existing hydroelectric facilities of the NPC, the government-owned and controlled corporation that is the primary supplier of electricity in the Philippines. CE Casecnan constructed the Casecnan Project under the terms of the project agreement between CE Casecnan and NIA. Under the project agreement, CE Casecnan developed, financed and arranged for the construction of the Casecnan Project, and will own and operate the Casecnan Project for 20 years. During this cooperation period, NIA is obligated to accept all deliveries of water and energy, and so long as the Casecnan Project is physically capable of operating and delivering in accordance with agreed levels set forth in the project agreement, NIA will pay CE Casecnan a fixed fee for the delivery of a minimum volume of water and a fixed fee for the delivery of a minimum amount of electricity. In addition, NIA will pay a fee for all electricity delivered in excess of a threshold amount up to a specified amount. NIA will sell the electricity it purchases to the NPC, although NIA's obligations to CE Casecnan under the project agreement are not dependent on the NPC's purchase of the electricity from NIA. All fees to be paid by NIA to CE Casecnan are payable in U.S. dollars. The fixed fees for the delivery of water and energy, regardless of the amount of electricity or water actually delivered, are expected to provide approximately 78% of CE Casecnan's revenues. At the end of the cooperation period, the Casecnan Project will be transferred to NIA and the NPC for no additional consideration on an "as is" basis. 74 The Republic of the Philippines has provided a performance undertaking under which NIA's obligations under the project agreement are guaranteed by the full faith and credit of the Republic of the Philippines. See "Legal Proceedings" for a description of legal proceedings related to the Casecnan Project. HOMESERVICES HomeServices of America, Inc., or HomeServices, our wholly owned subsidiary, is the second largest full-service independent residential real estate brokerage firm in the United States based on aggregate closed transaction sides. Closed transaction sides mean either the buy side or sell side of any closed home purchase and is the standard term used by industry participants and publications to rank real estate brokerage firms. In addition to providing traditional residential real estate brokerage services, HomeServices offers other integrated real estate services, including mortgage originations, title and closing services and other related services. HomeServices currently operates in 15 states under the following brand names: Carol Jones Realty, CBSHOME Real Estate, Champion Realty, Edina Realty, First Realty/GMAC, Iowa Realty, Jenny Pruitt and Associates REALTORS, Long Realty, Prudential California Realty, Realty South, Reece & Nichols, Semonin REALTORS and Woods Bros. Realty. HomeServices generally occupies the number one or number two market share position in each of its major markets based on aggregate closed transaction sides. HomeServices' major markets consist of the following metropolitan areas: Minneapolis and St. Paul, Minnesota; Los Angeles and San Diego, California; Kansas City, Kansas; Des Moines, Iowa; Omaha and Lincoln, Nebraska; Birmingham, Alabama; Tucson, Arizona; Louisville, Kentucky; Annapolis, Maryland; Atlanta, Georgia and Springfield, Missouri. REAL ESTATE COMPANIES 2002 ACQUISITIONS In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $100 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue of approximately $356 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $18.5 million calculated based on 2002 financial performance measures. These purchases were financed using HomeServices' $65 million revolving credit facility and our corporate revolver for $40 million, which was contributed to HomeServices as equity. We are in the process of completing the allocation of the purchase prices to the assets and liabilities acquired. PROPERTIES Our utility properties consist of physical assets necessary and appropriate to render electric and gas service in our service territories. Electric property consists primarily of generation, transmission and distribution facilities. Gas property consists primarily of distribution plants, natural gas pipelines, related rights-of-way, compressor stations and meter stations. It is the opinion of management that the principal depreciable properties owned by us are in good operating condition and well maintained. MIDAMERICAN ENERGY MidAmerican Energy's most significant properties are its electric generation facilities. For a discussion of these generation facilities, please see "Business--MidAmerican Energy." At September 30, 2002, the electric transmission system of MidAmerican Energy included approximately 900 miles of 345-kV lines, and 1,325 miles of 161-kV lines. The gas distribution facilities of MidAmerican Energy at September 30, 2002 included approximately 20,600 miles of gas mains and services. Substantially all of the former Iowa-Illinois Gas and Electric Company (predecessor to MidAmerican Energy Company) utility property and franchises, and substantially all of the former Midwest Power Systems Inc. (predecessor to MidAmerican Energy Company) electric utility property located in Iowa, or approximately 79% of gross utility plant, is pledged to secure mortgage bonds. In addition to the circuits referred to above, at September 30, 2002, MidAmerican Energy's delivery facilities also included approximately 218,000 distribution transformers and approximately 370 substations. 75 NORTHERN NATURAL GAS AND KERN RIVER At September 30, 2002, Northern Natural Gas' system was comprised of approximately 7,300 miles of mainline transmission pipes and approximately 9,300 miles of smaller diameter branch lines and laterals. Northern Natural Gas' storage services are provided through the operation of three underground storage fields, in Redfield, Iowa, and Lyons and Cunningham, Kansas. The three underground natural gas storage facilities and Northern Natural Gas' two liquefied natural gas storage peaking units have a total storage capacity of approximately 59 Bcf. Northern Natural Gas' two LNG liquefaction/vaporization facilities are located near Garner, Iowa and Wrenshall, Minnesota with storage capacity of 2 Bcf each. At September 30, 2002, Kern River's pipeline was comprised of two distinguishable sections: the mainline and the common facilities. The 707-mile mainline section extends from the pipeline's point of origination in Opal, Wyoming through the Central Rocky Mountains area into Daggett, California and is owned entirely by Kern River. The common facilities consist of the 219-mile section of pipeline that extends from Daggett to Bakersfield, California. The common facilities are jointly owned by Kern River (currently approximately 67.9%) and Mojave Pipeline Company (currently approximately 32.1%) as tenants-in-common. The right to construct and operate the pipelines across certain property was obtained through negotiations and through the exercise of the power of eminent domain, where necessary. Northern Natural Gas and Kern River continue to have the power of eminent domain in each of the states in which they operate their respective pipelines, but they do not have the power of eminent domain with respect to Native American tribal lands. Although the main Kern River pipeline crosses the Moapa Indian Reservation, all facilities are located within a utility corridor that is reserved to the United States Department of Interior, Bureau of Land Management. With respect to real property, each of the pipelines falls into two basic categories: (1) parcels that are owned in fee, such as certain of the compressor stations, measurement stations and district office sites; and (2) parcels where the interest derives from leases, easements, rights-of-way, permits or licenses from landowners or governmental authorities permitting the use of such land for the construction, operation and maintenance of the pipelines. We believe that Northern Natural Gas and Kern River each have satisfactory title to all of the real property making up their respective pipelines in all material respects. CE ELECTRIC UK At September 30, 2002, Northern Electric's and Yorkshire Electricity's electricity distribution networks (excluding service connection to consumers) on a combined basis included approximately 31,000 kilometers of overhead lines and approximately 65,000 kilometers of underground cables. In addition to the circuits referred to above, at September 30, 2002, Northern Electric's and Yorkshire Electricity's distribution facilities also included approximately 56,600 transformers and approximately 58,000 substations. OTHER PROPERTIES At September 30, 2002, our most significant physical properties, other than those owned by MidAmerican Energy, Northern Natural Gas, Kern River and CE Electric UK, are our current interests in operating power facilities and our plants under construction and related real property interests, as well as leases of office space for our residential real estate brokerage operations. See "Business" for further detail. 76 REGULATION Our operating platforms are subject to a number of federal, state, local and international regulations. MIDAMERICAN ENERGY MidAmerican Energy is subject to comprehensive regulation by utility regulatory agencies in Iowa, Illinois and South Dakota that significantly influences the operating environment and the recoverability of costs from utility customers. Except for Illinois, that regulatory environment has to date, in general, given MidAmerican Energy an exclusive right to serve electricity customers within its service territory and, in turn, the obligation to provide electric service to those customers. In Illinois all customers are free to choose their electricity provider. MidAmerican Energy has an obligation to serve customers at regulated rates that leave MidAmerican Energy's system, but later choose to return. To date, there has been no significant loss of customers from MidAmerican Energy's existing regulated Illinois rates. In connection with the March 1999 approval by the IUB of the MidAmerican Energy acquisition and March 2000 affirmation as part of our acquisition by a private investor group, we agreed, among other things, to use all commercially reasonable efforts to maintain an investment grade credit rating for MidAmerican Energy's utility operations and its long-term debt and to seek the approval of the IUB of a reasonable utility capital structure if MidAmerican Energy's utility operations' common equity level decreases below 42%, excluding circumstances beyond its control, or below 39%, under any circumstances. MidAmerican Energy's utility operations' common equity level at December 31, 2001 and September 30, 2002 was above these levels. With the elimination of its energy adjustment clause in Iowa in 1997, MidAmerican Energy is financially exposed to movements in energy prices. Although MidAmerican Energy has sufficient low cost generation under typical operating conditions for its retail electric needs, a loss of adequate generation by MidAmerican Energy requiring the purchase of replacement power at a time of high market prices could subject MidAmerican Energy to losses on its energy sales. In December 1999, the FERC issued Order No. 2000 establishing among other things minimum characteristics and functions for regional transmission organizations. Public utilities that were not a member of an independent system operator at the time of the order were required to submit a plan by which their transmission facilities would be transferred to a regional transmission organization. On September 28, 2001, MidAmerican Energy and five other electric utilities filed with the FERC a plan to create TRANSLink Transmission Company LLC and to integrate their electric transmission systems into a single, coordinated system operating as a for-profit independent transmission company in conjunction with a FERC approved regional transmission organization. On April 25, 2002, the FERC issued an order approving the transfer of control of MidAmerican Energy's and other utilities' transmission assets to TRANSLink in conjunction with TRANSLink's participation in the Midwest ISO. Additionally, state regulatory approval is required from states in which TRANSLink will be operating and those applications have not yet been filed. Once filed, MidAmerican Energy does not anticipate rulings in the state proceedings until some time in 2003. Transferring operation and control of MidAmerican Energy's transmission assets to other entities could increase costs for MidAmerican Energy; however, the actual impact of TRANSLink on MidAmerican Energy's future transmission costs is not yet known. On July 31, 2002, the FERC issued a notice of proposed rulemaking with respect to Standard Market Design for the electric industry. The FERC has characterized the proposal as portending "sweeping changes" to the use and expansion of the interstate transmission and the wholesale bulk power systems in the United States. The proposal includes numerous proposed changes to the current regulation of transmission and generation facilities designed "to promote economic efficiency" and replace the "obsolete patchwork we have today," according to the FERC's chairman. The final rule, if adopted as currently proposed, would require all public utilities operating transmission facilities subject to the FERC jurisdiction to file revised open access transmission tariffs that would require changes to the basic services these public utilities currently provide. The proposed rule may impact the costs and/or pricing of MidAmerican Energy's electricity and transmission products. The FERC does not envision that a final rule will be fully implemented until September 30, 2004. We are still evaluating the proposed rule, and we 77 believe that the final rule could vary considerably from the initial proposal. Accordingly, we are presently unable to quantify the likely impact of the proposed rule on us. The structure of such federal and state energy regulations have in the past, and may in the future, be the subject of various challenges and restructuring proposals by utilities and other industry participants. The implementation of regulatory changes in response to such changes or restructuring proposals, or otherwise imposing more comprehensive or stringent requirements on us, which would result in increased compliance costs, could have a material adverse effect on our results of operations. Under a settlement agreement approved by the IUB on December 21, 2001, MidAmerican Energy's Iowa retail rates in effect on December 31, 2000 are frozen through December 31, 2005. Additionally, this settlement agreement reinstates, with modifications, the revenue sharing provisions of a 1997 pricing plan settlement agreement, which expired on December 31, 2000. The settlement agreement further provides that an amount equal to 50% of revenues associated with Iowa retail electric returns on equity between 12% and 14%, and 83.33% of revenues associated with Iowa retail electric returns on equity above 14%, in each year will be recorded as a regulatory liability to be used to offset a portion of the cost to Iowa customers of future generating plant investment. An amount equal to the regulatory liability will be recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Interest expense is accrued on the portion of the regulatory liability related to prior years. Beginning in 2002, the liability is being reduced as it is credited against allowance for funds used during construction or capitalized financing costs associated with generating plant additions. As of September 30, 2002, the related regulatory liability was $95.0 million. In Iowa, MidAmerican Energy does not have an energy adjustment clause, so any significant increase in fuel costs or purchased power costs could have a negative impact on MidAmerican Energy. Under an Illinois restructuring law enacted in 1997, as amended in 2002, a sharing mechanism is in place for MidAmerican Energy's Illinois regulated retail electric operations whereby earnings above a computed level of return on common equity will be shared equally between customers and MidAmerican Energy. MidAmerican Energy's computed level of return on common equity is based on a rolling two-year average of the Monthly Treasury Long-Term Average Rate, as published by the Federal Reserve System, plus a premium of 8.5% for 2000 through 2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which sharing must occur for 2001 was 14.34%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of regulatory assets. On September 21, 2001, MidAmerican Energy filed a petition with the South Dakota Public Utilities Commission, or SDPUC, to increase its South Dakota natural gas rates. On February 20, 2002, the SDPUC approved a settlement agreement allowing increased rates of $3.1 million annually. On October 19, 2001, MidAmerican Energy filed a petition with the Illinois Commerce Commission to increase its Illinois natural gas rates. On September 11, 2002, the Illinois Commerce Commission issued an order granting MidAmerican Energy a $2.2 million annual increase in rates. On March 15, 2002, MidAmerican Energy made a filing with the IUB requesting an increase in rates of approximately $26.6 million for its Iowa retail natural gas customers. As part of the filing, MidAmerican Energy requested an interim rate increase of approximately $20.4 million annually. On June 12, 2002, the IUB issued an order granting MidAmerican Energy an interim increase of approximately $13.8 million annually, effective immediately and subject to refund with interest. On July 15, 2002 MidAmerican Energy and the Office of Consumer Advocate filed a proposed settlement agreement with the IUB. The settlement agreement, which was approved by the IUB on November 8, 2002, provides for an increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas customers and freezes such rates for two years after the date the IUB approves tariffs implementing the settlement agreement. MidAmerican Energy implemented the new rates effective November 25, 2002. NORTHERN NATURAL GAS AND KERN RIVER Northern Natural Gas and Kern River are subject to regulation by various federal and state agencies as discussed below. 78 As owners of interstate natural gas pipelines, Northern Natural Gas' and Kern River's rates, services and operations are subject to regulation by the FERC. The FERC administers, among other things, the Natural Gas Act and the Natural Gas Policy Act. Additionally, interstate pipeline companies are subject to regulation by the Department of Transportation pursuant to the Natural Gas Pipeline Safety Act, which establishes safety requirements in the design, construction, operations and maintenance of interstate natural gas transmission facilities. The FERC has jurisdiction over, among other things, the construction and operation of pipelines and related facilities used in the transportation, storage and sale of natural gas in interstate commerce, including the extension, enlargement or abandonment of such facilities. The FERC also has jurisdiction over the rates and charges and terms and conditions of service for the transportation of natural gas in interstate commerce. Our pipeline subsidiaries also are required to file with the FERC an annual report on Form 2, which is publicly available, disclosing general corporate information and financial statements regarding our pipeline subsidiaries. Northern Natural Gas has implemented a straight fixed variable rate design which provides that all fixed costs assignable to firm capacity customers, including a return on equity, are to be recovered through fixed monthly demand or capacity reservation charges which are not a function of throughput volumes. Northern Natural Gas' current tariff structure provides for: o seasonality in demand rates; o extension of the majority of firm storage and transport contracts through May 31, 2003 and October 31, 2003, respectively; o a rate moratorium through October 31, 2003, with limited re-openers based on the FERC's rulemaking changes; and o the right of Northern Natural Gas to file for term-differentiated rates, if allowed. Northern Natural Gas' tariff rates were designed to recover a cost of service that would reflect a 12.3% return on equity based upon the settlement reached in FERC Docket No. RP 98-203. Northern Natural Gas' last rate case was filed on May 1, 1998, and its next rate case may be filed no earlier than May 2003 and no later than May 2004. Northern Natural Gas' most likely next rate case filing date is May 1, 2003 with filed rates to be effective November 1, 2003. Kern River's tariff rates were designed to recover a cost of service that would reflect a 13.25% return on equity. Kern River's rates are set using a "levelized cost-of-service" methodology so that the rate is constant over the contract period. This is achieved by using a FERC-approved depreciation schedule in which depreciation increases as interest expense decreases. In 2000, the FERC issued new rules with respect to terms and conditions of interstate pipeline transportation service pursuant to Order No. 637. In Order No. 637, the FERC made changes to its regulatory model to enhance the effectiveness and efficiency of gas markets as they evolved since the series of FERC orders commonly referred to as Order No. 636, which were adopted beginning in the early 1990s and which provided for the restructuring of interstate pipeline sales and services. Specifically, in Order No. 637 the FERC: o addressed alternatives to traditional pipeline pricing by permitting peak/off-peak and term differentiated rate structures; o revised certain reporting requirements; and o made changes in regulations related to (1) scheduling equality for released capacity, (2) capacity segmentations, and (3) pipeline imbalance services, operational flow orders and penalties. On July 17, 2000, Northern Natural Gas made its initial compliance filing in accordance with the FERC's Order No. 637. Northern Natural Gas made a revised Order No. 637 compliance filing on March 4, 2002 and a supplemental filing on May 10, 2002. On November 21, 2002, the FERC issued an Order on Compliance with Order Nos. 637, 587-G and 587-L. In the November 21, 2002 Order, the FERC found that Northern Natural Gas generally complied with Order Nos. 637, 587-G and 587-L, subject to certain modifications, and ordered Northern Natural Gas to file compliance tariffs within 30 days. 79 On June 15, 2000, Kern River filed pro forma tariff sheets in Docket No. RP00-337 to comply with the FERC's directives in Order No. 637. In its May 30, 2002 "Order on Compliance with Order No. 637 and Second Order on Compliance with Order Nos. 587-G and 587-L," the FERC found that Kern River had generally complied with the requirements of Order Nos. 637, 587-G and 587-L, subject to the certain modifications. On October 31, 2002, the FERC issued an order that generally accepted Kern River's tariff filings to comply with Order Nos. 637, 587-G and 587-L. In the order, the FERC directed Kern River to provide a park and loan service and to make changes addressing segmentation as well as forward and backhaul nominations. On June 28, 2002, Kern River filed tariff sheets to comply with the FERC's order. These tariff sheets are pending action by the FERC. On September 30, 2002, the FERC issued an order on Kern River's compliance filing with Order No. 587-0. The FERC found that Kern River generally complied with the requirements of Order No. 587-0 and that Kern River should refile its title transfer tracking service. As a result of the FERC's policies favoring competition in gas markets and the expansion of existing pipelines and construction of new pipelines, the interstate pipeline industry has begun to experience some turnback of firm capacity as existing transportation service agreements expire and are terminated. LDCs and end-use customers have more choices in the new, more competitive environment and may be able to shift load from one pipeline to another. If a pipeline experiences capacity turnback and is unable to remarket the capacity, the pipeline or its other customers may have to bear the costs associated with the capacity that is turned back. These issues will be resolved in a pipeline's general rate case proceedings. The FERC also has authority over gas pipelines' accounting practices. The FERC recently issued a notice of proposed rulemaking regarding gas accounting issues which would limit the ability of gas pipelines to enter into cash management agreements with their parent companies. We are in the process of reviewing such proposed rule, but we do not believe the rule will have a material adverse impact on us and our pipeline subsidiaries. See "Business--Northern Natural Gas Company--Overview of Regulation and Contracts" and "Business--Kern River Gas Transmission Company--Overview of Regulation and Contracts." Additional proposals and proceedings that might affect the interstate pipeline industry are considered from time to time by Congress, the FERC, state regulatory bodies and the courts. In some states various forms of restructuring legislation have been passed and in many states local utility regulatory agencies are overseeing the restructuring. As a result of restructuring, LDCs could unbundle their services and withdraw from all or part of their merchant function, and electric utilities could divest their generating function. This restructuring would result in the interstate pipelines having different customer profiles, including independent gas marketers and independent power generators and end-users. We cannot predict when or if any new proposals might be implemented or, if so, how Northern Natural Gas and Kern River might be affected. OTHER UNITED STATES REGULATION The Public Utility Regulatory Policies Act of 1978, as amended, or PURPA, and PUHCA are two of the laws (including the regulations thereunder) that affect our and certain of our subsidiaries' operations. PURPA provides to QFs certain exemptions from federal and state laws and regulations, including organizational, rate and financial regulation. PUHCA extensively regulates and restricts the activities of registered public utility holding companies and their subsidiaries. Congress is currently considering major changes to both PUHCA and PURPA in a House-Senate conference on a comprehensive energy bill (H.R. 4). The Senate version of the bill (S. 517) would repeal PUHCA and replace it with provisions giving state and federal regulators enhanced access to the books and records of all utility holding companies. The Senate bill would also prospectively repeal PURPA's mandatory purchase obligation for utilities, but this provision would not abrogate CalEnergy Generation-Domestic's existing QF contracts. Any such legislation, if adopted, could vary considerably from the terms contained in either or both of the House and Senate versions which are presently under consideration. We believe that if the current proposed legislation is passed, it would apply to new projects only and thus, although potentially 80 impacting our ability to develop new domestic projects, it would not affect our existing qualifying facilities. We cannot assure you, however, that legislation, if passed, or any other similar legislation proposed in the future, would not adversely impact our existing domestic projects. We are currently exempt from regulation under all provisions of PUHCA, except the provisions that regulate the acquisition of securities of public utility companies, based on the intrastate exemption in Section 3(a)(1) of PUHCA. In order to maintain this exemption, we and each of our public utility subsidiaries from which we derive a material part of our income (currently only MidAmerican Energy) must be predominantly intrastate in character and organized in and carry on our and their respective utility operations substantially in our state of organization (currently Iowa). Except for MidAmerican Energy's generating plant assets, the majority of our domestic power plants and all of our foreign utility operations are not public utilities within the meaning of PUHCA as a result of their status as QFs under PURPA (with our ownership interest therein limited to 50%), exempt wholesale generators or foreign utility companies, or are otherwise exempted from the definition of "public utility" under PUHCA. Although we believe that we will continue to qualify for exemption from additional regulation under PUHCA, it is possible that as a result of the expansion of our public utility operations, loss of exempt status by one or more of our domestic power plants or foreign utilities, or amendments to PUHCA or the interpretation of PUHCA, we could become subject to additional regulation under PUHCA in the future. There can be no assurances that such regulation would not have a material adverse effect on us. In the event we were unable to avoid the loss of QF status for one or more of our affiliate's facilities, such an event could result in termination of a given project's power sales agreement and a default under the project subsidiary's project financing agreements, which, in the event of the loss of QF status for one or more facilities, could have a material adverse effect on us. Regulatory requirements applicable in the future to nuclear generating facilities could adversely affect the results of operations of us and MidAmerican Energy, in particular. We are 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; risks of a serious nuclear incident; 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 Nuclear Regulatory Commission has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generating facilities. Revised safety requirements promulgated by the Nuclear Regulatory Commission have, in the past, necessitated substantial capital expenditures at nuclear plants, including those in which MidAmerican Energy has an ownership interest, such as the Quad Cities units, and additional such expenditures could be required in the future. CE ELECTRIC UK Since 1990, the electricity generation, supply and distribution industries in Great Britain have been privatized, and competition has been introduced in generation and supply. Electricity is produced by generators, transmitted through the national grid transmission system by The National Grid Company plc (or in Scotland by Scottish Power or Scottish Hydro Electric) and distributed to customers by the fourteen Distribution License Holders, which we refer to as DLHs, in their respective distribution service areas. During the fourth quarter of 1998, the market for supplying electricity began to be opened to competition through a phased-in program. This program, which proceeded by geographic areas, was completed in 1999. Under the Utilities Act 2000, the public electricity supply license created pursuant to the Electricity Act 1989 was replaced by two separate licenses--the electricity distribution license and the electricity supply license. When the relevant provision of the Utilities Act 2000 became effective on October 1, 2001, the public electricity supply licenses formerly held by Northern Electric plc and Yorkshire Electricity Group plc were split so that separate subsidiaries held licenses for electricity distribution and electricity supply. In order to comply with the Utilities Act 2000 and to facilitate this license splitting, Northern Electric plc and Yorkshire Electricity Group plc (and each of the other holders of the former public 81 electricity supply licenses) each made a statutory transfer scheme that was approved by the Secretary of State for Trade and Industry. These schemes provided for the transfer of certain assets and liabilities to the licensed subsidiaries. This occurred on October 1, 2001, a date set by the Secretary of State for Trade and Industry. As a consequence of these schemes, the electricity distribution businesses of Northern Electric plc and Yorkshire Electricity Group plc were transferred to NED and YED, respectively. NED and YED are each holders of an electricity distribution license. The residual elements of the Electricity Supply licenses were transferred to Innogy in connection with the sale of Northern Electric's electricity and gas supply business to Innogy and the retention by Innogy of the electricity and gas supply business of Yorkshire Electricity, all as a part of the Northern Electric/Yorkshire Electricity Swap on September 21, 2001. Each of the DLHs is required to offer terms for connection to its distribution system and for use of its distribution system to any person. In providing the use of its distribution system, a DLH must not discriminate between users, nor may its charges differ except where justified by differences in cost. Most revenue of the DLHs is controlled by a distribution price control formula which is set out in the license of each DLH. It has been the practice of Ofgem (and its predecessor body, the Office of Electricity Regulation), to review the formula periodically and to reset it at intervals of five year duration. The formula may be varied with the consent of the DLH, or if the DLH does not consent, following a review by the U.K.'s competition authority. The periodic review during which the formula is reset is the process by which Ofgem determines its view of the future allowed revenue of DLHs. The procedure and methodology adopted at a price control review is at the reasonable discretion of Ofgem. At the last such review, concluded in 1999 and effective April 2000, Ofgem's judgment of the future allowed revenue of licensees was based upon, among other things: o the actual operating costs of each of the licensees; o the operating costs which each of the licensees would incur if it were as efficient as, in Ofgem's judgment, the most efficient licensee; o the regulatory value to be ascribed to each of the licensees' distribution network assets; the allowance for depreciation of the distribution network assets of each of the licensees; o the rate of return to be allowed on investment in the distribution network assets by all licensees; and o the financial ratios of each of the licensees and the license requirement for each licensee to maintain an investment grade status. As a result of the most recent review, the allowed revenue of Northern Electric's distribution business was reduced by 24%, in real terms, and the allowed revenue of Yorkshire Electricity's distribution business was reduced by 23%, in real terms, with effect from April 1, 2000. The range of reductions for all licensees in Great Britain was between 4% and 33%. For the duration of the current regulatory period, the 1999 review also requires that regulated distribution revenue per unit be increased or decreased each year by RPI-Xd, where the factor "RPI" is the United Kingdom retail price index reflecting the average of the 12-month inflation rates recorded for each month in the previous July to December period and "Xd" is an adjustment factor which was established by Ofgem at the 1999 review (and continues to be set) at 3%. The formula also takes account of the changes in system electrical losses, the number of customers connected and the voltage at which customers receive the units of electricity distributed. This formula determines the maximum average price per unit of electricity distributed (in pence per kilowatt hour) which a DLH is entitled to charge. The distribution price control formula permits DLHs to receive additional revenues due to increased distribution of units and a predetermined increase in customer numbers. Once set, the price control formula does not, during its duration, seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH's costs. During the duration of the price control, additional cost savings or costs, if any, therefore directly impact profit. 82 The distribution prices allowable under the current distribution price control formula are expected to be reviewed by Ofgem in time for a revised formula to take effect from April 1, 2005. The formula may be further reviewed at other times in the discretion of the regulator. Ofgem has recently modified the licenses of all DLHs to implement an "Information and Incentives Project" under which up to 2% of a DLH's regulated income depends upon the performance of the DLH's distribution system as measured by the number and duration of customer interruptions and upon the level of customer satisfaction monitored by Ofgem. Under the Utilities Act 2000, GEMA is able to impose financial penalties on license holders who contravene (or have in the past contravened) any of their license duties or certain of their duties under the Electricity Act 1989 or who are failing (or have in the past failed) to achieve a satisfactory performance in relation to the individual standards of performance prescribed by GEMA. Any penalty imposed must be reasonable and may not exceed 10% of the licensee's revenue. CALENERGY GENERATION--DOMESTIC Each of the operating domestic power facilities owned through CE Gen meets the requirements promulgated under PURPA to be qualifying facilities, except for Cordova Energy. Qualifying facility or "QF" status under PURPA provides two primary benefits. First, regulations under PURPA exempt QFs from PUHCA, the FERC rate regulation under the Federal Power Act and the state laws concerning rates of electric utilities and financial and organization regulations of electric utilities. Second, the FERC's regulations promulgated under PURPA require that (1) electric utilities purchase electricity generated by QFs, the construction of which commenced on or after November 9, 1978, at a price based on the purchasing utility's Avoided Cost of Energy, (2) electric utilities sell back-up, interruptible, maintenance and supplemental power to QFs on a non-discriminatory basis, and (3) electric utilities interconnect with QFs in their service territories. There can be no assurance that the QF status of such CalEnergy Generation--Domestic facilities will be maintained. CORDOVA ENERGY Cordova Energy is exempt from regulation under PUHCA because it is an exempt wholesale generator. PUHCA provides that an exempt wholesale generator is not considered to be an electric utility company. An exempt wholesale generator is permitted to sell capacity and electricity in the wholesale markets, but not in the retail markets. If an exempt wholesale generator is subject to a "material change" in facts that might affect its continued eligibility for exempt wholesale generator status, within 60 days of such material change, the exempt wholesale generator must (1) file a written explanation of why the material change does not affect its exempt wholesale generator status, (2) file a new application for exempt wholesale generator status, or (3) notify the FERC that it no longer wishes to maintain exempt wholesale generator status. CALENERGY GENERATION--FOREIGN The Philippine Congress has passed the Electric Power Industry Reform Act of 2001, which is aimed at restructuring the Philippine power industry, privatization of the NPC and introduction of a competitive electricity market, among other initiatives. The implementation of the bill may have an adverse impact on the Company's future operations in the Philippines and the Philippines power industry as a whole, the effect of which is not yet determinable and estimable. In connection with an interagency review of approximately 40 independent power project contracts in the Philippines, the Casecnan Project (along with four other unrelated projects) has reportedly been identified as raising legal and financial questions and, with those projects, has been prioritized for renegotiation. The Philippine Projects, have also reportedly been identified as raising financial questions. No written report has yet been issued with respect to the interagency review, and the timing and nature of steps, if any, that the Philippine Government may take in this regard are not known. To the extent disputes arise under the Philippine Projects' agreements with respect to the Philippines Projects' 83 obligations, rights and remedies thereunder, such disputes will be determined by international arbitration in a neutral forum conducted in accordance with the rules of the International Chamber of Commerce or UNCITRAL, as applicable. Representatives of CE Casecnan, together with certain current and former Philippine government officials, also have been requested to appear, and have appeared, before a Philippine Senate committee which has independently raised questions and made allegations with respect to the Casecnan Project's tariff structure and implementation. No further hearings are scheduled at this time. HOMESERVICES The Department of Housing and Urban Development and the Federal Home Administration, or FHA, lender guidelines prohibit the collection of a broker-fee from FHA financed buyers where the FHA lender is affiliated with the real estate broker or where there is no buyer-broker agreement. The majority of HomeServices' subsidiaries have been charging a broker fee to their buyers and sellers, except in circumstances where the FHA guidelines prohibit it. Nonetheless, HomeServices is working with the FHA to change the lenders' guidelines to permit collection of these fees. PIPELINE SAFETY REGULATION Our pipeline operations are subject to regulation by the United States Department of Transportation under the Natural Gas Pipeline Safety Act of 1969, as amended, relating to design, installation, testing, construction, operation and management of our pipeline system. The Natural Gas Pipeline Safety Act requires any entity that owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain inspection and maintenance plans and to comply with such plans. We conduct internal audits of our facilities every four years, with more frequent reviews of those we deem higher risk. The United States Department of Transportation routinely audits our pipeline. Compliance issues that arise during these audits or during the normal course of business are addressed on a timely basis. The aging pipeline infrastructure in the United States has led to heightened regulatory and legislative scrutiny of pipeline safety and integrity practices. The Natural Gas Pipeline Safety Act was amended by the Pipeline Safety Act of 1992 to require the Department of Transportation's Office of Pipeline Safety to consider protection of the environment when developing minimum pipeline safety regulations. In addition, the amendments require that the Department of Transportation issue pipeline regulations concerning, among other things, the circumstances under which emergency flow restriction devices should be required, training and qualification standards for personnel involved in maintenance and operation, and requirements for periodic integrity inspections, as well as periodic inspection of facilities in navigable waters which could pose a hazard to navigation or public safety. In addition, the amendments narrowed the scope of our gas pipeline exemption pertaining to underground storage tanks under the Resource Conservation and Recovery Act. While the effect of new legislation, which has been passed by Congress but not yet signed by the President, on us is still being determined, we expect to spend the capital or make the operational changes necessary to comply with all pipeline integrity legislation. Northern Natural Gas and Kern River currently project that they will make significant expenditures to meet these new regulations. We believe our subsidiaries' pipeline operations comply in all material respects with the Natural Gas Pipeline Safety Act, but the industry, including our subsidiaries, could be required to incur additional capital expenditures and increased costs depending upon final regulations issued by the Department of Transportation under the Natural Gas Pipeline Safety Act. ENVIRONMENTAL REGULATION DOMESTIC We are subject to a number of federal, state and local environmental laws and health and other regulations affecting many aspects of our present and future operations in the United States. Such laws and regulations generally require us to obtain and comply with a wide variety of licenses, permits and 84 other approvals. No assurance can be given that in the future all necessary permits and approvals will be obtained or renewed and all applicable statutes and regulations complied with. In addition, regulatory compliance for the construction of new power facilities and gas pipeline operations is a costly and time-consuming process, and intricate and rapidly changing environmental regulations may require major expenditures for permitting or other compliance issues and may create the risk of expensive delays or material impairment of project value if projects cannot function as planned due to changing regulatory requirements or local opposition. We believe that our operating power facilities and gas pipeline operations are currently in material compliance with all applicable federal, state and local laws and regulations. However, we cannot assure you that existing regulations will not be revised or that new regulations will not be adopted or become applicable to us which could have an adverse impact on our operating costs and operations. In accordance with the requirements of Section 112 of the Clean Air Act Amendments of 1990, the EPA has performed a study of the hazards to public health reasonably anticipated to occur as a result of emissions of hazardous air pollutants by electric utility steam generating units. In December 2000, after research and monitoring of mercury emissions, the EPA concluded that it is appropriate and necessary to regulate mercury emissions from coal-fired generating units. It is anticipated that rules will be developed to regulate these emissions in 2003 or 2004 with reductions of mercury emissions effective in 2007. The cost to MidAmerican Energy of reducing its mercury emissions would depend on available technology at the time, but could be material. In July 1997, the EPA adopted revisions to the National Ambient Air Quality Standards for ozone and a new standard for fine particulate matter. Based on data to be obtained from monitors located throughout each state, the EPA will determine which states have areas that do not meet the air quality standards (i.e., areas that are classified as nonattainment). The standards were subjected to legal proceedings, and in February 2001, United States Supreme Court upheld the constitutionality of the standards, though remanding the issue of implementation of the ozone standard to the EPA. As a result of a decision rendered by the United States Circuit Court of Appeals for the District of Columbia, the EPA is moving forward in implementation of the ozone and fine particulate standards and is analyzing existing monitoring data to determine attainment status. The impact of the new standards on us is currently unknown. MidAmerican Energy's generating stations may be subject to emission reductions if the stations are located in nonattainment areas or contribute to nonattainment areas in other states. As part of state implementation plans to achieve attainment of the standards, MidAmerican Energy could be required to install control equipment on its generating stations or decrease the number of hours during which these stations operate. The ozone and fine particulate matter standards could also, in whole or in part, be superceded by one of a number of multi-pollutant emission reduction proposals currently under consideration at the federal level. In July 2002, legislation was introduced in Congress to implement the Administration's "Clear Skies Initiative," calling for the reduction in emissions of sulfur dioxide, nitrogen oxides and mercury through a cap-and-trade system. Reductions would begin in 2008 with additional emission reductions being phased in through 2018. While legislative action is necessary for this or other multi-pollutant emission reduction initiatives to become effective, MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions required to meet emissions reductions of this nature. Since the adoption of the United Nations Framework on Climate Change in 1992, there has been a worldwide effort to reduce greenhouse gas, or GHG, emissions to 1990 levels or below. In December 1997, the U.S. participated in the Kyoto, Japan negotiations, where the basis of a Climate Change treaty was formulated. Under the treaty, known as the Kyoto Protocols, the United States would have an overall reduction target of 7% in GHG emissions from 1990 levels by 2008-2012. To date, the Senate has not ratified the Kyoto Protocols. In addition, President Bush has recently indicated his opposition to the Kyoto Protocols. However, given the widespread international and public support for the reduction of GHG emissions, it is not unlikely that GHG reduction regulations will come to pass, even if not related to the Kyoto Protocols. At this time, we cannot estimate the potential impact of such regulations on us or our subsidiaries. 85 In 2001, the state of Iowa passed legislation that, in part, requires rate-regulated utilities to develop a multi-year plan and budget for managing regulated emissions from their generating facilities in a cost-effective manner. MidAmerican Energy's proposed plan and associated budget was filed with the IUB on April 1, 2002, in accordance with state law. MidAmerican Energy expects the IUB to rule on the prudence of such plan during the first or second quarter of 2003. MidAmerican Energy is required to file updates to such plan at least every two years. MidAmerican Energy's proposed plan provides its projected air emission reductions considering current proposals being debated at the federal level and describes a coordinated long-range plan to achieve these air emission reductions. MidAmerican Energy's proposed plan also provides specific actions to be taken at each coal-fired generating facility and related costs and timing for each action. MidAmerican Energy's proposed plan outlines $732.0 million in environmental investments to existing coal-fired generating units, some of which are jointly owned, over a nine-year period from 2002 through 2010. MidAmerican Energy's share of these investments is $546.6 million, $67.9 million of which is projected to be incurred during the 2002-2005 rate freeze period. Such plan also identifies expenses that will be incurred at the generating facilities to operate and maintain the environmental equipment installed as a result of such plan. Following the expiration on December 31, 2005 of the rate settlement agreement which was approved by the IUB on December 21, 2001, MidAmerican Energy's proposed plan suggests the use of an adjustment mechanism for recovery of such plan's costs, similar to the tracking mechanisms for cost recovery of renewable energy and energy efficiency expenditures that are presently part of MidAmerican Energy's regulated electric rates. See "Regulation--MidAmerican Energy" for a discussion of the settlement agreement. Federal, state and local environmental laws and regulations currently have, and future modifications may have, the effect of increasing the lead time for the construction of new facilities, significantly increasing the total cost of new facilities, requiring modification of our existing facilities, increasing the risk of delay on construction projects, increasing our cost of waste disposal and possibly reducing the reliability of service we provide and the amount of energy available from our facilities. Any of such items could have a substantial impact on amounts required to be expended by us in the future. Under various federal, state and local environmental laws and regulations, a current or previous owner or operator of any facility, including an electric generating facility, may be required to investigate and remediate past releases or threatened releases of hazardous or toxic substances or petroleum products located at the facility, and may be held liable to a governmental entity or to third parties for property damage, personal injury and investigation and remediation costs incurred by a party in connection with any releases or threatened releases. These laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, impose liability without regard to whether the owner knew of or caused the presence of the hazardous substances, and courts have interpreted liability under such laws to be strict and joint and several. The cost of investigation, remediation or removal of substances may be substantial. In connection with the ownership and operation of facilities, we and our subsidiaries may be liable for such costs. Even at those sites where we are not presently aware of any contamination that currently requires remediation, given the use of hazardous substances at each facility and their locations, often within areas that have a long history of industrial use, it is possible that we will discover currently unknown contamination or that future spills or other causes of contamination will occur. As a result, it is possible that we may become liable for remediation. The EPA and state environmental agencies have determined that contaminated wastes remaining at decommissioned manufactured gas plant facilities may pose a threat to the public health or the environment if these contaminants are in sufficient quantities and at such concentrations as to warrant remedial action. MidAmerican Energy has evaluated or is evaluating 27 properties that were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party. The purpose of these evaluations 86 is to determine whether waste materials are present, whether the materials constitute an environmental or health risk, and whether MidAmerican Energy has any responsibility for remedial action. Investigations of the sites are at various stages, and MidAmerican Energy has conducted ten removal actions to date and is continuing to evaluate several of the sites to determine the appropriate site remedies, if any, necessary to obtain site closure from the agencies. MidAmerican Energy estimates the range of possible costs for investigation, remediation and monitoring for the sites discussed above to be $16 million to $30 million. MidAmerican Energy's estimate of the probable cost for these sites as of September 30, 2002 was $18 million. The estimate consists of $1 million for investigation costs, $6 million for remediation costs, $9 million for ground water treatment and monitoring costs and $2 million for closure and administrative costs. This estimate has been recorded as a liability and a regulatory asset for future recovery. MidAmerican Energy projects that these amounts will be paid or incurred over the next five years. Accruals for probable remediation costs are established based on site-specific estimates and are evaluated and revised quarterly as appropriate based on additional information obtained during investigation and remedial activities. The estimated recorded liability could change materially based on facts and circumstances derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. Insurance recoveries have been received for some of the sites under investigation. Those recoveries are intended to be used principally for accelerated remediation, as specified by the IUB, and are recorded as a regulatory liability. Additionally, as viable potentially responsible parties are identified, those parties are evaluated for potential contributions, and cost recovery is pursued when appropriate. Although the timing of potential incurred costs and recovery of costs in MidAmerican Energy's rates may affect the results of operations in individual periods, management believes that the outcome of issues related to the remediation of former manufactured gas plant facilities will not have a material adverse effect on our financial position, results of operations or cash flows. UNITED KINGDOM CE Electric UK's businesses are subject to numerous regulatory requirements with respect to the protection of the environment. The United Kingdom government introduced new contaminated land legislation in April 2000 that requires companies to: o put in place a program for investigating the company's history to identify problem sites for which it is responsible; o make a clear commitment to meeting responsibilities for cleaning up those sites; o provide funding to make sure that this can happen; and o make commitments public. CE Electric UK is in the process of completing the evaluation work on the three sites that may be subject to the legislation. Exploratory work with an environmental remediation company is in progress on these sites. The Environmental Protection Act (Disposal of PCB's and other Dangerous Substances) Regulations 2001 were introduced on May 5, 2000. The regulations required that transformers containing over 50 parts per million of PCB's and other dangerous substances be registered with the Environment Agency by July 31, 2000. Transformers containing 500 parts per million had to be de-contaminated by December 31, 2000. CE Electric UK has registered 380 items above 50 parts per million, decontaminated 120 items and informed the Environment Agency that it is continuing with its sampling, labeling and registration program. These regulations are not expected to have a material impact on us. The Groundwater Regulations seek to prevent listed hazardous substances from entering groundwater and strengthens the United Kingdom Environment Agency's powers to require additional 87 protective measures, especially in areas of important groundwater supplies. Mineral oils and hydrocarbons are included in the list of more tightly controlled substances, or List I substances. This affects the high voltage fluid filled electricity cable network incorporating an insulating fluid that is currently in List I. The existing voluntary Operating Code of Practice, as agreed between the Agency and the Electricity Supply Industries, is undergoing revision through the services of the Electricity Association to address the regulatory changes. The existing voluntary Operating Code of Practice is, and any revised Operating Code of Practice will be, incorporated into the operating practices of NED and YED. Any revisions which are made are not expected to have a material impact on us. The Oil Storage Regulations began to become effective in 2002 and require the introduction of secondary containment measures (bunding) for all above ground oil storage locations where the capacity is more than 200 liters. The primary containers must be in sound condition, leak free, and positioned away from vehicle traffic routes. The secondary containment must be impermeable to water and oil (without drainage valve) and be subject to routine maintenance. The capacity of the bund must be sufficient to hold up to 110% of the largest stored vessel or 25% of the maximum stored capacity, whichever is the greater. The full impact of the regulations is being phased in over the next three years. On March 1, 2002, these regulations came into effect for all new oil storage facilities. On September 1, 2003, the regulations become effective for existing storage facilities at "significant risk" (i.e. within 10 meters of a water course), and on September 1, 2005 the regulations come into effect for all remaining storage facilities. A detailed study of the impacts has been carried out and a plan of action prepared to ensure compliance. We expect that the cost of compliance with such regulations will not have a material adverse impact. The Electricity Act 1989 obligates either the United Kingdom Secretary of State or the Director General of Electric Supply to take into account the effect of electricity generation, transmission and supply activities on the physical environment when approving applications for the construction of overhead power lines. The Electricity Act requires CE Electric UK to consider the desirability of preserving natural beauty and the conservation of natural and man-made features of particular interest when it formulates proposals for development in connection with certain of its activities. CE Electric UK mitigates the effects its proposals have on natural and man-made features and administers an environmental assessment when it intends to lay cables, construct overhead lines or carry out any other development in connection with its licensed activities. We expect that the cost of compliance with these obligations and the mitigation thereof will not have a material adverse impact. CE Electric UK's policy is to carry out its activities in such a manner as to minimize the impact of its works and operations on the environment, and in accordance with environmental legislation and good practice. There have not been any significant regulatory environmental compliance issues and there are no material legal or administrative proceedings pending against CE Electric UK with respect to any environmental matter. Environmental laws and regulations in the United Kingdom currently have, and future modifications may have, the effect of requiring modification of CE Electric UK's facilities, increasing its cost of waste disposal and possibly reducing the reliability of service it provides and the amount of energy available from its facilities. Any of such items could have a substantial impact on amounts required to be expended by CE Electric UK in the future. PHILIPPINES On June 23, 1999, the Philippine Congress enacted the Philippine Clean Air Act of 1999. The related implementing rules and regulations were adopted in November 2000. The law as written would require the Upper Mahiao, Mahanagdong and Malitbog projects, which we collectively refer to as the Leyte Projects, to comply with a maximum discharge of 200 grams of hydrogen sulfide per gross megawatt hour of output by June 2004. On November 13, 2002, the Secretary of the Philippine Department of Environmental and Natural Resources issued Memorandum Circular, or MC, 2002-13 designating geothermal areas as "special airsheds." PNOC-EDC has advised us that the MC exempts the Upper Mahiao, Mahanagdong and Malitbog plants from the need to comply with the point-source emission standards of the Clean Air Act. The Leyte Projects intend to seek confirmation of the impact of the MC from PNOC-EDC and from the Philippine Department of Environmental and Natural Resources. 88 NUCLEAR REGULATION Each licensee of a nuclear facility is required to provide financial assurance for the cost of decommissioning its licensed nuclear facility. In general, decommissioning of a nuclear facility means the obligation to safely remove the facility from service and restore the property to a condition allowing unrestricted use by the operator. Based on information presently available, we expect to contribute approximately $41 million during the period 2002 through 2006 to an external trust established for the investment of funds for decommissioning the Quad Cities station. Approximately 55% of the fair value of the trust's funds are now invested in domestic corporate debt and common equity securities. The remainder is invested in investment grade municipal and United States Treasury bonds. The Quad Cities station decommissioning costs properly charged to Iowa customers are included in base rates, and recovery of any increases in those amounts must be sought through the normal ratemaking process. As a result of a July 31, 2002 Settlement Agreement and Release relating to a restructuring of the power purchase contract between MidAmerican Energy and NPPD, MidAmerican Energy will no longer be accruing for decommissioning costs for the Cooper Nuclear Station. Refer to note 12H of our notes to consolidated financial statements for the nine months ended September 30, 2002 contained in this prospectus for a discussion of the settlement and contract restructuring. MidAmerican Energy maintains financial protection against catastrophic loss associated with its interest in the Quad Cities station through a combination of insurance purchased by Exelon Generation Company, LLC (the operator and joint owner of the Quad Cities station), insurance purchased directly by MidAmerican Energy and the mandatory industry-wide loss funding mechanism afforded under the Price-Anderson Amendments Act of 1988. The general types of coverage are: nuclear liability, property coverage and nuclear worker liability. Exelon Generation purchased nuclear liability insurance for the Quad Cities station in the maximum available amount of $200 million. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above that amount is provided by a mandatory industry-wide Secondary Financial Protection program under which the licensees of nuclear generating facilities could be assessed for liability incurred due to a serious nuclear incident at any commercial nuclear reactor in the United States. Currently, MidAmerican Energy's aggregate maximum potential share of an assessment for the Quad Cities station is approximately $44 million per incident, payable in installments not to exceed $5 million annually. The property insurance covers property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning arising out of a covered loss. For the Quad Cities station, Exelon Generation purchased primary and excess property insurance protection for the combined interests in the Quad Cities station, with coverage limits totaling $2.1 billion. MidAmerican Energy also directly purchased extra expense/business interruption coverage for its share of replacement power and/or other extra expenses in the event of a covered accidental outage at the Quad Cities station. The property and related coverages purchased directly by MidAmerican Energy and by Exelon Generation, which includes the interests of MidAmerican Energy, are underwritten by an industry mutual insurance company and contain provisions for retrospective premium assessments should two or more full policy-limit losses occur in one policy year. Currently, the maximum aggregate retrospective amounts that could be assessed against MidAmerican Energy from industry mutual policies for its obligations associated with the Quad Cities station total $6.3 million. The master nuclear worker liability coverage, which was purchased by Exelon Generation for the Quad Cities station, is an industry-wide guaranteed-cost policy with an aggregate limit of $200 million for the nuclear industry as a whole, which is in effect to cover worker tort claims in nuclear-related industries. 89 LEGAL PROCEEDINGS In addition to the proceedings described below, we and our subsidiaries are currently parties to various items of litigation or arbitration, none of which are reasonably expected by us to have a material adverse effect on us. CASECNAN CONSTRUCTION ARBITRATION On February 12, 2001, the contractor for the Casecnan Project, a consortioum consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa., working together with Siemens A.G. and Sulzer Hydro Ltd., which we collectively refer to as the Contractor, filed a Request for Arbitration with the International Chamber of Commerce seeking an extension of the Guaranteed Substantial Completion Date by up to 153 days through August 31, 2001 resulting from various alleged force majeure events. In its March 20, 2001 Supplement to Request for Arbitration, the Contractor requested compensation for alleged additional costs of approximately $4 million it incurred from the claimed force majeure events to the extent it is unable to recover from its insurer. On April 20, 2001, the Contractor filed a further supplement seeking an additional compensation for damages of approximately $62 million for the alleged force majeure event (and geologic conditions) related to the collapse of the surge shaft. The Contractor also has alleged that the circumstances surrounding the placing of the Casecnan Project into commercial operation on December 11, 2001 amounted to a repudiation of the Construction Contract and has filed a claim for unspecified quantum meruit damages. CE Casecnan believes all such allegations and claims are without merit and is vigorously contesting the Contractor's claims. The arbitration is being conducted applying New York law and in accordance with the rules of the International Chamber of Commerce. Hearings have been held in connection with this arbitration in July 2001, September 2001, January 2002 and March 2002. As part of those hearings, on June 25, 2001, the arbitration tribunal temporarily enjoined CE Casecnan from making calls on the demand guaranty posted by Banca di Roma in support of the Contractor's obligations to CE Casecnan for delay liquidated damages. As a result of the continuing nature of that injunction, on April 26, 2002, CE Casecnan and the Contractor mutually agreed that no demands would be made on the Banca di Roma demand guaranty except pursuant to an arbitration award. As of September 30, 2002, however, CE Casecnan has received approximately $6.0 million of liquidated damages from demands made on the demand guarantees posted by Commerzbank on behalf of the Contractor. In November 2002, hearings were held on the Contractor's claim with respect to the alleged unenforceability of the delay liquidated damages clause. On November 7, 2002, the International Chamber of Commerce issued the arbitration tribunal's partial award with respect to the Contractor's force majeure and geologic conditions claims. The arbitration panel awarded the Contractor 18 days of schedule relief in the aggregate for all of the force majeure events and awarded the Contractor $3.8 million with respect to the cost of the collapsed surge shaft. All of the Contractor's other claims that were heard by the arbitration tribunal were denied. Further hearings on the Contractor's repudiation and quantum meruit claims and certain other matters are scheduled for January 2003. These claims, and the alleged unenforceability of the delay liquidated damages clause, have not been ruled on by the arbitration tribunal. CASECNAN SHAREHOLDER LITIGATION Pursuant to the share ownership adjustment mechanism in the CE Casecnan shareholder agreement, which is based upon pro forma financial projections of the Casecnan Project prepared following commencement of commercial operations, in February 2002, CE Casecnan, through its indirect wholly owned subsidiary CE Casecnan Ltd., advised the minority shareholder LaPrairie Group Contractors (International) Ltd., or LPG, that our indirect ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, inter alia, CE Casecnan Ltd. and us. In the complaint, LPG seeks compensatory and punitive damages for alleged breaches of the shareholder agreement and alleged breaches of fiduciary duties allegedly owed by CE Casecnan Ltd. and us to LPG. The complaint also seeks injunctive relief against all defendants and a declaratory judgment that LPG is entitled to maintain its 15% interest in CE Casecnan. The impact, if any, of this litigation on us cannot be determined at this time. 90 CASECNAN NIA ARBITRATION Under the terms of an agreement between CE Casecnan and NIA regarding the Casecnan Project, NIA has the option of timely reimbursing CE Casecnan directly for certain taxes CE Casecnan has paid. If NIA does not so reimburse CE Casecnan, the taxes paid by CE Casecnan result in an increase in the Water Delivery Fee under the Casecnan Project agreement. The payment of certain other taxes by CE Casecnan results automatically in an increase in the Water Delivery Fee. As of September 30, 2002, CE Casecnan has paid approximately $54.4 million in taxes which as a result of the foregoing provisions had resulted in an increase in the Water Delivery Fee. NIA has failed to pay the portion of the Water Delivery Fee each month which relates to the payment of these taxes by CE Casecnan. As a result of this non-payment, on August 19, 2002, CE Casecnan filed a Request for Arbitration against NIA, seeking payment of such portion of the Water Delivery Fee and enforcement of the relevant provision of the Casecnan Project agreement going forward. The arbitration will be conducted in accordance with the rules of the International Chamber of Commerce. MALITBOG ARBITRATION On October 16, 2000, VGPC commenced arbitration against PNOC-EDC by serving it with a Notice of Arbitration and Statement of Claim alleging that PNOC-EDC breached the Malitbog energy conversion agreement by improperly characterizing certain No Fault Outages as Forced Outage Hours and then deducting them from the total number of hours each month for purposes of determining payments due to VGPC. On December 22, 2000, VGPC filed an Amended Statement of Claim pursuant to which VGPC added a claim that PNOC-EDC breached the Malitbog agreement by refusing to accept VGPC's specified Nominated Capacity for contract years July 25, 1999 to July 25, 2000, and July 25, 2000 to July 25, 2001. A Second Amended Statement of Claim was filed on March 9, 2001 to add an issue related to the proper duration of annual scheduled maintenance on the Malitbog plant. VGPC intends to vigorously pursue its claims in this proceeding. Hearings were conducted from June 24, 2002 to July 5, 2002 in Sydney, Australia. On November 27, 2002, the arbitration panel issued a unanimous award which states that PNOC-EDC is obligated to pay for all the hours that VGPC spent on Scheduled Maintenance in the year 2000 to the extent that the total number of days of Scheduled Outage has not exceeded 45 days. The award also orders PNOC-EDC to accept VGPC's Nominated Capacity for project years through 2002 and to pay all amounts owed to VGPC in this regard. Furthermore, the award declares that VGPC can only declare no fault outages if VGPC is not at fault, but places the burden of proof in this regard on PNOC-EDC. Also, the award orders VGPC to pay PNOC-EDC $1.6 million in costs. The award orders VGPC and PNOC-EDC to work together to attempt to agree on the amounts owed under the terms of the order and if the parties cannot reach an agreement, each party is to make submissions to the arbitration panel by the middle of January 2003. MAHANAGDONG ARBITRATION On September 25, 2002, CE Luzon commenced arbitration against PNOC-EDC alleging that PNOC-EDC breached the Mahanagdong energy conversion agreement by refusing to accept CE Luzon's Nominated Capacity for contract years July 25, 2001 to July 25, 2002 and July 25, 2002 to July 25, 2003. CE Luzon intends to vigorously pursue its claim in this proceeding. The arbitration will be conducted in accordance with the rules of the International Chamber of Commerce. PIPELINE LITIGATION In 1998, the United States Department of Justice informed the then current owners of Kern River and Northern Natural Gas that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against such entities and certain of their subsidiaries including Kern River and Northern Natural Gas. Mr. Grynberg has also filed claims against numerous other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, civil penalties, attorneys' fees and costs. On April 9, 1999, the United States Department of Justice announced that it 91 declined to intervene in any of the Grynberg qui tam cases, including the actions filed against Kern River and Northern Natural Gas in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred the Grynberg qui tam cases, including the ones filed against Kern River and Northern Natural Gas, to the United States District Court for the District of Wyoming for pre-trial purposes. Motions to dismiss the complaint, filed by various defendants including Northern Natural Gas and Williams, which was the former owner of Kern River, were denied on May 18, 2001. In connection with the purchase of Kern River from Williams in March 2002, Williams agreed to indemnify us against any liability for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. No such indemnification was obtained in connection with the purchase of Northern Natural Gas in August 2002. We believe that the Grynberg cases filed against Kern River and Northern Natural Gas are without merit and Williams, on behalf of Kern River pursuant to its agreement to indemnify us, and Northern Natural Gas, intends to defend these actions vigorously. On June 8, 2001, a number of interstate pipeline companies, including Kern River and Northern Natural Gas, were named as defendants in a nationwide class action lawsuit which had been pending in the 26th Judicial District, District Court, Stevens County Kansas, Civil Department against other defendants, generally pipeline and gathering companies, since May 20, 1999. The plaintiffs allege that the defendants have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In November 2001, Kern River and Northern Natural Gas, along with the coordinating defendants, filed a motion to dismiss under Rules 9B and 12B of the Kansas Rules of Civil Procedure. In January 2002, Kern River and most of the coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. The court has yet to rule on these motions. The plaintiffs filed for certification of the plaintiff class on September 16, 2002. Williams has agreed to indemnify us against any liability associated with Kern River for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. Williams, on behalf of Kern River and other entities, anticipates joining with Northern Natural Gas and other defendants in contesting certification of the plaintiff class. Kern River and Northern Natural Gas believe that this claim is without merit and that Kern River's and Northern Natural Gas' gas measurement techniques have been in accordance with industry standards and its tariff. 92 MANAGEMENT OUR DIRECTORS AND EXECUTIVE OFFICERS Our current executive officers and directors and their positions are as follows:
NAME POSITION - ------------------------ ------------------------------------------------------------ David L. Sokol Chairman of the Board, Chief Executive Officer and Director Gregory E. Abel President, Chief Operating Officer and Director Patrick J. Goodman Senior Vice President and Chief Financial Officer Douglas L. Anderson Senior Vice President and General Counsel Keith D. Hartje Senior Vice President and Chief Administrative Officer Warren E. Buffett Director Walter Scott, Jr. Director Marc D. Hamburg Director W. David Scott Director Edgar D. Aronson Director John K. Boyer Director Stanley J. Bright Director Richard R. Jaros Director
Executive officers are elected annually by the Board of Directors. There are no family relationships among the executive officers, nor any arrangements or understanding between any executive officer and any other person pursuant to which the executive officer was selected. Set forth below is certain information with respect to each of the foregoing executive officers and directors: DAVID L. SOKOL, 46, Chairman of the Board of Directors and Chief Executive Officer. Mr. Sokol has been CEO since April 19, 1993 and served as President of MEHC from April 19, 1993 until January 21, 1995. Mr. Sokol has been Chairman of the Board of Directors since May 1994 and a director since March 1991. Formerly, among other positions held in the independent power industry, Mr. Sokol served as President and Chief Executive Officer of Kiewit Energy Company, which at that time was a wholly owned subsidiary of Peter Kiewit Sons', Inc. GREGORY E. ABEL, 40, President, Chief Operating Officer and Director. Mr. Abel joined us in 1992 and initially served as Vice President and Controller. Mr. Abel is a Chartered Accountant and, from 1984 to 1992, he was employed by Price Waterhouse. As a Manager in the San Francisco office of Price Waterhouse, he was responsible for clients in the energy industry. PATRICK J. GOODMAN, 36, Senior Vice President and Chief Financial Officer. Mr. Goodman joined us in 1995, and previously served in various accounting positions including Senior Vice President and Chief Accounting Officer. Prior to joining us, Mr. Goodman was a financial manager for National Indemnity Company and a senior associate at Coopers & Lybrand. DOUGLAS L. ANDERSON, 44, Senior Vice President and General Counsel. Mr. Anderson joined us in February 1993 and has served in various legal positions including General Counsel of our independent power affiliates. From 1990 to 1993, Mr. Anderson was a corporate attorney with Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C., a law firm in Omaha, Nebraska. Prior to that Mr. Anderson was a principal in the firm of Anderson and Anderson. 93 KEITH D. HARTJE, 52, Senior Vice President and Chief Administrative Officer. Mr. Hartje has been with MidAmerican Energy and its predecessor companies since 1973. In that time, he has held a number of positions, including General Counsel and Corporate Secretary, District Vice President for southwest Iowa operations, and Vice President, Corporate Communications. WARREN E. BUFFETT, 72, Director. Mr. Buffett has been one of our directors since March 2000. He is Chairman of the Board and Chief Executive Officer of Berkshire Hathaway. Mr. Buffett is a Director of the Coca-Cola Company, the Gillette Company and The Washington Post Company. WALTER SCOTT, JR., 71, Director. Mr. Scott has been one of our directors since June 1991. Mr. Scott was our Chairman and Chief Executive Officer from January 8, 1992 until April 19, 1993. For more than the past five years, he has been Chairman of the Board of Directors of Level 3 Communications, Inc., a successor to certain businesses of Peter Kiewit Sons', Inc. Mr. Scott is a director of Peter Kiewit Sons', Inc., Berkshire Hathaway, Burlington Resources, Inc., ConAgra, Inc., Valmont Industries, Inc., Kiewit Materials Co., Commonwealth Telephone Enterprises, Inc. and RCN Corporation. Mr. Walter Scott, Jr. is the father of Mr. W. David Scott. MARC D. HAMBURG, 53, Director. Mr. Hamburg has been one of our directors since March 2000. He has served as Vice President--Chief Financial Officer of Berkshire Hathaway since October 1, 1992 and Treasurer since June 1, 1987, his date of employment with Berkshire Hathaway. W. DAVID SCOTT, 41, Director. Mr. Scott has been one of our directors since March 2000. Mr. Scott formed Magnum Resources, Inc., a commercial real estate investment and management company, in October 1994, and has served as its President and Chief Executive Officer since its inception. Before forming Magnum Resources, Mr. Scott worked for America First Companies, Cornerstone Banking Group and Peter Kiewit Sons', Inc. Mr. Scott has been a director of America First Mortgage Investments, Inc., a mortgage REIT, since 1998. Mr. W. David Scott is the son of Mr. Walter Scott, Jr. EDGAR D. ARONSON, 68, Director. Mr. Aronson has been one of our directors since 1983. Mr. Aronson founded EDACO, Inc., a private venture capital company, in 1981 and has been President of EDACO, Inc. since that time. Prior to that, Mr. Aronson was Chairman of Dillon, Read International from 1979 to 1981 and a General Partner in charge of the International Department of Salomon Brothers Inc. from 1973 to 1979. Mr. Aronson served during 1962-1968 as Vice President consecutively in the International Departments of First National Bank of Chicago and Republic National Bank of New York. He founded the International Department of Salomon Brothers and Hutzler in 1968. JOHN K. BOYER, 58, Director. Mr. Boyer has been one of our directors since March 2000. From 1993 to date, he has been a partner with Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C., a law firm with emphasis on corporate, commercial, federal, state and local taxation law. STANLEY J. BRIGHT, 62, Director. Mr. Bright is our Vice Chairman and was Chairman and Chief Executive Officer of MidAmerican Energy from July 1, 1995 until March 1999. Mr. Bright joined Iowa-Illinois Gas and Electric Company (a predecessor of MidAmerican Energy) as Vice President and Chief Financial Officer in 1986, became a director in 1987, President and Chief Operating Officer in 1990, and Chairman and Chief Executive Officer in 1991. RICHARD R. JAROS, 50, Director. Mr. Jaros has been one of our directors since March 1991. Mr. Jaros served as our President and Chief Operating Officer from January 8, 1992 to April 19, 1993 and as Chairman of the Board from April 19, 1993 to May 1994. Until July 1997, Mr. Jaros was Executive Vice President and Chief Financial Officer of Peter Kiewit Sons', Inc. and President of Kiewit Diversified Group, Inc., which is now Level 3 Communications, Inc. From 1990 until January 8, 1992, Mr. Jaros served as a Vice President of Peter Kiewit Sons', Inc. Mr. Jaros serves as director of Commonwealth Telephone Enterprises, Inc., RCN Corporation and Level 3 Communications, Inc. 94 EXECUTIVE COMPENSATION The following table sets forth the compensation of our Chief Executive Officer and our four other most highly compensated executive officers who were employed as of December 31, 2001, which we refer to as our Named Executive Officers. Information is provided regarding our Named Executive Officers for the last three fiscal years during which they were our executive officers, if applicable.
BONUS(1) NAME AND YEAR ENDED --------------------------- PRINCIPAL POSITIONS DEC. 31, SALARY CASH STOCK - ----------------------------- ------------ ----------- ------------------- ------- David L. Sokol .............. 2001 $ 750,000 $ 2,400,000 $ -- Chairman and Chief 2000 $ 750,000 $ 4,250,000 $ -- Executive Officer 1999 $ 675,000 $ 3,276,049 $ -- Gregory E. Abel ............. 2001 $ 520,000 $ 1,150,000 $ -- President and Chief 2000 $ 500,000 $ 1,100,000 $ -- Operating Officer 1999 $ 357,933 $ 1,452,234 $ -- Ronald W. Stepien ........... President, 2001 $ 400,000 $ 275,000 $ -- MidAmerican 2000 $ 370,667 $ 641,938 $ -- Energy(4) 1999 $ 350,000 $ 1,052,069 $ -- Patrick J. Goodman .......... 2001 $ 240,000 $ 260,000 $ -- Chief Financial 2000 $ 230,000 $ 1,183,071(5) $ -- Officer 1999 $ 199,279 $ 334,374 $ -- Douglas L. Anderson ......... 2001 $ 154,427 $ 200,000 $ -- General Counsel and 2000 $ 120,000 $ 591,806(5) $ -- Corporate Secretary 1999 $ 110,000 $ 40,000 $ -- OTHER RESTRICTED SECURITIES ALL NAME AND ANNUAL STOCK UNDERLYING LTIP OTHER PRINCIPAL POSITIONS COMP(2) AWARDS OPTIONS PAYOUTS COMP(3) - ----------------------------- --------- ------------ ------------ ----------- ---------- David L. Sokol .............. $ -- $ -- -- $ -- $33,037 Chairman and Chief $ -- $ -- 2,199,277 $ -- $40,430 Executive Officer $ -- $ -- -- $ -- $41,519 Gregory E. Abel ............. $ -- $ -- -- $ -- $23,657 President and Chief $ -- $ -- 649,052 $ -- $27,530 Operating Officer $ -- $ -- -- $ -- $27,803 Ronald W. Stepien ........... President, $7,270 $ -- -- $316,021 $ 6,630 MidAmerican $ -- $ -- -- $ -- $ 6,630 Energy(4) $ -- $ -- 56,203 $ -- $ 6,240 Patrick J. Goodman .......... $ -- $ -- -- $ -- $13,527 Chief Financial $ -- $ -- -- $ -- $14,891 Officer $ -- $ -- 60,000 $ -- $14,719 Douglas L. Anderson ......... $ -- $ -- -- $ -- $ 6,630 General Counsel and $ -- $ -- -- $ -- $ 6,630 Corporate Secretary $ -- $ -- 5,000 $ -- $ 3,654
- ---------- (1) Includes amounts voluntarily deferred by the executive, if applicable. Includes various expatriate compensation items, including expatriate allowances, company provided transportation, housing and tax benefits. (2) Includes payout of earnings on Long-Term Incentive Partnership Plan. (3) Consists of 401(k) Plan contributions for 2001 for each Executive Officer listed above in the amount of $6,630. To offset its obligations under the Company's Executive Split Dollar Plan for executives whose retirement benefit cannot be fully funded through the Company's Base Retirement Plan for Salaried Employees, the Company has agreed to pay the premiums for policies of split dollar life insurance on the lives of such executives. Included in this column is the value of premiums paid in 2001 for Mr. Sokol of $25,507, for Mr. Abel of $16,569, and for Mr. Goodman of $6,705. Also included are the insurance premiums in the following amounts paid by the Company with respect to the term life insurance portion of premiums paid in 2001 for Mr. Sokol of $900, for Mr. Abel of $457 and for Mr. Goodman of $192. (4) Mr. Stepien retired effective December 31, 2001. (5) Includes cash amounts received upon cash-out of equity in connection with our acquisition by a private investor group on March 14, 2000. OPTION GRANTS IN LAST FISCAL YEAR We did not grant any options during 2001. 95 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES The following table sets forth the option exercises and the number of securities underlying exercisable and unexercisable options held by each of our Named Executive Officers at December 31, 2001.
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS HELD (#) IN-THE-MONEY OPTIONS ($)(1) SHARES ACQUIRED ON ----------------------------- ---------------------------- NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------------- ------------------- -------------------- ------------- --------------- ------------- -------------- David L. Sokol .............. -- -- 1,970,412 228,865 N/A N/A Gregory E. Abel ............. -- -- 584,864 64,188 N/A N/A Ronald W. Stepien ........... -- -- -- -- -- -- Patrick J. Goodman .......... -- -- -- -- -- -- Douglas L. Anderson ......... -- -- -- -- -- --
- ---------- (1) On March 14, 2000 we were acquired by a private investor group. As a privately held company, we have no publicly traded equity securities and, consequently, our management does not believe there is a reliable method of computing the present value of the stock options granted to Messrs. Sokol and Abel as shown on the foregoing table. LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
NUMBER OF PERFORMANCE OR SHARES, UNITS OTHER PERIOD UNTIL OR OTHER MATURATION NAME RIGHTS (#)(1) OR PAYOUT THRESHOLD ($) TARGET ($)(2) MAXIMUM(#)(3) - ----------------------------- --------------- ------------------- --------------- --------------- -------------- Ronald W. Stepien ........... N/A December 31, 2005 56,106 N/A N/A(3) Patrick J. Goodman .......... N/A December 31, 2005 107,212 N/A 360,000 Douglas L. Anderson ......... N/A December 31, 2005 87,769 N/A 231,640.50
- ---------- (1) The awards shown in the foregoing table are made pursuant to the Long-Term Incentive Partnership Plan, or LTIP, which provides that awards vest equally over five years with any unvested balances forfeited upon termination of employment unless the participant retires at or above age 55 with at least 5 years of service in which case the participant will receive any unvested portion of the award. Vested balances are paid to the participant at the time of termination. Once an award is fully vested, the participant may elect to defer or receive payment of part or all of the award. Messrs. Sokol and Abel are not participants in the LTIP. Awards are credited or reduced with annual interest or loss based on a composite of funds or indices. (2) "Target" and "Threshold" payouts are equivalent with the LTIP. (3) Because Mr. Stepien is no longer our employee, the maximum payout does not apply. COMPENSATION OF DIRECTORS All directors, excluding Messrs. Sokol, Abel, Buffett and Walter Scott, are paid an annual retainer fee of $20,000 and a fee of $500 per day for attendance at Board and Committee meetings. Directors who are our employees are not entitled to receive such fees. All directors are reimbursed for their expenses incurred in attending Board meetings. RETIREMENT PLANS We maintain a Supplemental Retirement Plan for Designated Officers, which we refer to as the Supplemental Plan, to provide additional retirement benefits to designated participants, as determined by the Board of Directors. Messrs. Sokol, Abel, Stepien and Goodman are participants in the Supplemental Plan. The Supplemental Plan provides annual retirement benefits up to sixty-five percent of a participant's Total Cash Compensation in effect immediately prior to retirement, subject to a $1 million maximum retirement benefit. "Total Cash Compensation" means the highest amount payable to a participant as monthly base salary during the five years immediately prior to retirement multiplied by 12 plus the 96 average of the participant's last three years awards under an annual incentive bonus program and special, additional or non-recurring bonus awards, if any, that are required to be included in Total Cash Compensation pursuant to a participant's employment agreement or approved for inclusion by the Board. Participants must be credited with five years service in order to be eligible to receive benefits under the Supplemental Plan. Each of our Named Executive Officers has or will have five years of credited service with us as of their respective normal retirement age and will be eligible to receive benefits under the Supplemental Plan. A participant who elects early retirement is entitled to reduced benefits under the Supplemental Plan, however, in accordance with their respective employment agreements, Messrs. Sokol and Abel are eligible to receive the maximum retirement benefit at age 47. A survivor benefit is payable to a surviving spouse under the Supplemental Plan. Benefits from the Supplemental Plan will be paid out of general corporate funds; however, through a rabbi trust, we maintain life insurance on the participants in amounts expected to be sufficient to fund the after-tax cost of the projected benefits. Deferred compensation is considered part of the salary covered by the Supplemental Plan. The supplemental retirement benefit will be reduced by the amount of the participant's regular retirement benefit under the MidAmerican Energy Company Cash Balance Retirement Plan, which we refer to as the MidAmerican Retirement Plan, that became effective January 1, 1997, and by benefits under the Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan, which we refer to as the Iowa-Illinois Supplemental Plan, as applicable. The MidAmerican Retirement Plan replaced retirement plans of predecessor companies that were structured as traditional, defined benefit plans. Under the MidAmerican Retirement Plan, each participant has an account, for record keeping purposes only, to which credits are allocated each payroll period based upon a percentage of the participant's salary paid in the current pay period. In addition, all balances in the accounts of participants earn a fixed rate of interest that is credited annually. The interest rate for a particular year is based on the constant maturity Treasury yield plus seven-tenths of one percentage point. At retirement or other termination of employment, an amount equal to the vested balance then credited to the account is payable to the participant in the form of a lump sum or a form of annuity for the entire benefit under the MidAmerican Retirement Plan. Mr. Anderson is a participant in this plan. The table below shows the estimated aggregate annual benefits payable under the Supplemental Plan and the MidAmerican Retirement Plan. The amounts exclude Social Security and are based on a straight life annuity and retirement at ages 55, 60 and 65. Federal law limits the amount of benefits payable to an individual through the tax qualified defined benefit and contribution plans, and benefits exceeding such limitation are payable under the Supplemental Plan.
TOTAL CASH ESTIMATED ANNUAL BENEFIT AGE AT RETIREMENT COMPENSATION ------------------------------------------ RETIREMENT ($) 55 60 65 - ------------------------------ ------------ ------------ ------------ $ 400,000 $ 220,000 $ 240,000 $ 260,000 500,000 275,000 300,000 325,000 600,000 330,000 360,000 390,000 700,000 385,000 420,000 455,000 800,000 440,000 480,000 520,000 900,000 495,000 540,000 585,000 1,000,000 550,000 600,000 650,000 1,250,000 687,500 750,000 812,500 1,500,000 825,000 900,000 975,000 1,750,000 962,500 1,000,000 1,000,000 2,000,000 and greater 1,000,000 1,000,000 1,000,000
EMPLOYMENT AGREEMENTS Pursuant to his employment agreement Mr. Sokol serves as Chairman of our Board of Directors and Chief Executive Officer. The employment agreement provides that Mr. Sokol is to receive an annual base 97 salary of not less than $750,000, senior executive employee benefits and annual bonus awards that shall not be less than $675,000. Subject to an annual renewal provision, such agreement is scheduled to expire on August 21, 2003. The employment agreement provides that we may terminate the employment of Mr. Sokol with cause, in which case we are to pay to him any accrued but unpaid salary and a bonus of not less than the minimum annual bonus, or due to death, permanent disability or other than for cause, including a change in control, in which case Mr. Sokol is entitled to receive an amount equal to three times the sum of his annual salary then in effect and the greater of his minimum annual bonus or his average annual bonus for the two preceding years, as well as three years of accelerated option vesting plus continuation of his senior executive employee benefits (or the economic equivalent thereof) for three years. If Mr. Sokol resigns, we are to pay to him any accrued but unpaid salary and a bonus of not less than the annual minimum bonus, unless he resigns for good reason in which case he will receive the same benefits as if he were terminated other than for cause. In the event Mr. Sokol has relinquished his position as Chief Executive Officer and is subsequently terminated as Chairman of the Board due to death, disability or other than for cause, he is entitled to any accrued but unpaid salary plus an amount equal to the aggregate annual salary that would have been paid to him through the fifth anniversary of the date he commenced his employment solely as Chairman of the Board, the immediate vesting of all of his options and the continuation of his senior executive employee benefits (or the economic equivalent thereof) through this fifth anniversary. If Mr. Sokol relinquishes his position as Chief Executive Officer but offers to remain employed as the Chairman of the Board, he is to receive a special achievement bonus equal to two times the sum of his annual salary then in effect and the greater of his minimum annual bonus or his average annual bonus for the two preceding years, as well as two years of accelerated option vesting. Under the terms of separate employment agreements between us and each of Messrs. Abel and Goodman, each of such executives is entitled to receive two years base salary continuation, payments in respect of average bonuses for the prior two years and two years continued option vesting in the event we terminate his employment other than for cause. If such persons were terminated without cause, Messrs. Sokol, Abel and Goodman would currently be entitled to be paid approximately $12,375,000, $3,330,000 and $1,006,000, respectively, without giving effect to any tax related provisions. 98 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of the shares of our common stock and certain information with respect to the beneficial ownership of each director, our Named Executive Officers and all directors and executive officers as a group as of November 1, 2002.
NUMBER OF SHARES PERCENTAGE NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED (2) OF CLASS (2) - ---------------------------------------------- ------------------------ ------------- Common Stock: Gregory E. Abel (3) ................... 696,433 7.02% Douglas L. Anderson ................... -- -- Edgar D. Aronson ...................... -- -- Berkshire Hathaway (4) ................ 900,942 9.71% Stanley J. Bright ..................... -- -- John K. Boyer ......................... -- -- Warren E. Buffett (5) ................. -- -- Patrick J. Goodman .................... -- -- Marc D. Hamburg (5) ................... -- -- Richard R. Jaros ...................... -- -- W. David Scott (6) .................... 624,350 6.73% Walter Scott, Jr. (7) ................. 5,000,000 53.87% David L. Sokol (8) .................... 1,692,967 15.89% All directors and executive officers as a group (13 persons) ................. 8,914,692 78.96%
- ---------- (1) Unless otherwise indicated, each address is c/o us at 666 Grand Avenue, 29th Floor, Des Moines, Iowa 50309. (2) Includes shares which the listed beneficial owner is deemed to have the right to acquire beneficial ownership of under Rule 13d-3(d) under the Securities Exchange Act, including, among other things, shares which the listed beneficial owner has the right to acquire within 60 days. (3) Includes options to purchase 640,493 shares of common stock which are exercisable within 60 days. (4) Such beneficial owner's address is 1440 Kiewit Plaza, Omaha, Nebraska 68131. (5) Excludes 900,942 shares of common stock held by Berkshire Hathaway of which beneficial ownership of such shares is disclaimed. (6) Includes shares held by trusts for the benefit of or controlled by W. David Scott. Such beneficial owner's address is 402 South 36th Street, Suite 800, Omaha, Nebraska 68131. (7) Excludes 3 million shares held by family members and family controlled trusts and corporations ("Scott Family Interests"), including the 624,350 shares shown as beneficially owned by W. David Scott in the table above, as to all of which shares Mr. Walter Scott disclaims beneficial ownership. Such beneficial owner's address is 1000 Kiewit Plaza, Omaha, Nebraska 68131. (8) Includes options to purchase 1,368,762 shares of common stock which are exercisable within 60 days. The terms of our Zero Coupon Convertible Preferred Stock held by Berkshire Hathaway entitle the holder thereof to elect two members of our Board of Directors. The Zero Coupon Convertible Preferred Stock does not vote as to the election of any other members of our Board of Directors. Mr. Sokol's employment agreement gives him the right during the term of his employment to serve as a member of the Board of Directors and to designate two additional directors. 99 Pursuant to a shareholders agreement, following March 14, 2003, Walter Scott, Jr. or any of the Scott Family Interests would be able to require Berkshire Hathaway to purchase, for an agreed value or an appraised value, any or all of Walter Scott, Jr.'s and the Scott Family Interests' shares of our common stock, provided that Berkshire Hathaway is then a purchaser of a type which is able to consummate such a purchase without causing it or any of its affiliates or us or any of our subsidiaries to become subject to regulation as a registered holding company or a subsidiary of a registered holding company under PUHCA. Berkshire Hathaway is not currently such a purchaser. The consummation of such a transaction could result in a change in control with respect to us. Our Amended and Restated Articles of Incorporation provide that each share of the Zero Coupon Convertible Preferred Stock is convertible at the option of the holder thereof into one conversion unit, which is one share of our common stock subject to certain adjustments as described in our articles, upon the occurrence of a Conversion Event. A "Conversion Event" includes (1) any conversion of Zero Coupon Convertible Preferred Stock that would not cause the holder of the shares of common stock issued upon conversion (or any affiliate of such holder) or us to become subject to regulation as a registered holding company or as a subsidiary of a registered holding company under PUHCA either as a result of the repeal or amendment of PUHCA, the number of shares involved or the identity of the holder of such shares and (2) a Company Sale. A "Company Sale" includes our involuntary or voluntary liquidation, dissolution, recapitalization, winding-up or termination and any merger, consolidation or sale of all or substantially all of our assets. The conversion by Berkshire Hathaway of its shares of Zero Coupon Convertible Preferred Stock into our common stock could result in a change in control with respect to beneficial owership of our voting securities as calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Under a subscription agreement with us, Berkshire Hathaway has agreed to purchase, under certain circumstances, additional 11% trust issued mandatorily redeemable preferred securities in the event preferred securities outstanding prior to the closing of our acquisition by a private investor group on March 14, 2000 are tendered for conversion to cash by the current holders. We provided a guarantee in favor of a third party lender in connection with a $1,663,998.75 loan from such lender to our President, Gregory E. Abel, in March of 2000. The loan matures on April 1, 2010. The proceeds of this loan were used by Mr. Abel to purchase 47,475 shares of our common stock. Such common stock (together with 8,465 additional shares of common stock owned by Mr. Abel) also secures the loan. The entire original principal amount of the loan and the guarantee remain presently outstanding. In order to finance our $275 million preferred stock investment in Williams, on March 7, 2002, we sold to Berkshire Hathaway shares of our zero coupon convertible preferred stock. In order to finance our acquisition of Kern River, on March 12, 2002, we sold to Berkshire Hathaway and/or its consolidated subsidiaries shares of our no par, zero coupon convertible preferred stock for $127 million and $323 million of 11% mandatorily redeemable preferred securities of our subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005. In order to finance our acquisition of Northern Natural Gas, on August 16, 2002, we sold to Berkshire Hathaway and/or its consolidated subsidiaries $950 million of 11% mandatorily redeemable preferred securities of our subsidiary trust due August 31, 2012 with scheduled principal payments beginning in 2003. Messrs. Warren E. Buffett and Walter Scott, Jr. are members of the Board of Directors of Berkshire Hathaway. Messrs. Buffett and Marc D. Hamburg are executive officers of Berkshire Hathaway. Each of Messrs. Buffett, Hamburg and Walter Scott serves on our Board of Directors and participates in deliberations regarding executive officer compensation. On March 6, 2002, we purchased options to purchase shares of our common stock from Mr. David L. Sokol, our Chairman and Chief Executive Officer. The options purchased had exercise prices ranging from $18.50 to $24.22. We paid Mr. Sokol an aggregate amount of $27,122,550, which is equal to the difference between his option exercise prices and an agreed upon per share value. Mr. Sokol serves on our Board of Directors and participates in deliberations regarding executive officer compensation. 100 In July 2002, we purchased 557,686 options to purchase shares of HomeServices common stock from directors, officers and employees of HomeServices. The options purchased had exercise prices ranging from $11.3125 to $15.00. We paid an aggregate of $4,268,392, which is equal to the difference between the option exercise prices and an agreed upon per share value. We have not purchased any other options or securities from our stockholders, directors or executive officers since January 1, 2002. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION There is no compensation committee of the Board of Directors. All members of the Board of Directors participate in deliberations regarding executive officer compensation. Messrs. Sokol and Abel are current officers and employees. Mr. Walter Scott is a former officer. Mr. Jaros is a former officer and employee. See --"Certain Relationships and Related Transactions." 101 DESCRIPTION OF THE NOTES The original notes were, and the exchange notes will be, issued pursuant to an indenture, dated as of October 4, 2002, between the Company and The Bank of New York, as trustee. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended. The following description is a summary of the material provisions of the indenture and the related registration rights agreement. It does not restate those agreements in their entirety. We urge you to read the indenture and the registration rights agreement because they, and not this description, define your rights as a holder of the notes. The definitions of certain capitalized terms used in the following summary are set forth below under "--Definitions." GENERAL The indenture does not limit the aggregate principal amount of the debt securities that may be issued thereunder and provides that debt securities may be issued from time to time in one or more series. The notes were initially offered in the aggregate principal amount of $700,000,000. We may, without the consent of the holders, increase such principal amount in the future on the same terms and conditions and with the same CUSIP number(s) as the notes. The notes were issued in two series. The 2007 notes were issued in an aggregate principal amount of $200,000,000. The 2007 notes bear interest at the rate of 4.625% per annum and will mature on October 1, 2007. The 2012 notes were issued in an aggregate principal amount of $500,000,000. The 2012 notes bear interest at the rate of 5.875% per annum and will mature on October 1, 2012. Interest on the notes is payable semi-annually in arrears on each January 31 and July 31, commencing January 31, 2003, to the holders thereof at the close of business on the preceding January 15 and July 15, respectively. Interest on the notes is computed on the basis of a 360-day year of twelve 30-day months. The original notes were, and the exchange notes will be, issued without coupons and in fully registered form only in denominations of $1,000 and any integral multiple of $1,000. The Company files certain reports and other information with the SEC in accordance with the requirements of Sections 13 and 15(d) under the Exchange Act. See "Where You Can Find More Information." In addition, at any time that Sections 13 and 15(d) cease to apply to the Company, the Company has covenanted in the indenture to file comparable reports and information with the trustee and the SEC, and mail such reports and information to holders of notes at their registered addresses, for so long as any notes remain outstanding. If (1) the registration statement of which this prospectus is a part is not declared effective by the SEC within 270 days after the date on which the original notes were issued, (2) a shelf registration statement with respect to the resale of the notes is not declared effective by the SEC within 150 days after the Company's obligation to file such shelf registration statement arises (but in any event not prior to 270 days after the date on which the original notes were issued) or (3) any of the foregoing registration statements (or the prospectuses related thereto) after being declared effective by the SEC cease to be so effective or usable (subject to certain exceptions) in connection with resales of the original notes or exchange notes for the periods specified and in accordance with the registration rights agreement, the interest rate on the notes that are then subject to such cessation or other registration default will increase by 0.5% from and including the date on which any such event occurs until such event ceases to be continuing. The registration rights are more fully described under "Exchange Offer--Liquidated Damages." Any 2007 original notes that remain outstanding after the consummation of the exchange offer, together with all 2007 exchange notes issued in connection with the exchange offer, will be treated as a single class of securities under the indenture. Any 2012 original notes that remain outstanding after the consummation of the exchange offer, together with all 2012 exchange notes issued in connection with the exchange offer, will be treated as a single class of securities under the indenture. 102 OPTIONAL REDEMPTION GENERAL The notes of each series are redeemable in whole or in part, at the option of the Company at any time, at a redemption price equal to the greater of: (1) 100% of the principal amount of the series of notes being redeemed; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on the series of notes being redeemed discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (1) or (2) above, whichever is applicable, accrued interest on such notes to the date of redemption. Notice of redemption shall be given not less than 30 days nor more than 60 days prior to the date of redemption. If fewer than all the notes are to be redeemed, selection of notes of a series for redemption will be made by the trustee in any manner the trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price (as defined below), from and after the date of redemption the notes or portions of notes called for redemption will cease to bear interest, and the holders of those notes will have no right in respect of those notes except the right to receive the applicable Redemption Price. OPTIONAL REDEMPTION PROVISIONS Under the procedures described above, the price payable upon the optional redemption at any time of a note (the "Redemption Price") is determined by calculating the present value (the "Present Value") at such time of each remaining payment of principal of or interest on such note and then totaling those Present Values. If the sum of those Present Values is equal to or less than 100% of the principal amount of such note, the Redemption Price of such note will be 100% of its principal amount (redemption at par). If the sum of those Present Values is greater than 100% of the principal amount of such note, the Redemption Price of such note will be such greater amount (redemption at a premium). In no event may a note be redeemed optionally at less than 100% of its principal amount. The Present Value at any time of a payment of principal of or interest on a note is calculated by applying to such payment the discount rate (the "Discount Rate") applicable to such payment. The Discount Rate applicable at any time to payment of principal of or interest on a note equals the equivalent yield to maturity at such time of a fixed rate United States treasury security having a maturity comparable to the maturity of such payment plus 37.5 basis points, such yield being calculated on the basis of the interest rate borne by such United States treasury security and the price at such time of such security. The United States treasury security employed in the calculation of a Discount Rate (a "Relevant Security") as well as the price and equivalent yield to maturity of such Relevant Security will be selected or determined by an Independent Investment Banker. Whether the sum of the Present Values of the remaining payments of principal of and interest on a note to be redeemed optionally will or will not exceed 100% of its principal amount and, accordingly, whether such note will be redeemed at par or at a premium will depend on the Discount Rate used to calculate such Present Values. Such Discount Rate, in turn, will depend upon the equivalent yield to maturity of a Relevant Security, which yield will itself depend on the interest rate borne by, and the price of, the Relevant Security. While the interest rate borne by the Relevant Security is fixed, the price of the Relevant Security tends to vary with interest rate levels prevailing from time to time. In general, if at a particular time the prevailing level of interest rates for a newly issued United States treasury security having a maturity comparable to that of a Relevant Security is higher than the level of interest rates for newly issued United States treasury securities having a maturity comparable to such Relevant Security prevailing at the time the Relevant Security was issued, the price of the Relevant Security will be lower than its issue price. Conversely, if at a particular time the prevailing level of interest rates for a newly 103 issued United States treasury security having a maturity comparable to that of a Relevant Security is lower than the level of interest rates prevailing for newly issued United States treasury securities having a maturity comparable to the Relevant Security at the time the Relevant Security was issued, the price of the Relevant Security will be higher than its issue price. Because the equivalent yield to maturity on a Relevant Security depends on the interest rate it bears and its price, an increase or a decrease in the level of interest rates for newly issued United States treasury securities with a maturity comparable to that of a Relevant Security above or below the levels of interest rates for newly issued United States treasury securities having a maturity comparable to the Relevant Security prevailing at the time of issue of the Relevant Security will generally result in an increase or a decrease, respectively, in the Discount Rate used to determine the Present Value of a payment of principal of or interest on a note. An increase or a decrease in the Discount Rate, and therefore an increase or a decrease in the levels of interest rates for newly issued United States treasury securities having a maturity comparable to the Relevant Security, will result in a decrease or an increase, respectively, of the Present Value of a payment of principal of or interest on a note. In other words, the Redemption Price varies inversely with the levels of interest rates for newly issued United States treasury securities having a maturity comparable to the Comparable Treasury Issue. As noted above, however, if the sum of the Present Values of the remaining payments of principal of and interest on a note proposed to be redeemed is less than its principal amount, such note may only be redeemed at par. SINKING FUND The notes are not subject to any mandatory sinking fund. RANKING The notes are general, unsecured senior obligations of the Company and rank pari passu in right of payment with all other existing and future senior unsecured obligations of the Company and senior in right of payment to all existing and future subordinated obligations of the Company. The notes are effectively subordinated to all existing and future secured obligations of the Company and to all existing and future obligations of the Company's Subsidiaries. At September 30, 2002, the Company's outstanding indebtedness was approximately $2.0 billion (excluding $2.1 billion in aggregate principal amount of the Company's trust preferred securities, the Company's guarantees and letters of credit in respect of subsidiary indebtedness aggregating approximately $235 million and the Company's completion guarantee issued in favor of the lenders under Kern River's $875 million construction loan facility in connection with Kern River's 2003 Expansion Project). In addition, the Company's subsidiaries have significant amounts of indebtedness. At September 30, 2002, the Company's consolidated subsidiaries' and joint ventures' total outstanding indebtedness was approximately $7.1 billion, which does not include $453 million, representing the Company's share of outstanding indebtedness of CE Gen. This amount also does not include trade debt of the Company's subsidiaries. See "Capitalization." COVENANTS Except as set forth under "--Defeasance and Discharge--Covenant Defeasance" below, for so long as any notes remain outstanding, the Company will comply with the terms of the covenants set forth below. RESTRICTIONS ON LIENS The Company is not permitted to pledge, mortgage, hypothecate or permit to exist any pledge, mortgage or other Lien upon any property or assets at any time directly owned by the Company to secure any indebtedness for money borrowed which is incurred, issued, assumed or guaranteed by the Company ("Indebtedness for Borrowed Money"), without making effective provisions whereby the outstanding notes will be equally and ratably secured with any and all such Indebtedness for Borrowed Money and with any other Indebtedness for Borrowed Money similarly entitled to be equally and ratably secured; provided however, that this restriction does not apply to or prevent the creation or existence of: 104 (1) any Liens existing prior to the issuance of the original notes; (2) purchase money Liens which do not exceed the cost or value of the purchased property or assets; (3) any Liens not to exceed 10% of Consolidated Net Tangible Assets; and (4) any Liens on property or assets granted in connection with extending, renewing, replacing or refinancing in whole or in part the Indebtedness for Borrowed Money (including, without limitation, increasing the principal amount of such Indebtedness for Borrowed Money) secured by Liens described in the foregoing clauses (1) through (3), provided that the Liens in connection with any such extension, renewal, replacement or refinancing will be limited to the specific property or assets that was subject to the original Lien. In the event that the Company proposes to pledge, mortgage or hypothecate or permit to exist any pledge, mortgage or other Lien upon any property or assets at any time directly owned by it to secure any Indebtedness for Borrowed Money, other than as permitted by clauses (1) through (4) of the previous paragraph, the Company will give prior written notice thereof to the trustee and the Company will, prior to or simultaneously with such pledge, mortgage or hypothecation, effectively secure all the notes equally and ratably with such Indebtedness for Borrowed Money. The foregoing covenant does not restrict the ability of the Company's Subsidiaries and affiliates to pledge, mortgage, hypothecate or permit to exist any mortgage, pledge or Lien upon their property or assets, in connection with project financings or otherwise. CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE The Company is not permitted to consolidate with or merge with or into any other person, or convey, transfer or lease its consolidated properties and assets substantially as an entirety to any person, or permit any person to merge into or consolidate with the Company, unless (1) the Company is the surviving or continuing corporation or the surviving or continuing corporation or purchaser or lessee is a corporation incorporated under the laws of the United States of America, one of the States thereof or the District of Columbia or Canada and assumes the Company's obligations under the notes and under the indenture and (2) immediately before and after such transaction, no event of default under the indenture shall have occurred and be continuing. Except for a sale of the consolidated properties and assets of the Company substantially as an entirety as provided above, and other than properties or assets required to be sold to conform with laws or governmental regulations, the Company is not permitted, directly or indirectly, to sell or otherwise dispose of any of its consolidated properties or assets (other than short-term, readily marketable investments purchased for cash management purposes with funds not representing the proceeds of other asset sales) if on a pro forma basis, the aggregate net book value of all such sales during the most recent 12-month period would exceed 10% of Consolidated Net Tangible Assets computed as of the end of the most recent quarter preceding such sale; provided, however, that (1) any such sales shall be disregarded for purposes of this 10% limitation if the net proceeds are invested in properties or assets in similar or related lines of business of the Company and its Subsidiaries, including, without limitation, any of the lines of business in which the Company or any of its Subsidiaries is engaged on the date of such sale or disposition, and (2) the Company may sell or otherwise dispose of consolidated properties and assets in excess of such 10% limitation if the net proceeds from such sales or dispositions, which are not reinvested as provided above, are retained by the Company as cash or Cash Equivalents or used to retire Indebtedness for Borrowed Money of the Company (other than Indebtedness for Borrowed Money which is subordinated to the notes) and its Subsidiaries. PURCHASE OF NOTES UPON A CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of the notes will have the right to require that the Company repurchase all or any part of such holder's notes at a purchase price in cash equal to 101% of the principal thereof on the date of purchase plus accrued interest, if any, to the date of purchase. 105 The Change of Control provisions may not be waived by the trustee or by the board of directors of the Company, and any modification thereof must be approved by each holder. Nevertheless, the Change of Control provisions will not necessarily afford protection to holders, including protection against an adverse effect on the value of the notes of any series, in the event that the Company or its Subsidiaries incur additional Debt, whether through recapitalizations or otherwise. Within 30 days following a Change of Control, the Company will mail a notice to each holder of the notes of each series with a copy to the trustee, stating the following: (1) that a Change of Control has occurred and that such holder has the right to require the Company to purchase such holder's notes at the purchase price described above (the "Change of Control Offer"); (2) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the purchase date (which will be not earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Purchase Date"); (4) that after the Purchase Date interest on such note will continue to accrue (except as provided in clause (5)); (5) that any note properly tendered pursuant to the Change of Control Offer will cease to accrue interest after the Purchase Date (assuming sufficient moneys for the purchase thereof are deposited with the trustee); (6) that holders electing to have a note of any series purchased pursuant to a Change of Control Offer will be required to surrender the note of such series, with the form entitled "Option of Holder To Elect Purchase" on the reverse of the note completed, to the paying agent at the address specified in the notice prior to the close of business on the fifth business day prior to the Purchase Date; (7) that a holder will be entitled to withdraw such holder's election if the paying agent receives, not later than the close of business on the third business day (or such shorter periods as may be required by applicable law) preceding the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of notes of such series the holder delivered for purchase, and a statement that such holder is withdrawing his election to have such notes of such series purchased; and (8) that holders that elect to have their notes of any series purchased only in part will be issued new notes having a principal amount equal to the portion of the notes of the series that were surrendered but not tendered and purchased. On the Purchase Date, the Company will (1) accept for payment all notes of any series or portions thereof tendered pursuant to the Change of Control Offer, (2) deposit with the trustee money sufficient to pay the purchase price of all notes of such series or portions thereof so tendered for purchase and (3) deliver or cause to be delivered to the trustee the notes of such series properly tendered together with an officer's certificate identifying the notes of such series or portions thereof tendered to the Company for purchase. The trustee will promptly mail, to the holders of the notes of such series properly tendered and purchased, payment in an amount equal to the purchase price, and promptly authenticate and mail to each holder a new note of the same series having a principal amount equal to any portion of such holder's notes of such series that were surrendered but not tendered and purchased. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Purchase Date. If the Company is prohibited by applicable law from making the Change of Control Offer or purchasing notes of any series thereunder, the Company need not make a Change of Control Offer pursuant to this covenant for so long as such prohibition is in effect. 106 The Company will comply with all applicable tender offer rules, including, without limitation, Rule 14e-1 under the Exchange Act, in connection with a Change of Control Offer. EVENTS OF DEFAULT An event of default with respect to the notes of any series is defined in the indenture as being any one of the following events: (1) default as to the payment of interest on any note of that series for 30 days after payment is due; (2) default as to the payment of principal of, or premium, if any, on any note of that series or as to any payment required in connection with a Change of Control; (3) failure to make a Change of Control Offer required under the covenants described under "Purchase of Notes Upon a Change of Control" above or a failure to purchase the notes of that series tendered in respect of such Change of Control Offer; (4) default in the performance, or breach, of any covenant, agreement or warranty of the Company contained in the indenture and the notes of that series and such failure continues for 30 days after written notice is given to the Company by the trustee or to the Company and the trustee by the holders of at least a majority in aggregate principal amount outstanding of the notes of that series, as provided in the indenture; (5) default on any other Debt of the Company or any Significant Subsidiary (other than Debt that is Non-Recourse to the Company) if either (x) such default results from failure to pay principal of such Debt in excess of $100 million when due after any applicable grace period or (y) as a result of such default, the maturity of such Debt has been accelerated prior to its scheduled maturity and such default has not been cured within the applicable grace period, and such acceleration has not been rescinded, and the principal amount of such Debt, together with the principal amount of any other Debt of the Company and its Significant Subsidiaries (not including Debt that is Non-Recourse to the Company) that is in default as to principal, or the maturity of which has been accelerated, aggregates $100 million or more; (6) the entry by a court of one or more judgments or orders against the Company or any Significant Subsidiary for the payment of money that in the aggregate exceeds $100 million (excluding (i) the amount thereof covered by insurance or by a bond written by a person other than an affiliate of the Company and (ii) judgments that are Non-Recourse to the Company), which judgments or orders have not been vacated, discharged or satisfied or stayed pending appeal within 60 days from the entry thereof, provided that such a judgment or order will not be an event of default if such judgment or order does not require any payment by the Company; and (7) certain events involving bankruptcy, insolvency or reorganization of the Company or any of its Significant Subsidiaries. The indenture provides that the trustee may withhold notice to the holders of any default (except in payment of principal of, premium, if any, or interest on any series of notes and any payment required in connection with a Change of Control) if the trustee considers it in the interest of holders to do so. The indenture provides that if an event of default with respect to the notes of any series at the time outstanding (other than an event of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary) has occurred and is continuing, either the trustee or (i) in the case of any event of default described in clause (1) or (2) above, the holders of at least 33% in aggregate principal amount of the notes of that series then outstanding, or (ii) in the case of any other event of default, the holders of at least a majority in aggregate principal amount of the notes of that series then outstanding, may declare the principal of and any accrued interest on all notes of that series to be due and payable immediately, but upon certain conditions such declaration may be annulled and past defaults (except, unless theretofore cured, a default in payment of principal of, premium, if any, or interest on the notes of that series or any payment required in connection with a Change of Control) may be waived by the holders of a majority in principal amount of the notes of that series then outstanding. If an event of default due to the 107 bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary occurs, the indenture provides that the principal of and interest on all notes of that series will become immediately due and payable without any action by the trustee, the holders of notes or any other person. The holders of a majority in principal amount of the notes of any series then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee under the indenture with respect to the notes of such series, subject to certain limitations specified in the indenture, provided that the holders of notes of such series must have offered to the trustee reasonable indemnity against expenses and liabilities. The indenture requires the annual filing by the Company with the trustee of a written statement as to its knowledge of the existence of any default in the performance and observance of any of the covenants contained in the indenture. MODIFICATION OF THE INDENTURE The indenture contains provisions permitting the Company and the trustee, with the consent of the holders of not less than a majority in principal amount of the notes at the time outstanding, to modify the indenture or the rights of the holders of the series of notes, except that no such modification may (1) extend the stated maturity of the principal of or any installment of interest on the notes, reduce the principal amount thereof or the interest rate thereon, reduce any premium payable on redemption or purchase thereof, impair the right of any holder to institute suit for the enforcement of any such payment on or after the stated maturity thereof or make any change in the covenants regarding a Change of Control or the related definitions without the consent of the holder of each of the series of notes so affected, or (2) reduce the percentage of any series of notes, the consent of the holders of which is required for any such modification, without the consent of the holders of all series of notes then outstanding. DEFEASANCE AND DISCHARGE LEGAL DEFEASANCE The indenture provides that the Company will be deemed to have paid and will be discharged from any and all obligations in respect of the notes of any series on the 123rd day after the deposit referred to below has been made (or immediately if an opinion of counsel is delivered to the effect described in clause (B)(3)(y) below), and the provisions of the indenture will cease to be applicable with respect to such notes of such series (except for, among other matters, certain obligations to register the transfer or exchange of such notes of such series, to replace stolen, lost or mutilated notes of such series, to maintain paying agents and to hold monies for payment in trust) if, among other things: (A) the Company has deposited with the trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued and unpaid interest on the applicable notes, on the respective stated maturities of the notes or, if the Company makes arrangements satisfactory to the trustee for the redemption of the notes prior to their stated maturity, on any earlier redemption date in accordance with the terms of the indenture and the applicable notes; (B) the Company has delivered to the trustee: (1) either (x) an opinion of counsel to the effect that holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred and the Company had paid or redeemed such notes on the applicable dates, which opinion of counsel must be based upon a ruling of the Internal Revenue Service to 108 the same effect or a change in applicable federal income tax law or related Treasury regulations after the date of the indenture, or (y) a ruling directed to the trustee or the Company received from the Internal Revenue Service to the same effect as the aforementioned opinion of counsel; (2) an opinion of counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940; and (3) an opinion of counsel to the effect that either (x) after the passage of 123 days following the deposit referred to in clause (A) above, the trust fund will not be subject to the effect of Section 547 or 548 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law or (y) based upon existing precedents, if the matter were properly briefed, a court should hold that the deposit of moneys and/or U.S. Government Obligations as provided in clause (A) above would not constitute a preference voidable under Section 547 or 548 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (C) immediately after giving effect to such deposit referred to in clause (A) above on a pro forma basis, no event of default under the indenture, or event that after the giving of notice or lapse of time or both would become an event of default, will have occurred and be continuing on the date of such deposit or (unless an opinion of counsel is delivered to the effect described in clause (B)(3)(y) above) during the period ending on the 123rd day after the date of such deposit, and such deposit and discharge will not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which the Company is bound; and (D) if at such time the notes are listed on a national securities exchange, the Company has delivered to the trustee an opinion of counsel to the effect that the notes will not be delisted as a result of such deposit, defeasance and discharge. COVENANT DEFEASANCE The indenture further provides that the provisions of the covenants described herein under "Covenants--Restrictions on Liens", "--Consolidation, Merger, Conveyance, Sale or Lease" and "--Purchase of Notes Upon a Change of Control," clauses (3) and (4) under "Events of Default" with respect to such covenants, clause (2) under "Events of Default" with respect to offers to purchase upon a Change of Control as described above and clauses (5) and (6) under "Events of Default" will cease to be applicable to the Company and its Subsidiaries upon the satisfaction of the provisions described in clauses (A), (B), (C) and (D) of the preceding paragraph; provided, however, that with respect to such covenant defeasance, the opinion of counsel described in clause (B)(1)(x) above need not be based upon any ruling of the Internal Revenue Service or change in applicable federal income tax law or related Treasury regulations. DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT If the Company exercises its option to omit compliance with certain covenants and provisions of the indenture with respect to the notes of any series as described in the immediately preceding paragraph and any series of notes is declared due and payable because of the occurrence of an event of default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the trustee will be sufficient to pay amounts due on such notes at the time of their stated maturity or scheduled redemption, but may not be sufficient to pay amounts due on such notes at the time of acceleration resulting from such event of default. The Company will remain liable for such payments. GOVERNING LAW The indenture and the notes are governed by, and construed in accordance with, the law of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to conflict of laws rules. 109 TRUSTEE The Bank of New York is the trustee under the indenture. An affiliate of the trustee was an initial purchaser in the offering of the original notes. The Bank of New York (or one of its affiliates) currently serves, and may in the future serve, as trustee under indentures evidencing other indebtedness of the Company and its affiliates. The Bank of New York (or one of its affiliates) is also, and may in the future be, a lender under credit facilities for the Company and its affiliates. The Bank of New York is also the exchange agent in the exchange offer. DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the indenture. Reference is made to the indenture for the full definitions of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Attributable Value" means, as to a Capitalized Lease Obligation under which any person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Berkshire Hathaway" means Berkshire Hathaway Inc. and any Subsidiary of Berkshire Hathaway Inc. "Capital Stock" means, with respect to any person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in, or interests (however designated) in, the equity of such person that is outstanding or issued on or after the date of the indenture, including, without limitation, all common stock and preferred stock and partnership and joint venture interests in such person. "Capitalized Lease" means, as applied to any person, any lease of any property of which the discounted present value of the rental obligations of such person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such person, and "Capitalized Lease Obligation" means the rental obligations, as aforesaid, under such lease. "Cash Equivalent" means any of the following: (1) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (2) time deposits and certificates of deposit of any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000 with a maturity date not more than two years from the date of acquisition; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (1) or (5) of this definition that were entered into with any bank meeting the qualifications set forth in clause (2) of this definition or another financial institution of national reputation; (4) direct obligations issued by any state or other jurisdiction of the United States of America or any other country or any political subdivision or public instrumentality thereof maturing, or subject to tender at the option of the holder thereof, within 90 days after the date of acquisition thereof and, at the time of acquisition, having a rating of at least A from S&P or A-2 from Moody's (or, if at any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the trustee); (5) commercial paper issued by (a) the parent corporation of any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000, and (b) others having one of the two highest ratings obtainable from either S&P or Moody's (or, if at 110 any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the trustee) and in each case maturing within one year after the date of acquisition; (6) overnight bank deposits and bankers' acceptances at any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000; (7) deposits available for withdrawal on demand with any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000; (8) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (1) through (6) and (9) of this definition; and (9) auction rate securities or money market preferred stock having one of the two highest ratings obtainable from either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the trustee). "Change of Control" means the occurrence of one or more of the following events: (1) a transaction pursuant to which Berkshire Hathaway ceases to own, on a diluted basis (assuming conversion of all of the Company's convertible preferred stock and any other Capital Stock of the Company that is issued and outstanding, regardless of whether any such convertible preferred stock or other Capital Stock is then presently convertible), at least a majority of the issued and outstanding common stock of the Company; or (2) the Company or its Subsidiaries sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all the property of the Company and its Subsidiaries taken as a whole to any person or entity other than an entity at least a majority of the issued and outstanding common stock of which is owned by Berkshire Hathaway, calculated on a diluted basis as described above; provided that with respect to the foregoing subparagraphs (1) and (2), a Change of Control will not be deemed to have occurred unless and until a Rating Decline has occurred as well. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of such notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes. "Comparable Treasury Price" means, with respect to any Redemption Date, (1) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (2) if such release (or any successor release) is not published or does not contain such prices on such business day, the Reference Treasury Dealer Quotation for such Redemption Date. "Consolidated Net Tangible Assets" means, as of the date of any determination thereof, the total amount of all assets of the Company determined on a consolidated basis in accordance with GAAP as of such date less the sum of (a) the consolidated current liabilities of the Company determined in accordance with GAAP and (b) assets properly classified as Intangible Assets. "Currency Protection Agreement" means, with respect to any person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement intended to protect such person against fluctuations in currency values to or under which such person is a party or a beneficiary on the date of the indenture or becomes a party or a beneficiary thereafter. "Debt" means, with respect to any person, at any date of determination (without duplication): 111 (1) all Indebtedness for Borrowed Money of such person; (2) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments; (3) all obligations of such person in respect of letters of credit, bankers' acceptances, surety, bid, operating and performance bonds, performance guarantees or other similar instruments or obligations (or reimbursement obligations with respect thereto) (except, in each case, to the extent incurred in the ordinary course of business); (4) all obligations of such person to pay the deferred purchase price of property or services, except Trade Payables; (5) the Attributable Value of all obligations of such person as lessee under Capitalized Leases; (6) all Debt of others secured by a Lien on any Property of such person, whether or not such Debt is assumed by such person, provided that, for purposes of determining the amount of any Debt of the type described in this clause, if recourse with respect to such Debt is limited to such Property, the amount of such Debt will be limited to the lesser of the fair market value of such Property or the amount of such Debt; (7) all Debt of others Guaranteed by such person to the extent such Debt is Guaranteed by such person; (8) all Redeemable Stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and (9) to the extent not otherwise included in this definition, all net obligations of such person under Currency Protection Agreements and Interest Rate Protection Agreements. For purposes of determining any particular amount of Debt that is or would be outstanding, Guarantees of, or obligations with respect to letters of credit or similar instruments supporting (to the extent the foregoing constitutes Debt), Debt otherwise included in the determination of such particular amount will not be included. For purposes of determining compliance with the indenture, in the event that an item of Debt meets the criteria of more than one of the types of Debt described in the above clauses, the Company, in its sole discretion, will classify such item of Debt and only be required to include the amount and type of such Debt in one of such clauses. "Guarantee" means any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any Debt of any other person and, without limiting the generality of the foregoing, any Debt obligation, direct or indirect, contingent or otherwise, of such person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other person (whether arising by virtue of partnership arrangements (other than solely by reason of being a general partner of a partnership), or by agreement to keep-well, to purchase assets, goods, securities or services or to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term "Guarantee" will not include endorsements for collection or deposit in the ordinary course of business or the grant of a lien in connection with any Non-Recourse Debt. The term "Guarantee" used as a verb has a corresponding meaning. "Independent Investment Banker" means an independent investment banking institution of international standing appointed by the Company. "Intangible Assets" means, as of the date of determination thereof, all assets of the Company properly classified as intangible assets determined on a consolidated basis in accordance with GAAP. "Interest Rate Protection Agreement" means, with respect to any person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement intended to protect such person against fluctuations in interest rates to or under which such person or any of its Subsidiaries is a party or a beneficiary on the date of the indenture or becomes a party or a beneficiary thereafter. 112 "Investment Grade" means with respect to the notes, (1) in the case of S&P, a rating of at least BBB-, (2) in the case of Moody's, a rating of at least Baa3, and (3) in the case of a Rating Agency other than S&P or Moody's, the equivalent rating, or in each case, any successor, replacement or equivalent definition as promulgated by S&P, Moody's or other Rating Agency as the case may be. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form. "Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property, but will not include any partnership, joint venture, shareholder, voting trust or similar governance agreement with respect to Capital Stock in a Subsidiary or Joint Venture. For purposes of the indenture, the Company will be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property. "Non-Recourse" means any Debt or other obligation (or that portion of such Debt or other obligation) that is without recourse to the Company or any property or assets directly owned by the Company (other than a pledge of the equity interests in any Subsidiary of the Company, to the extent recourse to the Company under such pledge is limited to such equity interests). "Property" of any person means all types of real, personal, tangible or mixed property owned by such person whether or not included in the most recent consolidated balance sheet of such person under GAAP. "Rating Agencies" means (1) S&P and (2) Moody's or (3) if S&P or Moody's or both do not make a rating of the notes publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which will be substituted for S&P, Moody's or both, as the case may be. "Rating Category" means (1) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories), (2) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (3) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the notes has decreased by one or more gradations, gradations within Rating Categories (+ and -- for S&P, 1, 2 and 3 for Moody's or the equivalent gradations for another Rating Agency) will be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Decline" is defined to mean the occurrence of the following on, or within 90 days after, the earlier of (1) the occurrence of a Change of Control and (2) the date of public notice of the occurrence of a Change of Control or of the public notice of the intention of the Company to effect a Change of Control (the "Rating Date"), which period will be extended so long as the rating of the notes is under publicly announced consideration for possible downgrading by any of the Rating Agencies: (a) in the event that any series of the notes are rated by either Rating Agency on the Rating Date as Investment Grade, the rating of such notes by both such Rating Agencies will be reduced below Investment Grade, or (b) in the event the notes are rated below Investment Grade by both such Rating Agencies on the Rating Date, the rating of such notes by either Rating Agency will be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redeemable Stock" means any class or series of Capital Stock of any person that by its terms or otherwise is (1) required to be redeemed prior to the stated maturity of any series of the notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the stated maturity of any series of the notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Debt having a scheduled maturity prior to the stated maturity of any series of the notes, provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require the Company to purchase or redeem such Capital Stock upon the occurrence of a "change of control" occurring prior to the stated maturity of any 113 series of the notes will not constitute Redeemable Stock if the "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the covenants described under "Purchase of Notes Upon a Change of Control" above. "Redemption Date" means any date on which the Company redeems all or any portion of the notes in accordance with the terms of the indenture. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding such Redemption Date). "Significant Subsidiary" means a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act, substituting 20 percent for 10 percent each place it appears therein. Unless the context otherwise clearly requires, any reference to a "Significant Subsidiary" is a reference to a Significant Subsidiary of the Company. "Subsidiary" means, with respect to any person including, without limitation, the Company and its Subsidiaries, any corporation or other entity of which such person owns, directly or indirectly, a majority of the Capital Stock or other ownership interests and has ordinary voting power to elect a majority of the board of directors or other persons performing similar functions. "Trade Payables" means, with respect to any person, any accounts payable or any other indebtedness or monetary obligation to trade creditors incurred, created, assumed or Guaranteed by such person or any of its Subsidiaries or Joint Ventures arising in the ordinary course of business. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "U.S. Government Obligations" means any securities that are (1) direct obligations of the United States for the payment of which its full faith and credit is pledged or (2) obligations of a person controlled or supervised by and acting as an agency or instrumentality of the United States, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, that, in either case are not callable or redeemable at the option of the issuer thereof, and will also include any depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Voting Stock" means, with respect to any person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors (or persons fulfilling similar responsibilities) of such person. GLOBAL NOTES; BOOK-ENTRY SYSTEM The original notes within each series were, and the exchange notes notes within each series will be, issued under a book-entry system in the form of one or more global notes (each, a "Global Note"). Each Global Note with respect to the original notes was, and each Global Note with respect to the exchange notes will be, deposited with, or on behalf of, a depositary, which is The Depository Trust Company, New York, New York (the "Depositary"). The Global Notes with respect to the original notes were, and the Global Notes with respect to the exchange notes will be, registered in the name of the Depositary or its nominee. 114 The notes will not be issued in certificated form and, except under the limited circumstances described below, owners of beneficial interests in the Global Notes will not be entitled to physical delivery of the notes in certificated form. The Global Notes may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any nominee to a successor of the Depositary or a nominee of such successor. The Depositary is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds securities that its participants ("Direct Participants") deposit with the Depositary. The Depositary also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations, including Euroclear Bank as operator of The Euroclear System ("Euroclear") and Clearstream Banking societe anonyme ("Clearstream"). The Depositary is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and NASD, Inc. Access to the Depositary system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to the Depositary and its Direct and Indirect Participants are on file with the SEC. Purchases of the notes under the Depositary system must be made by or through Direct Participants, which will receive a credit for the notes on the Depositary's records. The ownership interest of each actual purchaser of each note ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from the Depositary of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the notes are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in notes, except in the event that use of the book-entry system for the notes is discontinued. To facilitate subsequent transfers, all notes deposited by Direct Participants with the Depositary will be registered in the name of the Depositary's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of the Depositary. The deposit of notes with the Depositary and their registration in the name of Cede & Co. or such other nominee effect no change in beneficial ownership. The Depositary has no knowledge of the actual Beneficial Owners of the notes; the Depositary's records reflect only the identity of the Direct Participants to whose accounts such notes are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Neither the Depositary nor Cede & Co. (nor such other nominee of the Depositary) will consent or vote with respect to the notes. Under its usual procedures, the Depositary mails an Omnibus Proxy to the Company as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal (and premium, if any) and interest payments on the notes and any redemption payments will be made to Cede & Co. (or such other nominee as may be requested by an authorized representative 115 of the Depositary). The Depositary's practice is to credit Direct Participants' accounts upon the Depositary's receipt of funds and corresponding detail information from the Company or its agent on the payable date in accordance with their respective holdings shown on the Depositary's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of the Depositary, the trustee, or the Company or its agent, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal (and premium, if any), interest and any redemption proceeds to Cede & Co. (or such other nominee as may be requested by an authorized representative of the Depositary) is the responsibility of the Company, disbursements of such payments to Direct Participants shall be the responsibility of the Depositary, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. The Depositary may discontinue providing its services as securities depositary with respect to the notes at any time by giving reasonable notice to the Company. Under such circumstances, in the event that a successor securities depositary is not obtained, certificated notes are required to be printed and delivered. The Company may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor securities depositary). In that event, certificated notes will be printed and delivered. The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company, the initial purchasers and the trustee take no responsibility for the accuracy thereof. A Global Note of any series may not be transferred except as a whole by the Depositary to a nominee or successor of the Depositary or by a nominee of the Depositary to another nominee of the Depositary. A Global Note representing notes of any series is exchangeable, in whole but not in part, for notes of such series in definitive form of like tenor and terms if (1) the Depositary notifies the Company that it is unwilling or unable to continue as depositary for such Global Note or if at any time the Depositary is no longer eligible to be or in good standing as a "clearing agency" registered under the Exchange Act, and in either case, a successor depositary is not appointed by the Company within 120 days of receipt by the Company of such notice or of the Company becoming aware of such ineligibility, (2) while such Global Note is subject to the transfer restrictions described in the indenture, the book-entry interests in such Global Note cease to be eligible for Depositary services because such notes are neither (a) rated in one of the top four categories by a nationally recognized statistical rating organization nor (b) included within a Self-Regulatory Organization system approved by the SEC for the reporting of quotation and trade information of securities eligible for transfer pursuant to Rule 144A under the Securities Act, or (3) the Company in its sole discretion at any time determines not to have such notes represented by a Global Note and notifies the trustee thereof. A Global Note exchangeable pursuant to the preceding sentence shall be exchangeable for notes registered in such names and in such authorized denominations as the Depositary of such Global Note shall direct. If (1) the exchange offer registration statement is not declared effective by the Exchange Effectiveness Deadline, (2) the shelf registration statement is not declared effective by the Shelf Effectiveness Deadline, or (3) after either the exchange offer registration statement or the shelf registration statement is declared effective, such registration statement or the related prospectus thereafter ceases to be effective or usable (subject to certain exceptions) in connection with resales of notes or exchange notes for the period specified and in accordance with the registration rights agreement (each such event referred to in clauses (1) through (3), a "Registration Default"), additional interest will accrue on the notes subject to such Registration Default at a rate of 0.5% from and including the date on which any such Registration Default occurs to but excluding the date on which all such Registration Defaults have ceased to be continuing. In each case, such additional interest is payable in addition to any other interest payable from time to time with respect to the notes and the exchange notes. 116 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion is a summary of the material United States federal income tax consequences relevant to the purchase, ownership and disposition of the notes, and does not purport to be a complete analysis of all potential tax effects. This discussion only deals with persons that hold notes as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"), and that purchased the notes for cash at original issue. This discussion does not address all the United States federal income tax consequences that may be relevant to a holder in light of such holder's particular circumstances or to holders subject to special rules, such as financial institutions, banks, partnerships and other pass-through entities, United States expatriates, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, insurance companies, dealers in securities or currencies, traders in securities, U.S. Holders (defined below) whose functional currency is not the United States dollar, tax-exempt organizations and persons holding the notes as part of a "straddle," "hedge," "conversion transaction" or other integrated transaction. The discussion is based upon the Code, United States Treasury Regulations issued thereunder, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time possibly with retroactive effect. As used herein, "U.S. Holder" means a beneficial owner of the notes who or that is o an individual that is a citizen or resident of the United States; o a corporation or other entity taxable as a corporation created or organized in or under the laws of the United States or a political subdivision thereof; o an estate, the income of which is subject to United States federal income tax regardless of its source; o a trust, if a United States court can exercise primary supervision over the administration of the trust and one or more U.S. persons can control all substantial trust decisions, or, if the trust was in existence on August 20, 1996, and has elected to continue to be treated as a U.S. person; or o a person whose worldwide income or gain is otherwise subject to United States federal income tax on a net income basis. We have not sought and will not seek any rulings from the Internal Revenue Service, (the "IRS") with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the notes or that any such position would not be sustained. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE TAX CONSEQUENCES DISCUSSED BELOW TO THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS, INCLUDING GIFT AND ESTATE TAX LAWS. U.S. HOLDERS STATED INTEREST A U.S. Holder must generally include stated interest on a note as ordinary income at the time such interest is received or accrued, in accordance with such U.S. Holder's method of accounting for U.S. federal income tax purposes. SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES A U.S. Holder will generally recognize gain or loss on the sale, exchange, redemption, retirement or other taxable disposition of a note equal to the difference between the amount realized upon the disposition and the U.S. Holder's adjusted tax basis in the note. Notwithstanding the foregoing, any amounts realized in connection with any sale, exchange, redemption, retirement or other taxable disposition to the extent attributable to accrued interest not previously included in income will be treated 117 as ordinary interest income. A U.S. Holder's adjusted basis in a note generally will be the U.S. Holder's cost therefor. This gain or loss generally will be a capital gain or loss, and if the U.S. Holder is an individual that has held the note for more than one year, such capital gain will generally be subject to tax at a maximum rate of 20%, or 18% if such holder has held the notes for more than five years. A U.S. Holder's ability to deduct capital losses may be limited. EXCHANGE OFFER The exchange of original notes for exchange notes pursuant to the exchange offer will not constitute a taxable event for U.S. federal income tax purposes. As a result, o a U.S. Holder of notes will not recognize taxable gain or loss as a result of the exchange of original notes for exchange notes pursuant to the exchange offer, o the holding period of the exchange notes will include the holding period of the original notes surrendered in exchange therefor, and o a U.S. Holder's adjusted tax basis in the exchange notes will be the same as such U.S. Holder's adjusted tax basis in the original notes surrendered in exchange therefor. CONTINGENT PAYMENTS In certain circumstances, we may be obligated to pay you amounts in excess of the stated interest and principal payable on the notes. The obligation to make payments of additional interest upon a registration default, and, in certain circumstances, payments upon a change in control, may implicate the provisions of Treasury regulations relating to "contingent payment debt instruments." We intend to take the position that the notes should not be treated as contingent payment debt instruments because of these payments. Assuming such position is respected, a U.S. Holder would be required to include in income the amount of any such payments at the time such payments are received or accrued in accordance with such U.S. Holder's method of accounting for U.S. federal income tax purposes. If the IRS successfully challenged this position, and the notes were treated as contingent payment debt instruments because of such payments, U.S. Holders might, among other things, be required to accrue interest income at higher rates than the stated interest rates on the notes and to treat any gain recognized on the sale or other disposition of a note as ordinary income, subject to tax at the maximum federal rate of 38.6%, rather than as capital gain which may be subject to tax at the maximum federal rate of 20%. The regulations applicable to contingent payment debt instruments have not been the subject of authoritative interpretation and therefore the scope of the regulations is not certain. Purchasers of notes are urged to consult their tax advisors regarding the possible application of the contingent payment debt instrument rules to the notes. INFORMATION REPORTING AND BACKUP WITHHOLDING A U.S. Holder may be subject to a backup withholding tax (currently at a rate of 30% but subject to a gradual reduction to 28% for payments made in 2006 through 2010, after which it will increase to 31%) when such holder receives "reportable payments," including interest and principal payments on the notes or proceeds upon the sale or other disposition of such notes. Certain holders (including, among others, corporations and certain tax-exempt organizations) are generally not subject to backup withholding. A U.S. Holder will be subject to this backup withholding tax if such holder is not otherwise exempt and such holder: o fails to furnish its taxpayer identification number, or TIN, which, for an individual, is ordinarily his or her social security number; o furnishes an incorrect TIN and the payor has received notice thereof; o has failed to properly report payments of interest or dividends and the payor has received notice thereof; or o fails to certify, under penalties of perjury, that it has furnished a correct TIN and that the IRS has not notified the U.S. Holder that it is subject to backup withholding. 118 U.S. Holders should consult their personal tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption, if applicable. The backup withholding tax is not an additional tax and taxpayers may use amounts withheld as a credit against their United States federal income tax liability or may claim a refund as long as they timely provide certain information to the IRS. We, our paying agent or other withholding agent generally will report to a U.S. Holder of notes and to the IRS the amount of any reportable payments made in respect of the notes for each calendar year and the amount of tax withheld, if any, with respect to such payments. NON-U.S. HOLDERS The following discussion is limited to the United States federal income tax consequences relevant to a beneficial owner of a note that is not a U.S. Holder (a "Non-U.S. Holder"). INTEREST Subject to the discussion of backup withholding below, interest paid to a Non-U.S. Holder will not be subject to United States federal income or withholding tax, provided that: o such holder does not directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote; o such holder is not a controlled foreign corporation that is related to us directly or constructively through stock ownership; o such holder is not a bank receiving interest on a loan entered into in the ordinary course of its trade or business; o such interest is not effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States; and o we, or our paying agent, receive appropriate documentation establishing that the Non-U.S. Holder is not a U.S. person. A Non-U.S. Holder that does not qualify for exemption from withholding under the preceding paragraph generally will be subject to withholding of United States federal income tax at a 30% rate (or lower applicable treaty rate) on payments of interest on the notes. If interest on the notes is effectively connected with the conduct by a Non-U.S. Holder of a trade or business within the United States, such interest will be subject to United States federal income tax on a net income basis at the rate applicable to U.S. persons generally (and, with respect to corporate holders, may also be subject to a 30% branch profits tax). If interest is subject to United States federal income tax on a net income basis in accordance with these rules, such payments will not be subject to United States withholding tax so long as the Non-U.S. Holder provides us or our paying agent with the appropriate documentation. SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES Subject to the discussion of backup withholding below, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a note generally will not be subject to United States federal income tax, unless o such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business within the United States, o the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are satisfied, or o the Non-U.S. Holder is subject to tax pursuant to the provisions of United States federal income tax law applicable to certain expatriates. 119 INFORMATION REPORTING AND BACKUP WITHHOLDING Backup withholding and information reporting generally will not apply to interest payments made to a Non-U.S. Holder in respect of the notes if such Non-U.S. Holder furnishes us or our paying agent with appropriate documentation of such holder's non-U.S. status. The payment of proceeds from a Non-U.S. Holder's disposition of notes to or through the U.S. office of any broker, domestic or foreign, will be subject to information reporting and possible backup withholding unless such holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge or reason to know that such holder is a U.S. person or that the conditions of an exemption are not, in fact, satisfied. The payment of the proceeds from a Non-U.S. Holder's disposition of a note to or through a non- United States office of either a United States broker or a non- United States broker that is a U.S.-related person will be subject to information reporting, but not backup withholding, unless such broker has documentary evidence in its files that such Non-U.S. Holder is not a U.S. person and the broker has no knowledge to the contrary, or the Non-U.S. Holder establishes an exemption. For this purpose, a "U.S.-related person" is o a controlled foreign corporation for United States federal income tax purposes, o a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding payment (or for such part of the period that the broker has been in existence) is derived from activities that are effectively connected with the conduct of a United States trade or business, or o a foreign partnership that is either engaged in the conduct of a trade or business in the United States or of which 50% or more of its income or capital interests are held by U.S. persons. Neither information reporting nor backup withholding will apply to a payment of the proceeds of a Non-U.S. Holder's disposition of notes by or through a non-United States office of a non-United States broker that is not a United States-related person. Copies of any information returns filed with the IRS may be made available by the IRS, under the provisions of a specific treaty or agreement, to the taxing authorities of the country in which the Non-U.S. Holder resides. Non-U.S. Holders should consult their own tax advisors regarding the application of withholding and backup withholding in their particular circumstances and the availability of and procedure for obtaining an exemption from withholding and backup withholding under current Treasury Regulations. In this regard, the current Treasury Regulations provide that a certification may not be relied on if we or our agent (or other payor) knows or has reasons to know that the certification may be false. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a credit against the holder's United States federal income tax liability or may entitle the holder to a refund, provided the required information is furnished timely to the IRS. 120 PLAN OF DISTRIBUTION Based on existing interpretations of the Securities Act by the staff of the SEC set forth in several no-action letters to third parties, and subject to the immediately following sentence, we believe that the exchange notes that will be issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by the holders thereof without further compliance with the registration and prospectus delivery provisions of the Securities Act. However, any purchaser of notes who is an "affiliate" (within the meaning of the Securities Act) of ours or who intends to participate in the exchange offer for the purpose of distributing the exchange notes or a broker-dealer (within the meaning of the Securities Act) that acquired original notes in a transaction other than as part of its market-making or other trading activities and who has arranged or has an understanding with any person to participate in the distribution of the exchange notes: (1) will not be able to rely on the interpretations by the staff of the SEC set forth in the above-mentioned no-action letters; (2) will not be able to tender its original notes in the exchange offer; and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the notes unless such sale or transfer is made pursuant to an exemption from such requirements. Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for original notes where such original notes were acquired as a result of market-marketing activities or other trading activities. We have agreed that, for a period of 120 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _________, 200___, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus. We will not receive any proceeds from any such sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker/dealer and/or the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letters of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 120 days after the expiration date we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. 121 NOTICE TO CANADIAN RESIDENTS Any resale of the notes in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Note holders resident in Canada are advised to seek legal advice prior to any resale of the notes. LEGAL MATTERS Certain legal matters with respect to the exchange notes will be passed upon for us by Willkie Farr & Gallagher, New York, New York. EXPERTS The consolidated balance sheets of MidAmerican Energy Holdings Company (successor to MidAmerican Energy Holdings Company (Predecessor), or MEHC (Predecessor)), and its subsidiaries, which are therein collectively referred to as the Company, as of December 31, 2001 and 2000 for the Company, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2001 for the Company, for the period January 1, 2000 to March 13, 2000 for MEHC (Predecessor), for the period March 14, 2000 to December 31, 2000 for the Company, and for the year ended December 31, 1999 for MEHC (Predecessor), included in this prospectus and the related financial statement schedules included elsewhere in the registration statement, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the Company's change in its accounting policy for major maintenance, overhaul, and well workover costs), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. With respect to the unaudited interim financial information for the periods ended September 30, 2002 and 2001, which is included in this prospectus, Deloitte & Touche LLP have applied limited procedures in accordance with professional standards for a review of such information. However, as stated in their report included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and included herein, they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited interim financial information because this report is not a "report" or a "part" of the registration statement prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. WHERE YOU CAN FIND MORE INFORMATION We file reports and information statements and other information with the SEC. Such reports, proxy and information statements and other information filed by us with the SEC can be inspected and copied at the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at Woolworth Building, 233 Broadway, New York, New York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC maintains a Web site that contains reports, proxy and information statements and other materials that are filed through the SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. This Web site can be accessed at http://www.sec.gov. We make available free of charge through our internet website at http://www.midamerican.com our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file with, or furnish it to, the SEC. Any information available on or through our website is not part of this prospectus. 122 INDEX TO FINANCIAL STATEMENTS
PAGE Independent Accountants' Report ........................................................ F-2 Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001 ................................................................ F-3 Unaudited Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2002 and 2001 ..................................................... F-4 Unaudited Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2002 and 2001 ........................................................... F-5 Notes to Unaudited Consolidated Financial Statements ................................... F-6 Independent Auditors' Report ........................................................... F-21 Consolidated Balance Sheets as of December 31, 2001 and 2000 ........................... F-22 Consolidated Statements of Operations for the year ended December 31, 2001 for the Company, for the period January 1, 2000 to March 13, 2000 for MEHC (Predecessor), for the period March 14, 2000 to December 31, 2000 for the Company, and for the year ended December 31, 1999 for MEHC (Predecessor) ........................................ F-23 Consolidated Statements of Stockholders' Equity for the year ended December 31, 2001 for the Company, for the period January 1, 2000 to March 13, 2000 for MEHC (Predecessor), for the period March 14, 2000 to December 31, 2000 for the Company, and for the year ended December 31, 1999 for MEHC (Predecessor) ........................................ F-24 Consolidated Statements of Cash Flows for the year ended December 31, 2001 for the Company, for the period January 1, 2000 to March 13, 2000 for MEHC (Predecessor), for the period March 14, 2000 to December 31, 2000 for the Company, and for the year ended December 31, 1999 for MEHC (Predecessor) ........................................ F-25 Notes to Consolidated Financial Statements ............................................. F-26
F-1 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors and Shareholders MidAmerican Energy Holdings Company Des Moines, Iowa We have reviewed the accompanying consolidated balance sheet of MidAmerican Energy Holdings Company and subsidiaries (the Company) as of September 30, 2002, and the related consolidated statements of operations for the three-month and nine-month periods ended September 30, 2002 and 2001, and the related consolidated statements of cash flows for the nine-month periods ended September 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated January 17, 2002 (March 27, 2002 as to Notes 20.A. and 21 and August 2, 2002 as to Note 23), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Des Moines, Iowa November 8, 2002 F-2 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
AS OF ------------------------------- SEPTEMBER 30, DECEMBER 31, 2002 2001 --------------- --------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ....................................................... $ 662,061 $ 386,745 Restricted cash and short-term investments ...................................... 56,466 30,565 Accounts receivable ............................................................. 549,656 310,030 Inventories ..................................................................... 132,153 135,822 Other current assets ............................................................ 187,773 106,124 ----------- ----------- Total current assets .......................................................... 1,588,109 969,286 Property, plant, contracts and equipment, net .................................... 9,168,940 6,537,371 Excess of cost over fair value of net assets acquired, net ....................... 4,223,198 3,638,546 Regulatory assets ................................................................ 538,134 221,120 Other investments ................................................................ 444,183 174,185 Equity investments ............................................................... 274,198 261,432 Deferred charges and other assets ................................................ 747,288 824,712 ----------- ----------- TOTAL ASSETS ..................................................................... $16,984,050 $12,626,652 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Current liabilities: Accounts payable ................................................................ $ 381,983 $ 266,027 Accrued interest ................................................................ 201,082 130,569 Accrued taxes ................................................................... 93,028 88,973 Other accrued liabilities ....................................................... 525,750 308,924 Short-term debt ................................................................. 642,031 256,012 Current portion of long-term debt ............................................... 483,106 317,180 ----------- ----------- Total current liabilities ..................................................... 2,326,980 1,367,685 Other long-term accrued liabilities .............................................. 612,321 537,495 Parent company debt .............................................................. 1,623,178 1,834,498 Subsidiary and project debt ...................................................... 6,388,169 4,754,811 Deferred income taxes ............................................................ 1,297,136 1,284,268 ----------- ----------- TOTAL LIABILITIES ................................................................ 12,247,784 9,778,757 ----------- ----------- Deferred income .................................................................. 82,305 85,917 Minority interest ................................................................ 6,012 44,477 Preferred securities of subsidiaries ............................................. 93,619 121,183 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts .......................................................................... 2,062,815 788,151 Subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts .......................................................................... -- 100,000 Commitments and contingencies (Note 12) SHAREHOLDERS' EQUITY: Zero coupon convertible preferred stock -- authorized 50,000 shares, no par value, 41,263 and 34,563 shares issued and outstanding at September 30, 2002, and December 31, 2001, respectively ................................................. -- -- Common stock -- authorized 60,000 shares, no par value, 9,281 shares issued and outstanding ..................................................................... -- -- Additional paid-in capital ....................................................... 1,956,509 1,553,073 Retained earnings ................................................................ 510,766 223,926 Accumulated other comprehensive income (loss) .................................... 24,240 (68,832) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY ....................................................... 2,491,515 1,708,167 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................... $16,984,050 $12,626,652 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------------------ ----------------------------- 2002 2001 2002 2001 -------------- ------------- ------------- ------------- REVENUES: Operating revenue ........................... $ 1,238,463 $1,076,786 $3,404,533 $3,756,931 Income on equity investments ................ 10,939 6,332 29,863 23,622 Interest and other income ................... 32,714 223,941 115,348 262,522 ----------- ---------- ---------- ---------- TOTAL REVENUES ............................... 1,282,116 1,307,059 3,549,744 4,043,075 ----------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales ............................... 443,144 472,964 1,283,238 2,010,164 Operating expense ........................... 343,303 293,867 948,913 844,776 Depreciation and amortization ............... 129,362 122,686 386,531 395,253 Interest expense ............................ 168,450 119,809 462,998 362,163 Less interest capitalized ................... (9,152) (19,877) (24,128) (72,010) ----------- ---------- ---------- ---------- TOTAL COSTS AND EXPENSES ..................... 1,075,107 989,449 3,057,552 3,540,346 ----------- ---------- ---------- ---------- Income before provision for income taxes ..... 207,009 317,610 492,192 502,729 Provision for income taxes ................... 26,788 241,873 80,226 296,088 ----------- ---------- ---------- ---------- Income before minority interest .............. 180,221 75,737 411,966 206,641 Minority interest ............................ 45,344 27,796 105,166 79,952 ----------- ---------- ---------- ---------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ..................... 134,877 47,941 306,800 126,689 Cumulative effect of change in accounting principle, net of tax ....................... -- -- -- (4,604) ----------- ---------- ---------- ---------- NET INCOME AVAILABLE TO COMMON AND PREFERRED SHAREHOLDERS ...................... $ 134,877 $ 47,941 $ 306,800 $ 122,085 =========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ------------------------------ 2002 2001 --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................... $ 306,800 $ 122,085 Adjustments to reconcile to net cash flows from operating activities: Cumulative effect of change in accounting principle, net of tax .......... -- 4,604 Gains on disposals ....................................................... (57,480) (221,108) Depreciation and amortization ............................................ 386,531 282,125 Amortization of excess of cost over fair value of net assets acquired .... -- 74,728 Amortization of deferred financing costs and other costs ................. 32,589 15,542 Provision for deferred income taxes ...................................... 40,518 236,901 Undistributed earnings on equity investments ............................. (14,828) (23,622) Changes in other items: Accounts receivable ..................................................... (76,621) 607,287 Other current assets .................................................... 47,493 23,381 Accounts payable and accrued liabilities ................................ (15,193) (389,295) Accrued interest ........................................................ 79,548 78,391 Accrued taxes ........................................................... (43,963) (25,733) Deferred income ......................................................... (2,612) 5,704 ------------ ---------- NET CASH FLOWS FROM OPERATING ACTIVITIES ................................. 682,782 790,990 ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of Kern River, net of cash acquired .......................... (419,724) -- Acquisition of Northern Natural Gas, net of cash acquired ................ (899,249) -- Acquisition of Yorkshire Electricity, net of cash acquired ............... (8,380) (36,860) Proceeds from sale of Northern Supply .................................... -- 377,396 Purchase of convertible preferred securities ............................. (275,000) -- Capital expenditures relating to operating projects ...................... (328,544) (242,337) Construction and other development costs ................................. (450,206) (134,625) Receipt of liquidated damages on construction projects ................... -- 29,648 Proceeds from sale of assets ............................................. 210,767 10,500 Purchase of minority interests ........................................... (33,262) (29,276) Acquisition of realty companies, net of cash acquired .................... (102,699) (32,565) Change in restricted investments ......................................... 16,746 17,924 Change in other assets ................................................... 25,895 (8,502) ------------ ---------- NET CASH FLOWS FROM INVESTING ACTIVITIES ................................. (2,263,656) (48,697) ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of convertible preferred stock .................... 402,000 -- Proceeds from issuance of trust preferred securities ..................... 1,273,000 -- Net repayment of short-term subsidiary debt .............................. (77,585) (160,288) Net proceeds from short-term parent company debt ......................... 13,500 64,500 Repayment of subsidiary and project debt ................................. (377,644) (278,867) Proceeds from subsidiary and project debt ................................ 780,142 200,000 Redemption of preferred securities of subsidiaries ....................... (127,613) (14,616) Change in restricted investments-debt service ............................ (25,901) (6,585) Other .................................................................... (44,999) (2,105) ------------ ---------- NET CASH FLOWS FROM FINANCING ACTIVITIES ................................. 1,814,900 (197,961) ------------ ---------- Effect of exchange rate changes on cash .................................. 41,290 1,689 ------------ ---------- Net increase in cash and cash equivalents ................................ 275,316 546,021 Cash and cash equivalents at beginning of period ......................... 386,745 38,152 ------------ ---------- Cash and cash equivalents at end of period ............................... $ 662,061 $ 584,173 ============ ========== Interest paid, net of amount capitalized ................................. $ 404,288 $ 222,991 ============ ========== Income taxes paid ........................................................ $ 55,437 $ 43,632 ============ ==========
The accompanying notes are an integral part of these financial statements. F-5 MIDAMERICAN ENERGY HOLDINGS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL In the opinion of management of MidAmerican Energy Holdings Company and subsidiaries (the "Company"), the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position as of September 30, 2002, and the results of operations for the three months and nine months ended September 30, 2002 and 2001 and the related consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001. The results of operations for the three months and nine months ended September 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements include the accounts of MidAmerican Energy Holdings Company and its wholly and majority owned subsidiaries. Other investments and corporate joint ventures, where the Company has the ability to exercise significant influence, are accounted for under the equity method. Investments where the Company's ability to influence is limited are accounted for under the cost method of accounting. Certain amounts in the 2001 financial statements and supporting note disclosures have been reclassified to conform to the 2002 presentation. Such reclassification did not impact previously reported net income or retained earnings. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. 2. ACQUISITIONS Kern River On March 27, 2002, the Company closed on a definitive agreement with The Williams Companies, Inc. ("Williams") to acquire Williams" Kern River Gas Transmission Company ("Kern River"), a 926-mile interstate pipeline transporting Rocky Mountain and Canadian natural gas to markets in California, Nevada and Utah. The Kern River pipeline is an important route for the transmission of natural gas from the vast reserves in the Rocky Mountain states to the rapidly growing markets in Utah, Nevada and California. Constructed in 1992, the Kern River pipeline extends from Opal, Wyoming, to the San Joaquin Valley near Bakersfield, California, and has a design capacity of 845 million cubic feet per day. The Company paid $419.7 million, net of cash acquired of $7.7 million and transaction costs and working capital adjustments, for Kern River's gas pipeline business. At the time of the acquisition, Kern River had $505 million of indebtedness, the unamortized portion of which remains outstanding. The acquisition has been accounted for as a purchase business combination. The Company is in the process of completing the allocation of the purchase price to the assets and liabilities acquired. The results of operations for Kern River are included in the Company's results beginning March 27, 2002. The recognition of excess of cost over fair value of net assets acquired resulted from various attributes of Kern River's operations and business in general. These attributes include, but are not limited to: o Opportunities for expansion; o High credit quality shippers contracting with Kern River; o Kern River's strong competitive position; o Exceptional operating track record and state-of-the-art technology; F-6 o Strong demand for gas in the Western markets; and o An ample supply of low-cost gas. In connection with the acquisition of Kern River, the Company issued $323.0 million of 11% Company-obligated mandatorily redeemable preferred securities of subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005 and $127.0 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway. Each share of preferred stock is convertible at the option of the holder into one share of the Company's common stock subject to certain adjustments as described in the Company's Amended and Restated Articles of Incorporation. Northern Natural Gas Company On August 16, 2002, the Company closed on a definitive agreement with Dynegy Inc. ("Dynegy") to acquire Dynegy's Northern Natural Gas Company ("Northern Natural Gas"), a 16,600-mile interstate pipeline extending from southwest Texas to the upper Midwest region of the United States. With a design capacity of 4.4 billion cubic feet of natural gas per day, Northern Natural Gas accesses natural gas supply from many of the larger producing regions in North America including the Rocky Mountains, Hugoton, Permian, Anadarko and Western Canadian basins. The system provides transportation and storage services to approximately 70 utility customers and numerous industrial customers in the Upper Midwest. Northern Natural Gas also provides cross-haul and grid transportation between other interstate and intrastate pipelines in Permian, Anadarko, Hugoton and Midwest areas. It operates three natural gas storage facilities and two liquefied natural gas peaking units for a total storage capacity of 59 billion cubic feet and peak delivery capability of over 1.3 billion cubic feet of natural gas per day. The Company paid $899.2 million for Northern Natural Gas, net of cash acquired of $1.4 million and transaction costs and working capital adjustments. At the time of the acquisition, Northern Natural Gas had $950 million of debt outstanding. The acquisition has been accounted for as a purchase business combination. The Company is in the process of completing the working capital negotiations and the allocation of the purchase price to the assets and liabilities acquired. The results of operations for Northern Natural Gas are included in the Company's results beginning August 16, 2002. The recognition of excess of cost over fair value of net assets acquired resulted from various attributes of Northern Natural Gas' operations and business in general. These attributes include, but are not limited to: o High credit quality shippers contracting with Northern Natural Gas; o Northern Natural Gas' strong competitive position; o Strategic location in the high demand Upper Midwest markets; o Flexible access to an ample supply of low-cost gas; o Exceptional operating track record; and o Opportunities for expansion. In connection with the acquisition of Northern Natural Gas, the Company issued $950.0 million of 11% Company-obligated mandatorily redeemable preferred securities of subsidiary trust due August 31, 2011, with scheduled principal payments beginning in 2003, to Berkshire Hathaway. The following pro forma financial information of the Company represents the unaudited pro forma results of operations as if the Kern River and Northern Natural Gas acquisitions, the related financings and the Yorkshire Swap, as described in Note 3 of Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2001, had occurred at the beginning of each year. These pro forma results have been prepared for comparative purposes only and do not profess to be indicative of the results of operations which would have been achieved had these transactions been completed at the beginning of each year, nor are the results indicative of the Company's future results of operations (in thousands). F-7
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 --------------------------- --------------------------- 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Revenue .................................... $1,204,513 $1,050,104 $3,888,873 $3,849,034 Income before cumulative effect of change in accounting principle ...................... 126,389 71,421 310,359 185,154 Net income available to common and preferred shareholders .............................. 126,389 71,421 310,359 180,550
3. CALENERGY GAS DISPOSAL In May 2002, CalEnergy Gas, an indirect wholly owned subsidiary of the Company, executed the sale of several of its U.K. natural gas assets to Gaz de France for (pounds sterling)137.0 million (approximately $200 million). CalEnergy Gas sold four natural gas-producing fields located in the southern basin of the U.K. North Sea, including Anglia, Johnston, Schooner and Windermere. The transaction also included the sale of rights in four gas fields (in development/ construction) and three exploration blocks owned by CalEnergy Gas. As a result of the sale, the Company's nine month results ending September 30, 2002 include pre-tax and after-tax income of $54.3 million and $41.3 million, respectively, which includes a write off of non-deductible goodwill of $49.6 million. The three month results ending September 30, 2002 include $21.1 million in tax benefits related to the sale. 4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT, NET Property, plant, contracts and equipment, net comprise the following (in thousands):
SEPTEMBER 30, DECEMBER 31, 2002 2001 --------------- --------------- Operating assets: Utility generation, distribution and transmission systems .......... $ 10,102,855 $ 7,574,339 Independent power plants ........................................... 1,406,345 1,402,102 Utility non-operational assets ..................................... 363,910 354,366 Power sales agreements ............................................. 19,185 48,185 Realty company assets .............................................. 73,785 51,150 Other assets ....................................................... 54,197 53,876 ------------ ------------ Total operating assets ............................................. 12,020,277 9,484,018 Less accumulated depreciation and amortization ..................... (3,995,916) (3,650,875) ------------ ------------ Net operating assets ............................................... 8,024,361 5,833,143 Mineral and gas reserves and exploration assets, net ............... 280,722 387,697 Construction in progress: Zinc Recovery Project ............................................. 213,923 163,366 Utility generation, distribution and transmission systems ......... 253,945 149,225 Kern River natural gas pipeline expansion ......................... 389,321 -- Other ............................................................. 6,668 3,940 ------------ ------------ Total .......................................................... $ 9,168,940 $ 6,537,371 ============ ============
Zinc Recovery Project CalEnergy Minerals, LLC, an indirect wholly owned subsidiary of the Company, is constructing the Zinc Recovery Project. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tons per year and is scheduled to commence commercial operations in 2002. Total project costs of the Zinc Recovery Project are expected to be approximately $244 million, net of damages received from Kvaerner, which is being funded by $140.5 million of debt and the balance from funds provided by the parent company. The Zinc Recovery Project has incurred $213.9 million, net of damages, of such costs through September 30, 2002. F-8 Utility generation, distribution and transmission systems Through 2007, MidAmerican Energy plans to develop and construct two electric generating plants in Iowa. MidAmerican Energy expects to invest approximately $1.2 billion in the two plants, including the cost of related transmission facilities and allowance for funds used during construction. The two plants may provide approximately 950 megawatts of generating capacity for MidAmerican Energy depending on management's on-going assessment of needs and related factors. The first project is a 500-megawatt (based on expected accreditation) natural gas-fired combined cycle unit with an estimated cost of $415 million. MidAmerican Energy will own 100% of the plant and operate it. MidAmerican Energy has received a certificate from the Iowa Utilities Board allowing it to construct the plant. Also, on May 29, 2002, the Iowa Utilities Board issued an order that provides the ratemaking principles for the gas-fired plant, thus limiting the regulatory risk of constructing the plant. As a result of that order, MidAmerican Energy is proceeding with the construction of the plant. It is anticipated that the first phase of the project will be completed in 2003, resulting in an additional 310 megawatts of accredited capacity, with the remainder being completed in 2005. Kern River natural gas pipeline expansion On July 17, 2002, Kern River received approval from FERC to construct, own and operate a major expansion to its pipeline system (the "2003 Expansion Project"). The 2003 Expansion Project will loop most of Kern River's existing mainline, construct three new compressor stations and upgrade or modify Kern River's six existing compressor stations. The 2003 Expansion Project, which is expected to be completed and operational by May 2003, will increase Kern River's capacity by approximately 900 MMcf per day. Service will be provided under long-term contracts subject to incremental rates. The estimated cost of the expansion is approximately $1.2 billion. 5. OTHER INVESTMENTS On March 27, 2002, the Company invested $275.0 million in Williams in exchange for shares of 9 7/8 percent cumulative convertible preferred stock of Williams. Dividends are scheduled to be received quarterly, which commenced July 1, 2002. This investment is accounted for under the cost method. The Company is aware that there have been public announcements that Williams' financial condition has deteriorated as a result of reduced liquidity. Williams' senior unsecured debt obligations are currently rated B1 by Moody's, B by Standard & Poor's and B- by Fitch. The Company has not recorded an impairment on this investment as of September 30, 2002, and is monitoring the situation. In connection with this investment, the Company issued $275.0 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway. Each share of preferred stock is convertible at the option of the holder into one share of the Company's common stock subject to certain adjustments as described in the Company's Amended and Restated Articles of Incorporation. 6. TEESSIDE POWER LIMITED RESTRUCTURING CE Electric UK Funding, an indirect wholly owned subsidiary of the Company, has a 15.4% interest in Teesside Power Limited ("TPL"). TPL owns and operates an 1,875MW combined cycle gas-fired power plant. Shareholders in TPL had previously utilized TPL's taxable losses with an obligation to reimburse TPL later in the project's life. In May 2002, TPL executed a restructuring and stabilization agreement with its lenders. The contract included an agreement between TPL and its shareholders with respect to the waiver of these repayment obligations. In May 2002, CE Electric UK Funding released $35.7 million due to the repayment obligation being waived which is reflected as a current tax benefit in the provision for income taxes. 7. REAL ESTATE COMPANY ACQUISITIONS During 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of approximately $100 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2001, these real estate companies had combined revenue F-9 of approximately $356 million on 42,000 closed sides representing $13.7 billion of sales volume. Additionally, HomeServices is obligated to pay a maximum earnout of $18.5 million calculated based on 2002 financial performance measures. These purchases were financed using HomeServices' $65 million revolving credit facility and MidAmerican Energy Holdings Company's corporate revolver for $40 million, which was contributed to HomeServices as equity. The Company is in the process of completing the allocation of the purchase price to the assets and liabilities acquired. 8. DEBT ISSUANCES AND REDEMPTIONS On February 8, 2002, MidAmerican Energy issued $400 million of 6.75% notes due in 2031. The proceeds are being used to refinance existing debt and preferred securities and for other corporate purposes. On March 11, 2002, MidAmerican Energy redeemed all $100 million of its 7.98% MidAmerican-obligated preferred securities of subsidiary trust at 100% of the principal amount plus accrued interest. On May 1, 2002, MidAmerican Energy reacquired all $26.7 million of its $7.80 series of preferred securities. The first $13.3 million of preferred securities were redeemed at 100% of the principal amount plus accrued dividends, and the remaining $13.4 million was redeemed at 103.9% of the principal amount plus accrued dividends. On June 21, 2002, Kern River closed on a bank loan facility providing for aggregate loans of up to $875 million to be used for the construction of the Kern River 2003 Expansion Project. The facility, which matures 15 years after the 2003 Expansion Project commences operation, has a variable interest rate which increases over the term of the facility from 1.375% to 4.5% over LIBOR. Kern River has drawn $384.9 million on this facility as of September 30, 2002. 9. ACCOUNTING POLICY CHANGE Effective January 1, 2001, the Company changed its accounting policy regarding major maintenance and repairs for nonregulated gas projects, nonregulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of monthly accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle for 2001 was $4.6 million, net of taxes of $.7 million. 10. ACCOUNTING PRONOUNCEMENTS AND REPORTING ISSUES On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which dictates the accounting for acquired goodwill and other intangible assets. SFAS No. 142 requires that amortization of goodwill and indefinite-lived intangible assets be discontinued and that entities disclose net income for prior periods adjusted to exclude such amortization and related income tax effects, as well as a reconciliation from the originally reported net income to the adjusted net income. The Company's related amortization consists of goodwill amortization and the related income tax effect. Following is a reconciliation of net income as originally reported for the periods ended September 30, 2002 and 2001, to adjusted net income (in thousands):
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 -------------------------- -------------------------- 2002 2001 2002 2001 ------------ ----------- ----------- ------------ Net income as originally reported ......... $ 134,877 $ 47,941 $306,800 $ 122,085 Goodwill amortization ..................... -- 24,739 -- 74,728 Income tax benefit ........................ -- (503) -- (1,504) --------- -------- -------- --------- Net income as adjusted .................... $ 134,877 $ 72,177 $306,800 $ 195,309 ========= ======== ======== =========
In accordance with SFAS No. 142, the Company has determined its reporting units and has completed the initial impairment testing of goodwill primarily using a discounted cash flow methodology. No impairment was indicated as a result of the initial impairment testing. See Note 14 for allocation of goodwill to reporting units. F-10 In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 requires recognition on the balance sheet of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of such assets. Additionally, at the time an asset retirement obligation (ARO) is recognized, an ARO asset of the same amount is recorded and depreciated. This pronouncement is effective for fiscal years beginning after June 15, 2002. The Company is evaluating the impact that adoption of this standard will have on its consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002, did not have any impact on the Company's consolidated financial statements. The Emerging Issues Task Force (EITF) recently issued EITF Issue No. 02-3, "Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17." In accordance with EITF No. 02-3, all gains and losses on energy trading contracts must be reported net on the income statement, effective for reporting periods ending after July 15, 2002, with all prior periods presented being reclassified to a consistent presentation. MidAmerican Energy's nonregulated wholesale gas and electric marketing activities qualify as "energy trading" contracts under the guidance of EITF No. 98-10. In accordance with EITF Issue No. 02-3, effective September 30, 2002, for MidAmerican Energy, all trading revenues are reported net of the cost of such sales. Previously, such amounts were recorded gross. All prior periods have been reclassified to conform to the net presentation. 11. COMPREHENSIVE INCOME The differences from net income to total comprehensive income for the Company are due to foreign currency translation adjustments, unrealized holding gains and losses of marketable securities during the periods, and the effective portion of net gains and losses of derivative instruments classified as cash flow hedges. Total comprehensive income for the nine months ended September 30, 2001, includes a transition loss of $3.3 million related to the initial adoption of SFAS No. 133. Total comprehensive income for the Company is shown in the table below (in thousands).
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ------------ Net income ................................. $134,877 $ 47,941 $ 306,800 $ 122,085 Other comprehensive income -- Foreign currency translation .............. 39,437 31,791 120,905 (16,681) Marketable securities, net of tax ......... 332 (7,683) (3,337) (5,816) Cash flow hedges, net of tax .............. (3,694) (3,897) (24,496) 32,598 -------- -------- --------- --------- Total comprehensive income ................. $170,952 $ 68,152 $ 399,872 $ 132,186 ======== ======== ========= =========
12. COMMITMENTS AND CONTINGENCIES A. FINANCIAL CONDITION OF EDISON Southern California Edison Company ("Edison"), a wholly owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. Due to reduced liquidity, Edison failed to pay approximately $119 million due under the power purchase agreement with CE Generation affiliates for power delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's failure to pay contractual obligations, the CE Generation affiliates had established an allowance for doubtful accounts of approximately $21 million as of December 31, 2001. The final payment of the past due amounts was received from Edison on March 1, 2002. Following the receipt of Edison's payment of past due balances, the CE Generation affiliates released the remaining allowance for doubtful accounts. F-11 B. CASECNAN CONSTRUCTION ARBITRATION On May 7, 1997, CE Casecnan entered into a fixed-price, date certain, turnkey engineering, procurement and construction contract to complete the construction of the Casecnan Project (the "Construction Contract"). The work under the Construction Contract was conducted by a consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa., working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd. (collectively, the "Contractor"). On November 20, 1999, the Construction Contract was amended to extend the Guaranteed Substantial Completion Date for the Casecnan Project to March 31, 2001. This amendment was approved by the lenders" independent engineer under the Casecnan Indenture. In January 2001, CE Casecnan received a new working schedule from the Contractor that showed a completion date of August 31, 2001. The delay in completion was attributable in part to the collapse in December 2000 of the Casecnan Project's partially completed vertical surge shaft and the need to drill a replacement surge shaft. Upon receipt of the working schedule, CE Casecnan sought and obtained from the lender's independent engineer approval for a revised construction schedule under the Casecnan Indenture. In connection with the revised schedule, MidAmerican Energy Holdings Company agreed to make available up to $11.6 million of additional funds under certain conditions pursuant to a Shareholder Support Letter dated February 8, 2001 (Shareholder Support Letter). MidAmerican Energy Holdings Company has fully satisfied its obligations under the Shareholder Support Letter. The receipt of the new working schedule did not change the Guaranteed Substantial Completion Date under the Construction Contract, and the Contractor was still contractually obligated either to complete the Casecnan Project by March 31, 2001, or to pay liquidated damages for the delay in completion. The Casecnan Project entered into commercial operations on December 11, 2001. In 2002, CE Casecnan has received approximately $6.0 million of liquidated damages from demands made on the demand guarantees posted by Commerzbank on behalf of the Contractor. On February 12, 2001, the Contractor filed a Request for Arbitration with the International Chamber of Commerce seeking an extension of the Guaranteed Substantial Completion Date by up to 153 days through August 31, 2001, resulting from various alleged force majeure events. In its March 20, 2001, Supplement to Request for Arbitration, the Contractor requested compensation for alleged additional costs of approximately $4 million it incurred from the claimed force majeure events to the extent it is unable to recover from its insurer. On April 20, 2001, the Contractor filed a further supplement seeking an additional compensation for damages of approximately $62 million for the alleged force majeure event (and geologic conditions) related to the collapse of the surge shaft. The Contractor has alleged that the circumstances surrounding the placing of the Casecnan Project into commercial operation on December 11, 2001, amounted to a repudiation of the Construction Contract and has filed a claim for unspecified quantum meruit damages. The Contractor also has alleged that the delay liquidated damages clause in the EPC Contract is unenforceable as a penalty. CE Casecnan believes all such allegations and claims are without merit and is vigorously contesting the Contractor's claims. The arbitration is being conducted applying New York law and in accordance with the rules of the International Chamber of Commerce. Although the outcome of the arbitration, as with any litigious proceedings, is difficult to access, CE Casecnan believes it will prevail and receive additional liquidated damages in the arbitration. On June 25, 2001, the arbitration tribunal temporarily enjoined CE Casecnan from making calls on the demand guaranty posted by Banca di Roma in support of the Contractor's obligations to CE Casecnan for delay liquidated damages. On April 26, 2002, CE Casecnan and the Contractor mutually agreed that no demands would be made on the Banca di Roma demand guaranty except pursuant to a final arbitration award. Hearings on the force majeure claims were held in London from July 2 to 14, 2001, and hearings on the Contractor's April 20, 2001, supplement were held from September 24 to October 3, 2001. Further hearings were held from January 21 to February 1, 2002 and from March 14 to 19, 2002. From November 4 to 6, 2002, hearings were held on the Contractor's claim with respect to the alleged unenforceability of the delay liquidated damages clause. On November 7, 2002, the International Chamber of Commerce issued the arbitration tribunal's partial award with respect to the Contractor's force majeure and geologic F-12 conditions claims. The arbitral panel awarded the Contractor 18 days of schedule relief in the aggregate for all of the force majeure events and awarded the Contractor $3.8 million with respect to the cost of the collapsed surge shaft. All of the Contractor's other claims that have been heard by the arbitral tribunal were denied. Further hearings on the Contractor's repudiation and quantum meruit claims are scheduled for January 20 to 23 and 28 to 31, 2003. These claims, and the alleged unenforceability of the delay liquidated damages clause, have not been ruled on by the arbitration tribunal. C. CASECNAN SHAREHOLDER ISSUE Pursuant to the share ownership adjustment mechanism in the Casecnan Shareholder Agreement, which is based upon pro forma financial projections of the Casecnan Project prepared following commencement of commercial operations, the Company, through its indirect wholly owned subsidiary CE Casecnan Ltd., has advised the minority shareholder LaPrairie Group Contractors (International) Ltd. ("LPG"), that the Company's ownership interest in CE Casecnan will increase to 100%. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, inter alia, CE Casecnan Ltd. and MidAmerican Energy Holdings Company. In the complaint, LPG seeks compensatory and punitive damages for alleged breaches of the Shareholder Agreement and alleged breaches of fiduciary duties allegedly owed by the Company and CE Casecnan Ltd. to LPG. The complaint also seeks injunctive relief against all defendants and a declaratory judgment that LPG is entitled to maintain its 15% interest in Casecnan. The impact, if any, of this litigation on the Company cannot be determined at this time. D. CASECNAN NIA ARBITRATION In August 2002, CE Casecnan commenced arbitration against the National Irrigation Administration ("NIA") in connection with the Casecnan Project by serving it with a Request for Arbitration under International Chamber of Commerce rules (the "Request for Arbitration"). In the Request for Arbitration, CE Casecnan claimed that NIA has breached its obligations under the Casecnan Project Agreement by failing to reimburse CE Casecnan for certain tax payments and by failing to pay the portion of the Water Delivery Fee under the Casecnan Project Agreement attributable to certain tax payments. The Casecnan Project Agreement provides for arbitration in accordance with International Chamber of Commerce rules by a panel of three arbitrators in Singapore. CE Casecnan is awaiting NIA's formal answer to the Request for Arbitration. CE Casecnan intends to vigorously pursue its claims in these proceedings. E. MALITBOG ARBITRATION VGPC and PNOC-EDC have been negotiating with respect to certain disputes concerning the Malitbog energy conversion agreement ("ECA") but have been unable to reach a mutually acceptable resolution. Accordingly, on October 16, 2000, VGPC commenced arbitration against PNOC-EDC by serving it with a Notice of Arbitration and Statement of Claim (the "Notice of Arbitration"). In the Notice of Arbitration, VGPC claimed that PNOC-EDC breached the Malitbog ECA by improperly characterizing certain No Fault Outages as Forced Outage Hours and then deducting them from the total number of hours each month. On December 22, 2000, VGPC filed an Amended Statement of Claim pursuant to which VGPC added a claim that PNOC-EDC breached the Malitbog ECA by refusing to accept VGPC's specified Nominated Capacity for contract years July 25, 1999 to July 25, 2000, and July 25, 2000 to July 25, 2001. A Second Amended Statement of Claim was filed on March 9, 2001, to add the Scheduled Maintenance issue. VGPC is vigorously pursuing its claims in this proceeding. Hearings were conducted from June 24, 2002, to July 5, 2002, in Sydney, Australia, and the Company expects a ruling on these hearings in the fourth quarter of 2002. F. MAHANAGDONG ARBITRATION On September 25, 2002, CE Luzon Geothermal Power Company, Inc. ("CE Luzon"), an indirect majority owned subsidiary of the Company, commenced arbitration against PNOC-EDC by serving it with a F-13 Request for Arbitration (the "Request for Arbitration") under International Chamber of Commerce rules. In the Request for Arbitration, CE Luzon claimed that PNOC-EDC breached the Mahanagdong ECA by refusing to accept CE Luzon's specified Nominated Capacity for contract years July 25, 2001 to July 25, 2002 and July 25, 2002 to July 25, 2003. CE Luzon is awaiting PNOC-EDC's formal answer. CE Luzon intends to vigorously pursue its claims in these proceedings. G. REGULATORY ENVIRONMENT: PHILIPPINES The Philippine Congress has passed the Electric Power Industry Reform Act of 2001, which is aimed at restructuring the Philippine power industry, privatization of the NPC and introduction of a competitive electricity market, among other initiatives. The implementation of the bill may have an impact on the Company's future operations and the industry as a whole, the effect of which is not yet determinable and estimable. In connection with an interagency review of approximately 40 independent power project contracts in the Philippines, the Casecnan Project (along with four other unrelated projects) has reportedly been identified as raising legal and financial questions and, with those projects, has been prioritized for renegotiation. The Company's subsidiaries' Upper Mahiao, Malitbog, and Mahanagdong projects, which, together with the Casecnan Project, collectively the "Philippine Projects", have also reportedly been identified as raising financial questions. No written report has yet been issued with respect to the interagency review, and the timing and nature of steps, if any, that the Philippine Government may take in this regard are not known. To the extent disputes arise under the Philippine Projects' agreements with respect to the Philippines Projects' obligations, rights and remedies thereunder, such disputes will be determined by international arbitration in a neutral forum conducted in accordance with the rules of the International Chamber of Commerce or UNCITRAL, as applicable. Representatives of CE Casecnan Water and Energy Company, Inc. ("CE Casecnan"), a Philippine corporation, together with certain current and former Philippine government officials, also have been requested to appear, and have appeared, before a Philippine Senate committee which has independently raised questions and made allegations with respect to the Casecnan Project's tariff structure and implementation. No further hearings are scheduled at this time. CE Casecnan has and intends to continue to respond to such questions and to vigorously defend the Casecnan Project against any allegations, which may be made. CE Casecnan believes the allegations made with respect to the Casecnan Project to be without merit. H. COOPER LITIGATION On July 23, 1997, Nebraska Public Power District ("NPPD") filed a complaint, in the United States District Court for the District of Nebraska, naming MidAmerican Energy as the defendant and seeking declaratory judgment as to issues under the parties' long-term power purchase agreement for Cooper Nuclear Station ("Cooper") capacity and energy. On July 31, 2002, MidAmerican Energy and NPPD signed an agreement on the restructuring of the power purchase contract for Cooper. Under the terms of the restructured contract, MidAmerican Energy will pay NPPD through December 31, 2004, a scheduled amount per unit for 380 megawatts of the accredited capacity of Cooper and a minimum of approximately 1.2 million megawatt-hours (MWh) in the last five months of 2002 and approximately 2.5 million MWh in each of 2003 and 2004. NPPD also paid MidAmerican Energy $39.1 million on August 1, 2002. In December 2000, MidAmerican Energy ceased contributing decommissioning funds to NPPD and maintained a separate fund for estimated Cooper decommissioning costs. At the date of the contract restructuring, $18.3 million had been accrued and retained by MidAmerican Energy in this separate fund. In conjunction with the power purchase contract restructuring, MidAmerican Energy is recognizing the $39.1 million cash payment and the $18.3 million previously accrued for decommissioning into income based on the estimated energy expected to be received for the remainder of the contract. F-14 Finally, both parties agreed to release each other from any and all claims, past or present, each might have under the power purchase contract prior to being restructured and file to dismiss the litigation currently pending in U.S. District Court. Under the terms of MidAmerican Energy's power purchase contract with NPPD prior to its restructuring, MidAmerican Energy paid NPPD one-half of the fixed and operating costs of Cooper, excluding depreciation but including debt service, and MidAmerican Energy's share of the nuclear fuel cost, including Department of Energy disposal fees, based on energy delivered. In addition, prior to December 2000, MidAmerican Energy contributed toward payment of one-half of Cooper's project decommissioning costs based on an assumed 2004 shutdown of the plant. I. KVAERNER ARBITRATION The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procure, construct and manage contract (the "Zinc Recovery Project EPC Contract"). On June 14, 2001, CalEnergy Minerals, LLC issued notices of default, termination and demand for payment of damages to Kvaerner under the Zinc Recovery Project EPC Contract due to failure to meet performance obligations. As a result of Kvaerner's failure to pay monetary obligations under the Zinc Recovery Project EPC Contract, CalEnergy Minerals, LLC drew $29.6 million under the EPC Contract Letter of Credit ("LOC") on July 20, 2001, and claimed the retainage and balance of the contract price. The LOC draw, retainage and balance of the contract price have been accounted for as a reduction of the capitalized costs of the project. CalEnergy Minerals, LLC has entered into a time and materials reimbursable engineer, procure and construction management contract with AMEC E&C Services, Inc. to complete the Zinc Recovery Project. On May 23, 2002, following various discussions and legal filings, CalEnergy Minerals, LLC and Kvaerner entered into a Settlement Agreement. Under the terms of the agreement, CalEnergy Minerals, LLC retained the amounts drawn under the LOC, the EPC retainage amounts and the EPC contract balance and will pay to Kvaerner three equal installments of $2.25 million payable in January of 2003, 2004 and 2005. J. PIPELINE LITIGATION In 1998, the United States Department of Justice informed the then current owners of Kern River and Northern Natural Gas that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against such entities and certain of their subsidiaries including Kern River and Northern Natural Gas. Mr. Grynberg has also filed claims against numerous other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, civil penalties, attorneys' fees and costs. On April 9, 1999, the United States Department of Justice announced that it declined to intervene in any of the Grynberg qui tam cases, including the actions filed against Kern River and Northern Natural Gas in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred the Grynberg qui tam cases, including the ones filed against Kern River and Northern Natural Gas, to the United States District Court for the District of Wyoming for pre-trial purposes. Motions to dismiss the complaint, filed by various defendants including Northern Natural Gas and Williams, which was the former owner of Kern River, were denied on May 18, 2001. In connection with the purchase of Kern River from Williams in March 2002, Williams agreed to indemnify us against any liability for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. No such indemnification was obtained in connection with the purchase of Northern Natural Gas in August 2002. We believe that the Grynberg cases filed against Kern River and Northern Natural Gas are without merit and Williams, on behalf of Kern River pursuant to its agreement to indemnify us, and Northern Natural Gas, intends to defend these actions vigorously. On June 8, 2001, a number of interstate pipeline companies, including Kern River and Northern Natural Gas, were named as defendants in a nationwide class action lawsuit which had been pending in the 26th F-15 Judicial District, District Court, Stevens County Kansas, Civil Department against other defendants, generally pipeline and gathering companies, since May 20, 1999. The plaintiffs allege that the defendants have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In November 2001, Kern River and Northern Natural Gas, along with the coordinating defendants, filed a motion to dismiss under Rules 9B and 12B of the Kansas Rules of Civil Procedure. In January 2002, Kern River and Northern Natural Gas and most of the coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. The court has yet to rule on these motions. The plaintiffs filed for certification of the plaintiff class on September 16, 2002. Williams has agreed to indemnify us against any liability associated with Kern River for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. Williams, on behalf of Kern River and other entities, anticipates joining with Northern Natural Gas and other defendants in contesting certification of the plaintiff class. Kern River and Northern Natural Gas believe that this claim is without merit and that Kern River's and Northern Natural Gas' gas measurement techniques have been in accordance with industry standards and its tariff. K. PIPELINE EXPANSION GUARANTEE On July 17, 2002, Kern River received approval from the FERC to construct, own and operate the 2003 Expansion Project. The 2003 Expansion Project will loop most of Kern River's existing mainline, construct three new compressor stations and upgrade or modify Kern River's six existing compressor stations. The 2003 Expansion Project, which is expected to be completed and operational by May 2003, will increase Kern River's capacity by approximately 900mmcf/day. Service will be provided under long-term contracts subject to incremental rates. The estimated cost of the expansion is approximately $1.2 billion, which will be financed with 70% debt and 30% equity, consistent with Kern River's existing capital structure, the application for the FERC approval described above and the limitations contained in the indenture for Kern River's existing secured senior notes. Construction will initially be funded with the proceeds of an $875 million credit facility entered into by Kern River on June 21, 2002, until 70% of the projected capitalized costs of the 2003 Expansion Project has been spent. The final 30% of the capitalized costs of the 2003 Expansion Project will be funded with equity from the Company. The credit facility is structured as a two-year construction facility followed by a term loan with a final maturity 15 years after completion of the 2003 Expansion Project. However, Kern River presently intends to refinance the credit facility through a bond offering or other capital markets transaction following completion of the 2003 Expansion Project. Prior to completion of the 2003 Expansion Project, the credit facility lenders will have limited recourse to Kern River and its assets and cash flow, and will have recourse to the Company's completion guarantee described below. Following completion of the 2003 Expansion Project, until such time as the Kern River credit facility is refinanced, the lenders under the credit facility will share equally and ratably with the existing Kern River senior secured noteholders in all of the collateral pledged to such senior secured noteholders. Pursuant to the Company's completion guarantee, it has guaranteed that "completion" of the 2003 Expansion Project will occur on or prior to the earliest of any abandonment by Kern River of the project, the occurrence of certain other acceleration events and June 30, 2004. The potential acceleration events include any downgrading of the Company's public debt rating to below investment grade by either S&P or Moody's unless a satisfactory substitute guarantor assumes the Company's obligations under the completion guarantee within 60 days after any such downgrade; Berkshire Hathaway ceasing to own at least a majority of the outstanding capital stock of the Company; and certain other customary events of default by the Company. In the completion guarantee, the Company has also agreed to cause capital contributions to be made to Kern River in a minimum aggregate amount of at least $375 million by June 30, 2004 or upon any earlier event of abandonment of the project. For purposes of the Company's completion guarantee, the term "completion" is defined in the Kern River credit agreement to mean satisfaction of a number of conditions, the most significant of which include the requirements that the 2003 Expansion Project be substantially complete and operable and able to permit Kern River to perform its obligations under all of the long-term firm gas transportation service agreements entered into in connection with the 2003 Expansion Project; that the shippers under such agreements shall have begun F-16 to incur the obligation to pay reservation fees thereunder; and that the FERC shall have authorized Kern River to begin collecting rates under its tariff and its shipper agreements; provided that the 2003 Expansion Project shall still be deemed to have been completed if it is less than substantially complete but it demonstrates at least 80% design capacity and Kern River's debt service coverage ratios as defined in its senior secured note indenture are not less than 1:55 to 1:0. There are a number of other conditions to completion, including requirements that all conditions to completion of the expansion contained in Kern River's senior secured note indenture be satisfied and all of Kern River's obligations under its credit agreement then share pari passu in all collateral available to Kern River's senior secured noteholders. The Company's completion guarantee shall terminate upon the earlier of completion of the 2003 Expansion Project or repayment in full of all obligations under the Kern River credit facility. L. MANUFACTURED GAS PLANT The U.S. Environmental Protection Agency ("EPA"), and state environmental agencies have determined that contaminated wastes remaining at decommissioned manufactured gas plant facilities may pose a threat to the public health or the environment if these contaminants are in sufficient quantities and at such concentrations as to warrant remedial action. MidAmerican Energy has evaluated or is evaluating 27 properties that were, at one time, sites of gas manufacturing plants in which it may be a potentially responsible party. The purpose of these evaluations is to determine whether waste materials are present, whether the materials constitute an environmental or health risk, and whether MidAmerican Energy has any responsibility for remedial action. Investigations of the sites are at various stages, and MidAmerican Energy has conducted ten removal actions to date. MidAmerican Energy is continuing to evaluate several of the sites to determine the appropriate site remedies, if any, necessary to obtain site closure from the agencies. MidAmerican Energy estimates the range of possible costs for investigation, remediation and monitoring for the sites discussed above to be $16 million to $30 million. MidAmerican Energy's estimate of the probable cost for these sites as of September 30, 2002, was $18 million. The estimate consists of $1 million for investigation costs, $6 million for remediation costs, $9 million for ground water treatment and monitoring costs and $2 million for closure and administrative costs. This estimate has been recorded as a liability and a regulatory asset for future recovery. MidAmerican Energy projects that these amounts will be paid or incurred over the next 5 years. The estimate of probable remediation costs is established on a site-specific basis. Initially, a determination is made as to whether MidAmerican Energy has potential remedial liability for the site and whether information exists to indicate that contaminated wastes remain at the site. When a potential remedial liability exists, the best estimate of projected site closure costs are accrued. The estimates are evaluated and revised quarterly as appropriate based on additional information obtained during investigation and remedial activities. The estimated recorded liabilities for these properties include incremental direct costs of the remediation effort and oversight by the appropriate regulatory authority, costs for future monitoring at sites and costs of compensation to employees for time expected to be spent directly on the remediation effort. The estimated recorded liability could change materially based on facts and circumstances derived from site investigations, changes in required remedial action and changes in technology relating to remedial alternatives. Insurance recoveries have been received for some of the sites under investigation. Those recoveries are intended to be used principally for accelerated remediation, as specified by the Iowa Utilities Board, and are recorded as a regulatory liability. Additionally, as viable potentially responsible parties are identified, those parties are evaluated for potential contributions, and cost recovery is pursued when appropriate. Although the timing of potential incurred costs and recovery of costs in rates may affect the results of operations in individual periods, management believes that the outcome of these issues will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 13. SUBSEQUENT EVENTS On October 4, 2002, the Company issued $200 million of 4.625% Senior Notes due in 2007 and $500 million of 5.875% Senior Notes due in 2012. The proceeds are being used for general corporate F-17 purposes including to reduce short-term obligations, to make a $150 million equity contribution to Northern Natural Gas, and to make funds available to Kern River for its 2003 Expansion Project. On October 15, 2002, Northern Natural Gas issued $300 million of 5.375% Senior Notes due in 2012. The proceeds, along with the $150 million equity contribution from the Company, were used to refinance a $450 million short-term debt obligation. 14. SEGMENT INFORMATION The Company has identified seven reportable operating segments principally based on management structure: MidAmerican Energy (domestic utility operations), CE Electric UK Funding (foreign utility operations), Kern River and Northern Natural Gas (domestic natural gas pipeline operations), CalEnergy Generation-Domestic, CalEnergy Generation-Foreign (primarily the Philippines), and HomeServices (real estate operations). Information related to the Company's reportable operating segments is shown below (in thousands).
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------------ ------------------------------ 2002 2001 2002 2001 -------------- ------------- -------------- ------------- OPERATING REVENUE: MidAmerican Energy ....................... $ 538,696 $ 507,661 $1,582,609 $1,897,792 CE Electric UK Funding ................... 193,360 316,252 596,958 1,222,324 Kern River ............................... 39,867 -- 87,048 -- Northern Natural Gas ..................... 39,098 -- 39,098 -- CalEnergy Generation -- Domestic ......... 13,717 25,592 27,627 32,635 CalEnergy Generation -- Foreign .......... 84,227 48,782 234,686 147,589 HomeServices ............................. 340,692 193,123 855,919 473,457 ---------- ---------- ---------- ---------- Segment operating revenue ................ 1,249,657 1,091,410 3,423,945 3,773,797 Corporate ................................ (11,194) (14,624) (19,412) (16,866) ---------- ---------- ---------- ---------- $1,238,463 $1,076,786 $3,404,533 $3,756,931 ========== ========== ========== ========== INCOME (LOSS) ON EQUITY INVESTMENTS: MidAmerican Energy ....................... $ (4,582) $ 878 $ 1,394 $ 1,595 CalEnergy Generation -- Domestic ......... 12,424 5,454 21,194 22,027 HomeServices ............................. 3,071 -- 6,984 -- ---------- ---------- ---------- ---------- Segment income on equity investments...... 10,913 6,332 29,572 23,622 Corporate ................................ 26 -- 291 -- ---------- ---------- ---------- ---------- $ 10,939 $ 6,332 $ 29,863 $ 23,622 ========== ========== ========== ========== DEPRECIATION AND AMORTIZATION: MidAmerican Energy ....................... $ 66,946 $ 63,017 $ 208,726 $ 217,260 CE Electric UK Funding ................... 28,390 31,219 87,200 97,141 Kern River ............................... 4,900 -- 12,161 -- Northern Natural Gas ..................... 5,755 -- 5,755 -- CalEnergy Generation -- Domestic ......... 2,160 2,058 6,517 3,375 CalEnergy Generation -- Foreign .......... 22,009 16,537 66,273 49,715 HomeServices ............................. 5,722 4,207 18,035 12,618 ---------- ---------- ---------- ---------- Segment depreciation and amortization..... 135,882 117,038 404,667 380,109 Corporate ................................ (6,520) 5,648 (18,136) 15,144 ---------- ---------- ---------- ---------- $ 129,362 $ 122,686 $ 386,531 $ 395,253 ========== ========== ========== ========== INTEREST EXPENSE, NET: MidAmerican Energy ....................... $ 30,220 $ 28,359 $ 89,489 $ 86,789 CE Electric UK Funding ................... 47,819 22,933 136,250 67,308
F-18
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------------- ---------------------------- 2002 2001 2002 2001 ------------ ---------- ------------- ------------ Kern River ................................. 12,877 -- 22,406 -- Northern Natural Gas ....................... 7,992 -- 7,992 -- CalEnergy Generation -- Domestic ........... 5,005 5,063 15,040 5,900 CalEnergy Generation -- Foreign ............ 16,923 6,584 51,853 22,160 HomeServices ............................... 1,121 822 3,334 2,930 ------ ----- ------ ------ Segment interest expense, net .............. 121,957 63,761 326,364 185,087 Corporate .................................. 37,341 36,171 112,506 105,066 ------- ------ ------- ------- $ 159,298 $ 99,932 $ 438,870 $ 290,153 ========= ======== ========== ========= INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES: MidAmerican Energy ......................... $ 108,577 $ 80,453 $ 218,565 $ 204,348 CE Electric UK Funding ..................... 39,968 98,961 197,223 186,248 Kern River ................................. 16,774 -- 39,387 -- Northern Natural Gas ....................... (1,015) -- (1,015) -- CalEnergy Generation -- Domestic ........... 14,649 22,994 12,983 37,383 CalEnergy Generation -- Foreign ............ 40,208 20,757 103,994 66,330 HomeServices ............................... 26,475 19,077 52,506 31,689 --------- -------- ---------- --------- Segment income before provision for income taxes .............................. 245,636 242,242 623,643 525,998 Corporate .................................. (38,627) 75,368 (131,451) (23,269) --------- -------- ---------- --------- $ 207,009 $317,610 $ 492,192 $ 502,729 ========= ======== ========== ========= PROVISION (BENEFIT) FOR INCOME TAXES: MidAmerican Energy ......................... $ 44,702 $ 36,079 $ 89,705 $ 92,349 CE Electric UK Funding ..................... (9,627) 177,700 5,949 205,407 Kern River ................................. 6,297 -- 15,001 -- Northern Natural Gas ....................... (399) -- (399) -- CalEnergy Generation -- Domestic ........... 844 7,013 (3,318) 5,137 CalEnergy Generation -- Foreign ............ 5,575 4,793 18,256 11,982 HomeServices ............................... 11,131 7,439 21,161 12,051 --------- -------- ---------- --------- Segment provision for income taxes ......... 58,523 233,024 146,355 326,926 Corporate .................................. (31,735) 8,849 (66,129) (30,838) --------- -------- ---------- --------- $ 26,788 $241,873 $ 80,226 $ 296,088 ========= ======== ========== =========
SEPTEMBER 30, DECEMBER 31, 2002 2001 --------------- ------------- IDENTIFIABLE ASSETS: MidAmerican Energy ....................... $ 5,986,212 $ 5,848,035 CE Electric UK Funding ................... 4,526,923 4,340,147 Kern River ............................... 1,342,424 -- Northern Natural Gas ..................... 2,041,842 -- CalEnergy Generation -- Domestic ......... 928,731 870,664 CalEnergy Generation -- Foreign .......... 983,702 950,035 HomeServices ............................. 515,328 322,552 ----------- ----------- Segment identifiable assets .............. 16,325,162 12,331,433 Corporate ................................ 658,888 295,219 ----------- ----------- $16,984,050 $12,626,652 =========== ===========
F-19 The remaining differences from the segment amounts to the consolidated amounts described as "Corporate" relate principally to the corporate functions including administrative costs, corporate cash and related interest income, goodwill amortization in 2001, intersegment eliminations, and fair value and goodwill adjustments relating to acquisitions and disposals. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET:
NORTHERN CALENERGY MIDAMERICAN CE ELECTRIC NATURAL GENERATION ENERGY UK FUNDING KERN RIVER GAS -- DOMESTIC HOMESERVICES TOTAL ------------- ------------- ------------ ---------- ------------- -------------- ------------- Goodwill at December 31, 2001 ........ $2,148,859 $1,100,489 $ -- $ -- $ 158,708 $ 230,490 $3,638,546 Acquisitions/purchase price accounting adjustments .............. -- 56,626 32,704 379,464 -- 106,054 574,848 Impairment losses ......... -- -- -- -- -- -- -- Goodwill written off related to sale of business unit ............ -- (49,587) -- -- -- -- (49,587) Translation adjustment..... -- 62,262 -- -- 62,262 Other adjustments ......... (1,776) (601) -- -- (324) (170) (2,871) ---------- ---------- -------- -------- --------- --------- ---------- Goodwill at September 30, 2002 ....... $2,147,083 $1,169,189 $ 32,704 $379,464 $ 158,384 $ 336,374 $4,223,198 ========== ========== ======== ======== ========= ========= ==========
F-20 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders MidAmerican Energy Holdings Company Des Moines, Iowa We have audited the accompanying consolidated balance sheets of MidAmerican Energy Holdings Company (successor to MidAmerican Energy Holdings Company (Predecessor), referred to as "MEHC (Predecessor)") and subsidiaries (the "Company") as of December 31, 2001 and 2000 for the Company, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2001 for the Company, for the period January 1, 2000 to March 13, 2000 for MEHC (Predecessor), for the period March 14, 2000 to December 31, 2000 for the Company, and for the year ended December 31, 1999 for MEHC (Predecessor). Our audits also included the financial statement schedules listed in Item 21. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the above stated periods in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the consolidated financial statements, in 2001 the Company changed its accounting policy for major maintenance, overhaul and well workover costs. DELOITTE & TOUCHE LLP Des Moines, Iowa January 17, 2002 (March 27, 2002 as to Notes 20.A. and 21 and August 2, 2002 as to Note 23) F-21 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
AS OF DECEMBER 31, ------------------------------- 2001 2000 -------------- -------------- ASSETS Current Assets: Cash and investments .................................................. $ 386,745 $ 38,152 Restricted cash and short term investments ............................ 30,565 42,129 Accounts receivable ................................................... 332,553 833,757 Inventories ........................................................... 103,078 81,943 Other current assets .................................................. 131,968 96,784 ----------- ----------- Total Current Assets ................................................ 984,909 1,092,765 Property, plant, contracts and equipment, net .......................... 6,527,448 5,348,647 Excess of cost over fair value of net assets acquired, net ............. 3,639,088 3,673,150 Regulatory assets ...................................................... 221,120 240,934 Long-term restricted cash and investments .............................. 24,207 48,747 Nuclear decommissioning trust fund and other marketable securities ..... 160,938 202,227 Equity investments ..................................................... 259,619 246,466 Deferred charges, other investments and other assets ................... 798,004 758,003 ----------- ----------- Total Assets ........................................................ $12,615,333 $11,610,939 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable ...................................................... $ 266,027 $ 586,644 Accrued interest ...................................................... 130,569 107,726 Accrued taxes ......................................................... 88,973 125,645 Other accrued liabilities ............................................. 308,924 250,975 Short-term debt ....................................................... 256,012 261,656 Current portion of long-term debt ..................................... 317,180 438,978 ----------- ----------- Total Current Liabilities ........................................... 1,367,685 1,771,624 Other long-term accrued liabilities .................................... 526,176 976,030 Parent company debt .................................................... 1,834,498 1,829,971 Subsidiary and project debt ............................................ 4,754,811 3,388,696 Deferred income taxes .................................................. 1,284,268 945,028 ----------- ----------- Total Liabilities ................................................... 9,767,438 8,911,349 ----------- ----------- Deferred income ........................................................ 85,917 79,489 Minority interest ...................................................... 44,477 11,491 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts ..................................................... 788,151 786,523 Subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts ..................................................... 100,000 100,000 Preferred securities of subsidiaries ................................... 121,183 145,686 Commitments and contingencies (Note 20) Stockholders' Equity: Zero coupon convertible preferred stock -- authorized 50,000 shares, no par value, 34,563 shares outstanding at December 31, 2001 and 2000 .................................................................. -- -- Common stock -- authorized 60,000 no par value; 9,281 shares issued and outstanding at December 31, 2001 and 2000 ......................... -- -- Additional paid in capital ............................................. 1,553,073 1,553,073 Retained earnings ...................................................... 223,926 81,257 Accumulated other comprehensive loss, net .............................. (68,832) (57,929) ----------- ----------- Total Stockholders' Equity ............................................ 1,708,167 1,576,401 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................. $12,615,333 $11,610,939 =========== ===========
The accompanying notes are an integral part of these financial statements. F-22 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
MEHC (PREDECESSOR) ------------------------------- YEAR ENDED MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED DECEMBER 31, THROUGH THROUGH DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 1999 -------------- ------------------- ----------------- ------------- REVENUE: Operating revenue ........................... $5,060,605 $4,147,867 $1,087,125 $4,184,546 Interest and other income ................... 96,706 94,882 19,484 143,175 Gains on non-recurring items (Notes 3 and 15) ................................... 179,493 -- -- 138,704 ---------- ---------- ---------- ---------- TOTAL REVENUES ............................... 5,336,804 4,242,749 1,106,609 4,466,425 ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales ............................... 2,705,002 2,424,279 605,439 2,199,700 Operating expense ........................... 1,176,422 904,511 219,303 1,001,384 Depreciation and amortization ............... 538,702 383,351 97,278 427,690 Interest expense ............................ 499,263 396,773 101,330 496,578 Less interest capitalized ................... (86,469) (85,369) (15,516) (70,405) Losses on non-recurring items (Notes 3 and 15) ................................... -- -- 7,605 54,409 ---------- ---------- ---------- ---------- TOTAL COSTS AND EXPENSES ..................... 4,832,920 4,023,545 1,015,439 4,109,356 ---------- ---------- ---------- ---------- Income before provision for income taxes ..... 503,884 219,204 91,170 357,069 Provision for income taxes ................... 250,064 53,277 31,008 93,475 ---------- ---------- ---------- ---------- Income before minority interest .............. 253,820 165,927 60,162 263,594 Minority interest ............................ 106,547 84,670 8,850 46,923 ---------- ---------- ---------- ---------- INCOME BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ........................ 147,273 81,257 51,312 216,671 Extraordinary item, net of tax ............... -- -- -- (49,441) Cumulative effect of change in accounting principle, net of tax ....................... (4,604) -- -- -- ---------- ---------- ---------- ---------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS ................................ $ 142,669 $ 81,257 $ 51,312 $ 167,230 ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-23 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (IN THOUSANDS)
OUTSTANDING ADDITIONAL COMMON COMMON PAID-IN SHARES STOCK CAPITAL ------------- -------- -------------- BALANCE JANUARY 1, 1999 ....................... 59,605 $-- $1,238,690 Net income .................................... -- -- -- Other Comprehensive Income: Foreign currency translation adjustment *..... -- -- -- Unrealized losses on securities, net of tax of $14....................................... -- -- -- Comprehensive income .......................... Issuance of stock by subsidiary ............... -- -- 9,113 Exercise of stock options and other equity transactions ................................. 238 -- (2,628) Purchase of treasury stock .................... (3,376) -- -- Conversion of TIDES I ......................... 3,477 -- 2,845 Tax benefit from stock plan ................... -- -- 1,059 ------ --- ---------- BALANCE DECEMBER 31, 1999 ..................... 59,944 -- 1,249,079 Net income January 1, 2000 through March 13, 2000 ....................... -- -- -- Net income March 14, 2000 through December 31, 2000 .................... -- -- -- Other Comprehensive Income: Foreign currency translation adjustment *..... -- -- -- Minimum pension liability adjustment, net of tax of $1,699 ........................ -- -- -- Unrealized losses on securities, net of tax of $1,164......................... -- -- -- Comprehensive income .......................... Exercise of stock options and other equity transactions .................... 13 -- (138) Teton Transaction ............................. (50,676) -- 304,132 ------- --- ---------- BALANCE DECEMBER 31, 2000 ..................... 9,281 -- 1,553,073 Net income .................................... -- -- -- Other Comprehensive Income: Foreign currency translation adjustment * ................................ -- -- -- Fair value adjustment on cash flow hedges, net of tax of $8,143................. -- -- -- Minimum pension liability adjustment, net of tax of $3,448 ........................ -- -- -- Unrealized losses on securities, net of tax of $1,315......................... -- -- -- Comprehensive income .......................... ------- --- ---------- BALANCE DECEMBER 31, 2001 ..................... 9,281 $-- $1,553,073 ======= === ========== ACCUMULATED OTHER COMPREHENSIVE RETAINED INCOME TREASURY EARNINGS (LOSS) STOCK TOTAL ------------- -------------- -------------- ------------- BALANCE JANUARY 1, 1999 ....................... $ 340,496 $ 45 $ (752,178) $ 827,053 Net income .................................... 167,230 -- -- 167,230 Other Comprehensive Income: Foreign currency translation adjustment *..... -- (12,047) -- (12,047) Unrealized losses on securities, net of tax of $14....................................... -- (27) -- (27) ---------- Comprehensive income .......................... 155,156 Issuance of stock by subsidiary ............... -- -- -- 9,113 Exercise of stock options and other equity transactions ................................. -- -- 7,779 5,151 Purchase of treasury stock .................... -- -- (104,847) (104,847) Conversion of TIDES I ......................... -- -- 99,058 101,903 Tax benefit from stock plan ................... -- -- -- 1,059 ---------- --------- ---------- ---------- BALANCE DECEMBER 31, 1999 ..................... 507,726 (12,029) (750,188) 994,588 Net income January 1, 2000 through March 13, 2000 ....................... 51,312 -- -- 51,312 Net income March 14, 2000 through December 31, 2000 .................... 81,257 -- -- 81,257 Other Comprehensive Income: Foreign currency translation adjustment *..... -- (82,996) -- (82,996) Minimum pension liability adjustment, net of tax of $1,699 ........................ -- (2,388) -- (2,388) Unrealized losses on securities, net of tax of $1,164......................... -- 2,160 -- 2,160 ---------- Comprehensive income .......................... 49,345 Exercise of stock options and other equity transactions .................... -- -- 418 280 Teton Transaction ............................. (559,038) 37,324 749,770 532,188 ---------- --------- ---------- ---------- BALANCE DECEMBER 31, 2000 ..................... 81,257 (57,929) -- 1,576,401 Net income .................................... 142,669 -- -- 142,669 Other Comprehensive Income: Foreign currency translation adjustment * ................................ -- (22,103) -- (22,103) Fair value adjustment on cash flow hedges, net of tax of $8,143................. -- 18,490 -- 18,490 Minimum pension liability adjustment, net of tax of $3,448 ........................ -- (4,847) -- (4,847) Unrealized losses on securities, net of tax of $1,315......................... -- (2,443) -- (2,443) ---------- Comprehensive income .......................... 131,766 ---------- --------- ---------- ---------- BALANCE DECEMBER 31, 2001 ..................... $ 223,926 $ (68,832) $ -- $1,708,167 ========== ========= ========== ==========
- ---------- * Foreign currency translation adjustment has no tax effect The accompanying notes are an integral part of these financial statements. F-24 MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2001 ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................... $ 142,669 Adjustments to reconcile net cash flows from operating activities: Gains on non-recurring items ........................... (179,493) Extraordinary item, net of tax ......................... -- Cumulative effect of change in accounting principle, net of tax ................................. 4,604 Depreciation and amortization .......................... 442,284 Amortization of excess of cost over fair value of net assets acquired ................................... 96,418 Amortization of deferred financing and other costs ................................................. 20,529 Provision for deferred income taxes .................... 152,920 Income in excess of distributions on equity investments ........................................... (28,515) Changes in other items: Accounts receivable and other current assets .......... 619,827 Accounts payable, accrued liabilities, deferred income and other .................................... (424,245) ---------- NET CASH FLOWS FROM OPERATING ACTIVITIES ................. 846,998 ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Yorkshire Electric, MEHC (Predecessor), and MidAmerican, net of cash acquired ................... (41,670) Proceeds from sale of Northern Supply and qualified facilities, net of cash disposed ........................ 377,396 Proceeds from Indonesia settlement ....................... -- Acquisition of realty companies, net of cash acquired..... (40,264) Purchase of marketable securities ........................ -- Proceeds from sale of marketable securities .............. -- Capital expenditures relating to operating projects ...... (398,165) Philippine construction .................................. (82,181) Acquisition of U.K. gas assets ........................... -- Construction and other development costs ................. (96,406) Decrease in restricted cash and investments .............. 24,540 Other .................................................... 18,206 ---------- NET CASH FLOWS FROM INVESTING ACTIVITIES ................. (238,544) ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common and preferred stock ................................................... -- Proceeds from issuance of trust preferred securities ..... -- Repayments of parent company debt ........................ -- Net proceeds from corporate revolver ..................... 68,500 Net repayment of subsidiary short term debt .............. (74,144) Proceeds from subsidiary and project debt ................ 200,000 Repayments of subsidiary and project debt ................ (437,372) Deferred charges relating to debt financing .............. (2,073) Redemption of preferred securities of subsidiaries ....... (24,910) Purchase of treasury stock ............................... -- Other .................................................... 11,532 ---------- NET CASH FLOWS FROM FINANCING ACTIVITIES ................. (258,467) ---------- Effect of exchange rate changes .......................... (1,394) ---------- Net increase (decrease) in cash and cash equivalents...... 348,593 Cash and cash equivalents at beginning of period ......... 38,152 ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 386,745 ========== Supplemental Disclosures: Interest paid, net of amount capitalized ................. $ 389,953 ========== Income taxes paid ........................................ $ 133,139 ========== MEHC (PREDECESSOR) --------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, 2000 MARCH 13, 2000 1999 ------------------- ----------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................... $ 81,257 $ 51,312 $ 167,230 Adjustments to reconcile net cash flows from operating activities: Gains on non-recurring items ........................... -- -- (138,704) Extraordinary item, net of tax ......................... -- -- 49,441 Cumulative effect of change in accounting principle, net of tax ................................. -- -- -- Depreciation and amortization .......................... 303,354 83,097 363,737 Amortization of excess of cost over fair value of net assets acquired ................................... 79,997 14,181 63,953 Amortization of deferred financing and other costs ................................................. 18,310 4,075 18,181 Provision for deferred income taxes .................... (15,460) 7,735 (56,590) Income in excess of distributions on equity investments ........................................... (26,607) (3,459) (22,796) Changes in other items: Accounts receivable and other current assets .......... (316,287) 440 53,016 Accounts payable, accrued liabilities, deferred income and other .................................... 121,843 13,702 57,491 ------------- ---------- ------------- NET CASH FLOWS FROM OPERATING ACTIVITIES ................. 246,407 171,083 554,959 ------------- ---------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Yorkshire Electric, MEHC (Predecessor), and MidAmerican, net of cash acquired ................... (2,048,266) -- (2,501,425) Proceeds from sale of Northern Supply and qualified facilities, net of cash disposed ........................ -- -- 365,074 Proceeds from Indonesia settlement ....................... -- -- 290,000 Acquisition of realty companies, net of cash acquired..... -- -- (36,858) Purchase of marketable securities ........................ (44,686) (8,251) (92,523) Proceeds from sale of marketable securities .............. 69,375 12,562 498,676 Capital expenditures relating to operating projects ...... (301,948) (44,355) (360,898) Philippine construction .................................. (58,531) (22,736) (62,059) Acquisition of U.K. gas assets ........................... -- -- (72,280) Construction and other development costs ................. (178,250) (56,450) (180,683) Decrease in restricted cash and investments .............. 157,905 48,788 199,588 Other .................................................... 15,241 15,568 (7,432) ------------- ---------- ------------- NET CASH FLOWS FROM INVESTING ACTIVITIES ................. (2,389,160) (54,874) (1,960,820) ------------- ---------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common and preferred stock ................................................... 1,428,024 -- -- Proceeds from issuance of trust preferred securities ..... 454,772 -- -- Repayments of parent company debt ........................ (4,225) -- (853,420) Net proceeds from corporate revolver ..................... 85,000 -- -- Net repayment of subsidiary short term debt .............. (88,106) (124,761) (136) Proceeds from subsidiary and project debt ................ 262,176 6,043 1,394,094 Repayments of subsidiary and project debt ................ (234,776) (3,135) (331,880) Deferred charges relating to debt financing .............. (3,805) -- 7,761 Redemption of preferred securities of subsidiaries ....... (20,409) -- -- Purchase of treasury stock ............................... -- -- (104,847) Other .................................................... 198 (6,648) 4,303 ------------- ---------- ------------- NET CASH FLOWS FROM FINANCING ACTIVITIES ................. 1,878,849 (128,501) 115,875 ------------- ---------- ------------- Effect of exchange rate changes .......................... (1,555) (424) 165 ------------- ---------- ------------- Net increase (decrease) in cash and cash equivalents...... (265,459) (12,716) (1,289,821) Cash and cash equivalents at beginning of period ......... 303,611 316,327 1,606,148 ------------- ---------- ------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 38,152 $ 303,611 $ 316,327 ============= ========== ============= Supplemental Disclosures: Interest paid, net of amount capitalized ................. $ 351,532 $ 35,057 $ 439,894 ============= ========== ============= Income taxes paid ........................................ $ 94,405 $ -- $ 130,875 ============= ========== =============
The accompanying notes are an integral part of these financial statements. F-25 MIDAMERICAN ENERGY HOLDINGS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS MidAmerican Energy Holdings Company and its subsidiaries (the "Company" or "MEHC"), is a United States-based privately owned global energy company with publicly traded fixed income securities that generates, distributes and supplies energy to utilities, government entities, retail customers and other customers located throughout the world. Through its subsidiaries the Company is organized and managed on five separate platforms: MidAmerican Energy, CE Electric UK Funding, CalEnergy Generation-Domestic, CalEnergy Generation-Foreign and HomeServices. On March 14, 2000, the Company and an investor group comprised of Berkshire Hathaway Inc., Walter Scott, Jr., a director of the Company, David L. Sokol, Chairman and Chief Executive Officer of the Company, and Gregory E. Abel, Chief Operating Officer of the Company closed on a definitive agreement and plan of merger whereby the investor group acquired all of the outstanding common stock of the Company (the "Teton Transaction"). As a result of the Teton Transaction, Berkshire Hathaway, Mr. Scott, Mr. Sokol and Mr. Abel own approximately 9.7%, 86%, 3% and 1% of the voting stock respectively. MIDAMERICAN ENERGY MidAmerican Energy Company ("MidAmerican Energy") is a regulated public utility principally engaged in the business of generating, transmitting, distributing and selling electric energy and in distributing, selling and transporting natural gas. MidAmerican Energy distributes electricity at the retail level in Iowa, Illinois and South Dakota. It also distributes natural gas at the retail level in Iowa, Illinois, South Dakota and Nebraska. As of December 31, 2001, MidAmerican Energy had approximately 673,000 retail electric customers and 652,000 retail natural gas customers. In addition to retail sales, MidAmerican Energy sells electric energy and natural gas to other utilities, marketers and municipalities that distribute it to end-use customers. These sales are referred to as sales for resale or off-system sales. It also transports natural gas through its distribution system for a number of end-use customers who have independently secured their supply of natural gas. A substantial portion of MidAmerican Energy's business still operates in a rate-regulated environment and, accordingly, many decisions for obtaining and using resources are evaluated from an electric and gas regulated business perspective. MidAmerican Energy's operations are seasonal in nature with a disproportionate percentage of revenues and earnings historically being earned in the Company's first and third quarters. CE ELECTRIC UK FUNDING The business of CE Electric UK Funding, an indirect wholly owned subsidiary of the Company, consists of Northern Electric plc ("Northern"), an indirect wholly owned subsidiary of the Company, and Yorkshire Power Group Ltd. ("Yorkshire"), an indirect majority owned subsidiary of the Company, and CalEnergy Gas (Holdings) Limited ("CE Gas"), an indirect wholly owned subsidiary of the Company. Northern's and Yorkshire's operations consist primarily of the distribution of electricity and other auxiliary businesses in the United Kingdom. Through September 21, 2001, Northern's operations also included the supply of electricity and natural gas and the related metering business. Northern and Yorkshire receive electricity from the national grid transmission system and distribute it to customers' premises using their network of transformers, switchgear and cables. Substantially all of the customers in their distribution service areas are connected to their network and can only be delivered through their distribution system, thus providing Northern and Yorkshire with distribution volume that is stable from year to year. Northern and Yorkshire charge access fees for the use of the distribution system. The prices for distribution are controlled by a prescribed formula that limits increases (and may require decreases) based upon the rate of inflation in the United Kingdom and other regulatory action. F-26 Northern's supply business was primarily involved in the bulk purchase of electricity, previously through a central pool and from March 27, 2001 on through the New Electricity Trading Agreements ("NETA"), and subsequent resale to individual customers throughout the U.K. The supply business generally is a high volume business that tends to operate at lower profitability levels than the distribution business. Northern also competed to supply gas inside and outside its authorized area. See Note 3. CE Gas is a gas exploration and production company that is focused on developing integrated upstream gas projects. Its "upstream gas" business consists of the exploration, development and production, including transportation and storage, of gas for delivery to a point of sale into either a gas supply market or a power generation facility. CE Gas holds various interests in the southern basin of the United Kingdom sector of the North Sea. Also, CE Gas has been involved in certain gas development and exploration activities relating to a large gas field prospect in Poland, the EP389 concession in the Perth Basin in Australia and the Yolla discovery in the Bass Basin of Australia. CALENERGY GENERATION-DOMESTIC The Company has a 50% ownership interest in CE Generation LLC ("CE Generation") that has interests in ten geothermal plants in the Imperial Valley, California and three natural gas-fired cogeneration plants. For purposes of consistent presentation, plant capacity factors for Vulcan, Hoch (Del Ranch), Turbo, Elmore and Leathers (collectively the "Partnership Projects") are based on capacity amounts of 34, 38, 10, 38, and 38 net MW, respectively, and for Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV and Salton Sea V plants (collectively the "Salton Sea Projects") are based on capacity amounts of 10, 20, 50, 40 and 49 net MW, respectively (the Partnership Projects and the Salton Sea Projects are collectively referred to as the "Imperial Valley Projects"). Plant capacity factors for Saranac, Power Resources and Yuma (collectively the "Gas Plants") are based on capacity amounts of 240, 200, and 50 net MW, respectively. Each plant possesses an operating margin that allows for production in excess of the amount listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary between calendar quarters, under normal operating conditions. Due to its 50% ownership interest in CE Generation, the Company accounts for CE Generation as an equity investment. Cordova Energy Company LLC ("Cordova Energy"), an indirect wholly owned subsidiary of the Company, operates a 537 MW gas-fired power plant in the Quad Cities, Illinois area (the "Cordova Project"). The Cordova Project commenced commercial operations on June 19, 2001. Cordova Energy has entered into a power purchase agreement with a unit of El Paso Energy Corporation ("El Paso") in which El Paso will purchase all of the capacity and energy from the project until December 31, 2019. Cordova Energy has exercised an option under the El Paso Power Purchase Agreement to callback 50% of the project output for sales to others for the contract years ending on or prior to May 14, 2004. Cordova Energy subsequently entered into a power purchase agreement with MidAmerican Energy whereby MidAmerican Energy will purchase 50% of the capacity and energy from the Cordova Project until May 14, 2004. CALENERGY GENERATION-FOREIGN The Company indirectly owns the Upper Mahiao, Malitbog and Mahanagdong Projects (collectively, the "Leyte Projects"), which are geothermal power plants located on the island of Leyte in the Philippines, and the Casecnan Project, a combined irrigation and hydroelectric power generation project located in the central part of the island of Luzon in the Philippines. The Casecnan Project commenced commercial operations on December 11, 2001. For purposes of consistent presentation, capacity amounts for Upper Mahiao, Malitbog, Mahanagdong and Casecnan are 119, 216, 165 and 150 net MW, respectively. Each plant possesses an operating margin that allows for production in excess of the amount listed above. Utilization of this operating margin is based upon a variety of factors and can be expected to vary between calendar quarters, under normal operating conditions. HOMESERVICES HomeServices.Com, Inc. ("HomeServices"), a wholly-owned subsidiary of the Company, is the second largest residential real estate brokerage firm in the United States based on aggregate closed transaction F-27 sides in 2000 for its various brokerage firm operating subsidiaries. Closed transaction sides mean either the buy side or sell side of any closed home purchase and is the standard term used by industry participants and publications to rank real estate brokerage firms. In addition to providing traditional residential real estate brokerage services, HomeServices cross sells to its existing real estate customers preclosing services, such as mortgage origination and title services, including title insurance, title search, escrow and other closing administrative services, assists in securing other preclosing and postclosing services provided by third parties, such as home warranty, home inspection, home security, property and casualty insurance, home maintenance, repair and remodeling and is developing various related e-commerce services. HomeServices currently operates in the following fourteen states: Minnesota, Iowa, California, Arizona, Kansas, Missouri, Kentucky, Nebraska, Wisconsin, Indiana, Maryland, North Dakota, South Dakota and Georgia. HomeServices generally occupies the number one or number two market share position in each of its major markets based on aggregate closed transaction sides for the year ended December 31, 2001. HomeServices' major markets consist of the following metropolitan areas: Minneapolis and St. Paul, Minnesota; Des Moines, Iowa; Los Angeles and San Diego, California; Omaha, Nebraska; Kansas City, Kansas; Louisville, Kentucky; Springfield, Missouri; Tucson, Arizona; Annapolis, Maryland and Atlanta, Georgia. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Subsidiaries which are less than 100% owned but greater than 50% owned are consolidated with a minority interest. Subsidiaries that are 50% owned or less, but where the Company has the ability to exercise significant influence, are accounted for under the equity method of accounting. Investments where the Company's ability to influence is limited are accounted for under the cost method of accounting. All significant inter-enterprise transactions and accounts have been eliminated. The results of operations of the Company include the Company's proportionate share of results of operations of entities acquired from the date of each acquisition for purchase business combinations. CASH EQUIVALENTS, INVESTMENTS, AND RESTRICTED CASH AND INVESTMENTS The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investments other than restricted cash are primarily commercial paper and money market securities. Restricted cash is not considered a cash equivalent. The current restricted cash and short-term investments balance includes commercial paper and money market securities, and is mainly composed of amounts deposited in restricted accounts from which the Company will source its debt service reserve requirements relating to the projects. These funds are restricted by their respective project debt agreements to be used only for the related project. The long-term restricted cash and investments balances are mainly composed of amounts deposited in restricted accounts from which the Company will fund the various projects under construction. The Company's restricted investments are classified as held-to-maturity and are accounted for at their amortized cost basis. The carrying amount of the investments approximates the fair value based on quoted market prices as provided by the financial institution that holds the investments. The Company's nuclear decommissioning trust funds and other marketable securities are classified as available for sale and are accounted for at fair value. INVENTORY Inventory is primarily composed of materials and supplies, coal stocks, gas in storage and fuel oil. Materials and supplies, coal stocks and fuel oil are at average cost and gas in storage is accounted for under the LIFO method. PROPERTY, PLANT, CONTRACTS, EQUIPMENT AND DEPRECIATION The cost of major additions and betterments are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed. F-28 Depreciation of the operating power plant costs, net of salvage value, is computed on the straight-line method over the estimated useful lives, between ten and thirty years. Depreciation of furniture, fixtures and equipment that are recorded at cost, is computed on the straight-line method over the estimated useful lives of the related assets, which range from three to ten years. Capitalized costs for gas reserves, other than costs of unevaluated exploration projects and projects awaiting development consent, are depleted using the units of production method. Depletion is calculated based on hydrocarbon reserves of properties in the evaluated pool estimated to be commercially recoverable and include anticipated future development costs in respect of those reserves. Expenditures on major information technology systems are capitalized and depreciated on a straight-line basis over the estimated useful lives of the developed systems that range from three to fifteen years. An allowance for the estimated annual decommissioning costs of the Quad Cities Generating Station ("Quad Cities Station") equal to the level of funding is included in depreciation expense. See Note 20 for additional information regarding decommissioning costs. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED Total acquisition costs in excess of the fair values assigned to the net assets acquired are amortized using the straight line method over a 25 to 40 year period. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized, based on discounted cash flows or various fair value models, whenever evidence exists that the carrying value is not recoverable. CONTINGENT LIABILITIES The Company is subject to the possibility of various loss contingencies arising in the ordinary course of business. Management considers the likelihood of the loss or impairment of an asset or the incurrence of a liability as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated. The Company regularly evaluates current information available to determine whether such accruals should be adjusted. REVENUE RECOGNITION Revenues are recorded based upon services rendered and electricity, gas and steam delivered, distributed or supplied to the end of the period. Where there is an over recovery of distribution business revenues against the maximum regulated amount, revenues are deferred equivalent to the over recovered amount. The deferred amount is deducted from revenue and included in other liabilities. Where there is an under recovery, no anticipation of any potential future recovery is made. The Company also records unbilled revenues representing the estimated amounts customers will be billed for services rendered between the meter reading dates in a particular month and the end of that month. Accrued unbilled revenues are included in accounts receivable on the consolidated balance sheets. CAPITALIZATION OF INTEREST AND DEFERRED FINANCING COSTS Prior to the commencement of operations, interest is capitalized on the costs of the construction projects and resource development to the extent incurred. Capitalized interest and other deferred charges are amortized over the lives of the related assets. Deferred financing costs are amortized over the term of the related financing using the effective interest method. F-29 DEFERRED INCOME TAXES The Company recognizes deferred tax assets and liabilities based on the difference between the financial statement and tax basis of assets and liabilities using estimated tax rates in effect for the year in which the differences are expected to reverse. The Company does not intend to repatriate earnings of foreign subsidiaries in the foreseeable future. As a result, deferred United States income taxes are not provided for retained earnings of international subsidiaries and corporate joint ventures unless the earnings are intended to be remitted. FINANCIAL INSTRUMENTS The Company currently utilizes or had previously utilized swap agreements and forward purchase agreements to manage market risks and reduce its exposure resulting from fluctuation in interest rates, foreign currency exchange rates and electric and gas prices. For interest rate swap agreements, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. Gains and losses related to gas forward contracts are deferred and included in the measurement of the related gas purchases. These instruments are either exchange traded or with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered to be negligible. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS For the Company's foreign operations whose functional currency is not the U.S. dollar, the assets and liabilities are translated into U.S. dollars at current exchange rates. Resulting translation adjustments are reflected as accumulated other comprehensive income (loss) in stockholders' equity. Revenues and expenses are translated at average exchange rates for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except those transactions which operate as a hedge of an identifiable foreign currency commitment or as a hedge of a foreign currency investment position, are included in the results of operations as incurred. RECLASSIFICATION Certain amounts in the fiscal 2000 and 1999 consolidated financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2001 presentation. Such reclassification did not impact previously reported net income or retained earnings. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT Under a long-term power purchase contract with Nebraska Public Power District ("NPPD"), expiring in 2004, MidAmerican Energy purchases one-half of the output of the 778-megawatt Cooper Nuclear Station ("Cooper"). The consolidated balance sheets include a liability for MidAmerican Energy's fixed obligation to pay 50% of NPPD's Nuclear Facility Revenue Bonds and other fixed liabilities. A like amount representing MidAmerican Energy's right to purchase power is shown as an asset. Cooper capital improvement costs prior to 1997, including carrying costs, were deferred in accordance with then applicable rate regulation and are being amortized and recovered in rates over either a five-year period or the remaining term of the power purchase contract. Beginning July 11, 1997, the Iowa portion of capital improvement costs is recovered currently from customers and is expensed as incurred. For jurisdictions other than Iowa, MidAmerican Energy began charging Cooper capital improvement costs to expense as incurred in January 1997. F-30 The fuel cost portion of the power purchase contract is included in cost of sales. All other costs MidAmerican Energy incurs in relation to its long-term power purchase contract with NPPD are included in operating expense. ACCOUNTING PRINCIPLE CHANGE Effective January 1, 2001, the Company has changed its accounting policy regarding major maintenance and repairs for nonregulated gas projects, nonregulated plant overhaul costs and geothermal well rework costs to the direct expense method from the former policy of monthly accruals based on long-term scheduled maintenance plans for the gas projects and deferral and amortization of plant overhaul costs and geothermal well rework costs over the estimated useful lives. The cumulative effect of the change in accounting principle was $4.6 million, net of taxes of $.7 million. If the Company had adopted the policy as of January 1, 2000, income before extraordinary item and cumulative effect of change in accounting principle would have been $6.3 million lower in 2000 on a proforma basis. ACCOUNTING FOR DERIVATIVES The Company is exposed to market risk, including changes in the market price of certain commodities and interest rates. To manage the price volatility relating to these exposures, the Company enters into various financial derivative instruments. Senior management provides the overall direction, structure, conduct and control of the Company's risk management activities, including the use of financial derivative instruments, authorization and communication of risk management policies and procedures, strategic hedging program guidelines, appropriate market and credit risk limits, and appropriate systems for recording, monitoring and reporting the results of transactional and risk management activities. The Company uses hedge accounting for derivative instruments pertaining to its natural gas purchasing, wholesale electricity activities, financing activities and preferred stock investing operations. On January 1, 2001, the Company adopted Statement of Financial Accounting Standards Nos. 133 and 138 (SFAS Nos. 133/138) pertaining to the accounting for derivative instruments and hedging activities. SFAS Nos. 133/138 requires an entity to recognize all of its derivatives as either assets or liabilities in its statement of financial position and measure those instruments at fair value. If the conditions specified in SFAS Nos. 133/138 are met, those instruments may be designated as hedges. Changes in the value of hedge instruments would not impact earnings, except to the extent that the instrument is not perfectly effective as a hedge. At January 1, 2001, the Company recognized $44.9 million and $38.0 million of energy-related assets and liabilities, respectively, as being subject to fair value accounting pursuant to SFAS Nos. 133/138, all of which are accounted for as hedges. Additionally, on January 1, 2001, the Company's portfolio of preferred stock investments was transferred from the available for sale category to the trading category, as permitted by SFAS No. 133. Initial adoption of SFAS Nos. 133/138 did not have a material impact on the results of operations for the Company. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets" which establish accounting and reporting for business combinations. SFAS No. 141 requires all business combinations entered into subsequent to June 30, 2001, to be accounted for using the purchase method of accounting. SFAS No. 142 provides that goodwill and other intangible assets with indefinite lives will not be amortized but tested for impairment on an annual basis. SFAS No. 142 is effective for the Company beginning January 1, 2002. Under the current method of assessing goodwill for impairment, which uses an undiscounted cash flow approach, no material impairment existed at December 31, 2001. For 2002, the Company will begin to test goodwill for impairment under the new rules, applying a fair-value-based approach. The Company is in the process of quantifying the anticipated impact on its financial condition and results of operations of adopting the provisions of SFAS No. 142, which could be significant. The historical impact of not amortizing goodwill would have been to increase net income for the years ended December 31, 2001, 2000 and 1999 by $94.4 million, $92.4 million and $62.3 million, respectively. However, impairment reviews may result in future periodic write-downs. F-31 In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses the accounting for legal obligations associated with the retirement of tangible, long-lived assets, and the associated asset retirement costs. This pronouncement is effective for years beginning after June 15, 2002. The Company is evaluating the impact that adoption of this standard will have on its financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. This pronouncement is effective for years beginning after December 15, 2001. The Company is evaluating the impact that adoption of this standard will have on its financial statements, but does not believe it will have a material impact on its financial statements. 3. ACQUISITIONS/DISPOSITIONS YORKSHIRE SWAP On September 21, 2001, CE Electric UK Ltd., an indirect wholly owned subsidiary of the Company, and Innogy Holdings, plc executed an agreement to exchange Northern's electricity and gas supply and metering assets for Innogy's 94.75% interest in Yorkshire's electricity distribution business. Northern's supply business was initially valued at approximately $430 million ((pounds sterling)295 million), including working capital of approximately $53 million ((pounds sterling)37 million). 94.75% of Yorkshire's distribution business was initially valued at approximately $395 million ((pounds sterling)271 million), including working capital of approximately $48 million ((pounds sterling)33 million). The net cash received by Northern for the exchange was approximately $35 million ((pounds sterling)24 million). Working capital is subject to adjustment and is currently under review. The disposition of Northern's supply business created a pre-tax non-recurring gain of $196.7 million and an after-tax gain of $10.8 million. Included in the carrying value of the Northern supply business was $504.4 million of goodwill allocated based on the relative fair values of the Northern supply business. In connection with the sale of the Northern supply business, management intends to sell the associated Northern retail business. The Company paid $37.4 million, net of cash acquired of $362.8 million and transaction costs, for 94.75% of the Yorkshire electricity distribution business and related indebtedness. The acquisition has been accounted for as a purchase business combination. The results of operations for Yorkshire are included in the Company's results beginning September 21, 2001. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions). Cash .......................................................... $ 362.8 Property, plant and equipment ................................. 1,262.7 Excess of cost over fair value of net assets acquired ......... 523.6 Other assets .................................................. 11.6 ---------- Total assets acquired ..................................... 2,160.7 ---------- Current liabilities ........................................... (34.1) Long-term debt ................................................ (1,503.3) Deferred income taxes ......................................... (175.8) Minority interest ............................................. (40.7) Other liabilities ............................................. (6.6) ---------- Total liabilities assumed ................................. (1,760.5) ---------- Net assets acquired ........................................... $ 400.2 ==========
TETON TRANSACTION On October 24, 1999, the Company and an investor group comprised of Berkshire Hathaway, Walter Scott, Jr., and David L. Sokol, executed a definitive agreement and plan of merger whereby the investor F-32 group would acquire all of the outstanding common stock of the Company for $35.05 per share in cash, representing a total purchase price of approximately $2.2 billion, including transaction costs (the "Teton Transaction"). The Teton Transaction closed on March 14, 2000 and Berkshire Hathaway invested approximately $1.24 billion in common stock and convertible preferred stock and approximately $455 million in 11% nontransferable trust preferred securities due March 14, 2010. Mr. Scott, Mr. Sokol and Gregory E. Abel, Chief Operating Officer of the Company, contributed cash and current securities of the Company having a value of approximately $310 million. The remaining purchase price was funded with the Company's cash. Berkshire Hathaway owns approximately 9.7% of the voting stock, Mr. Scott owns approximately 86% of the voting stock, Mr. Sokol owns approximately 3% of the voting stock and Mr. Abel owns approximately 1% of the voting stock. The merger has been accounted for as a purchase business combination. The purchase price has been allocated to assets acquired and liabilities assumed. The Company recorded goodwill of approximately $1.2 billion that is being amortized using the straight-line method over a 40-year period. The Company incurred approximately $7.6 million and $6.7 million of non-recurring costs in 2000 and 1999 respectively, related to the Teton Transaction, which were expensed. Unaudited pro forma combined revenue, income before cumulative effect of change in accounting principle and net income of the Company and MEHC (Predecessor) for the years ended December 31, 2001 and 2000, as if the Yorkshire swap and the Teton Transaction had occurred at the beginning of each year after giving effect to pro forma adjustments related to the acquisitions, including the sale of the Northern Supply business and the issuance of the 11% trust preferred securities, were $4,401.0 million, $149.1 million and $144.5 million, respectively, compared to $4,084.0 million, $113.3 million and $113.3 million, respectively. HOMESERVICES On October 18, 1999, the Company closed on its initial public offering of 3.25 million shares of common stock of HomeServices at $15 per share. HomeServices sold 2.19 million newly issued shares and the Company, the selling stockholder, sold 1.06 million of its HomeServices shares in the offering. The offering reduced the Company's ownership in HomeServices to approximately 65%. On April 14, 2000, the Company purchased 500,000 shares of HomeServices' common stock for $4.2 million, increasing the Company's ownership percentage to approximately 70%. In October 2000, HomeServices repurchased 1.7 million shares of treasury stock for $17.9 million. This transaction increased the Company's ownership percentage to approximately 83%. On August 27, 2001, the Company commenced a tender offer to purchase the remaining outstanding shares of common stock of HomeServices for a cash purchase price of $17 per share. On September 25, 2001, the Company announced that it had successfully completed the tender offer for all outstanding shares of the common stock of HomeServices for $29.3 million. As a result, the Company owns 100% of the outstanding HomeServices common stock, although options entitling employees to purchase HomeServices common stock remain outstanding. F-33 4. PROPERTY, PLANT, CONTRACTS AND EQUIPMENT, NET Property, plant, contracts and equipment, net comprise the following at December 31 (in thousands):
2001 2000 --------------- --------------- Operating assets: Utility generation and distribution system ............... $ 7,574,339 $ 6,132,867 Independent power plants ................................. 1,398,179 694,615 Utility non-operational assets ........................... 354,366 344,576 Power sales agreements ................................... 48,185 82,231 Realty company assets .................................... 51,150 37,936 Other assets ............................................. 47,863 53,590 ------------ ------------ Total operating assets ................................... 9,474,082 7,345,815 Less accumulated depreciation and amortization ........... (3,650,862) (3,300,237) ------------ ------------ Net operating assets ..................................... 5,823,220 4,045,578 Mineral and gas reserves and exploration assets, net ..... 387,697 378,495 Construction in progress: Zinc recovery project ................................... 163,366 165,585 Utility generation and distribution system .............. 149,225 143,261 Casecnan ................................................ -- 387,274 Cordova ................................................. -- 224,514 Other ................................................... 3,940 3,940 ------------ ------------ Total .................................................... $ 6,527,448 $ 5,348,647 ============ ============
ZINC RECOVERY PROJECT The Company owns the rights to proprietary processes for the extraction of minerals from elements in solution in the geothermal brine and fluids utilized at its Imperial Valley plants. A pilot plant has successfully produced commercial quality zinc at the Company's Imperial Valley Projects. CalEnergy Minerals LLC, an indirect wholly owned subsidiary of the Company, is constructing the Zinc Recovery Project which will recover zinc from the geothermal brine (the "Zinc Recovery Project"). Facilities are being installed near the Imperial Valley Project's sites to extract a zinc chloride solution from the geothermal brine through an ion exchange process. This solution will be transported to a central processing plant where zinc ingots will be produced through solvent extraction, electrowinning and casting processes. The Zinc Recovery Project is designed to have a capacity of approximately 30,000 metric tons per year and is scheduled to commence commercial operations in 2002. In September 1999, CalEnergy Minerals LLC entered into a sales agreement whereby all zinc produced by the Zinc Recovery Project will be sold to Cominco, Ltd. The initial term of the agreement expires in December 2005. The Zinc Recovery Project was being constructed by Kvaerner U.S. Inc. ("Kvaerner") pursuant to a date certain, fixed-price, turnkey engineering, procure, construct and manage contract (the "Zinc Recovery Project EPC Contract"). On June 14, 2001, CalEnergy Minerals LLC issued notices of default, termination and demand for payment of damages to Kvaerner under the Zinc Recovery Project EPC Contract due to failure to meet performance obligations. As a result of Kvaerner's failure to pay monetary obligations under the Zinc Recovery Project EPC Contract, CalEnergy Minerals LLC drew $29.6 million under the EPC Contract Letter of Credit on July 20, 2001. CalEnergy Minerals LLC has entered into a time and materials reimbursable engineer, procure and construction management contract with AMEC E&C Services, Inc. to complete the Zinc Recovery Project. On July 11, 2001, Kvaerner filed an Amended Demand For Arbitration against CalEnergy Minerals LLC characterizing the nature of the dispute as concerns regarding change orders and performance penalties. Kvaerner did not state the amount of its claim. On August 7, 2001, CalEnergy Minerals LLC filed an Answering Statement and Counterclaim against Kvaerner. CalEnergy Minerals LLC denied all material allegations in Kvaerner's Amended Demand for F-34 Arbitration, and asserted a counterclaim against Kvaerner for breach of contract and specific performance. CalEnergy Minerals LLC alleged that its total estimated damage for Kvaerner's breach of contract are in excess of approximately $60 million; however, CalEnergy Minerals LLC has offset approximately $42.5 million of these damages by exercising its rights under the EPC Contract to claim the retainage and by drawing on a letter of credit. Therefore, CalEnergy Minerals LLC has asked for a judgment in excess of approximately $20 million. The arbitration is scheduled for June 2002. 5. EQUITY INVESTMENT IN CE GENERATION Due to the sale of 50% of its interests in CE Generation, the Company has accounted for CE Generation as an equity investment beginning March 3, 1999. The equity investment in CE Generation at December 31, 2001 and 2000 was approximately $233.6 million and $220.0 million, respectively. The following is summarized financial information for CE Generation as of and for the years ended December 31 (in thousands):
2001 2000 1999 ------------ ------------ ----------- Revenues ........................................... $ 565,838 $ 510,796 $340,683 Income before extraordinary item and cumulative effect of change in accounting principle .......... 74,194 73,535 61,970 Net income ......................................... 58,808 73,535 44,492 Current assets ..................................... 211,635 188,234 Total assets ....................................... 1,932,119 1,984,445 Current liabilities ................................ 155,808 138,751 Long-term debt, including current portion .......... 1,096,256 1,163,729 Total liabilities .................................. 1,404,910 1,477,066
6. SHORT-TERM DEBT Short-term debt comprises the following at December 31 (in thousands):
2001 2000 ----------- ---------- Corporate revolving credit facilities ........... $153,500 $ 85,000 MidAmerican Energy short-term debt .............. 91,780 81,600 HomeServices revolving credit facility .......... 9,000 10,000 Other ........................................... 1,732 85,056 -------- -------- $256,012 $261,656 ======== ========
CORPORATE REVOLVING CREDIT FACILITIES The Company has available $400 million in revolving credit facilities with $150 million expiring in June 2002 and $250 million expiring in June 2003. The facilities are unsecured and are available to fund working capital requirements and finance future business expansion opportunities. The facilities carry a variable interest rate based on LIBOR and ranging from 2.8125% to 8.5% in 2001 (weighted average interest rate of 2.93% at December 31, 2001). MIDAMERICAN ENERGY SHORT-TERM DEBT MidAmerican Energy has authority from the Federal Energy Regulatory Commission ("FERC") to issue short-term debt in the form of commercial paper and bank notes aggregating $500 million. As of December 31, 2001, MidAmerican Energy had in place a $370.4 million revolving credit facility that supports its $250 million commercial paper program and its variable rate pollution control revenue obligations. In addition, MidAmerican Energy has a $5 million line of credit. As of December 31, 2001, commercial paper and bank notes totaled $89.4 million for MidAmerican Energy. F-35 MHC Inc., an indirect wholly owned subsidiary of the Company, has a $4.0 million line of credit under which $2.4 million was outstanding at December 31, 2001. The commercial paper, bank notes and outstanding line of credit have a weighted average interest rate of 1.9% at December 31, 2001. HOMESERVICES REVOLVING CREDIT FACILITIES HomeServices has available a $65 million senior secured revolving credit facility of which HomeServices had drawn down approximately $9 million as of December 31, 2001. This credit agreement has a variable interest rate at either the prime lending rate or LIBOR plus a fixed spread of 1.25% to 2.50% that varies based on HomeServices' cash flow leverage ratio, as defined in the agreement. As of December 31, 2001, the blended average interest rate on the senior secured revolving credit facility borrowings was 3.20%. 7. PARENT COMPANY DEBT Parent company debt is unsecured senior obligations of the Company and comprises the following at December 31 (in thousands):
2001 2000 -------------- -------------- 7.63% Senior Notes due 2007 ............... $ 350,000 $ 350,000 6.96% Senior Notes due 2003 ............... 215,000 215,000 7.23% Senior Notes due 2005 ............... 260,000 260,000 7.52% Senior Notes due 2008 ............... 450,000 450,000 8.48% Senior Notes due 2028 ............... 475,000 475,000 7.52% Senior Notes due 2008 ............... 101,680 101,888 Fair value adjustments and other .......... (17,182) (21,917) ---------- ---------- $1,834,498 $1,829,971 ========== ==========
Interest on the 7.63% Senior Notes is payable semiannually on April 15 and October 15 of each year. Interest on the remaining parent company debt is payable semiannually on March 15 and September 15 of each year. 8. SUBSIDIARY AND PROJECT DEBT Each of the Company's direct or indirect subsidiaries is organized as a legal entity separate and apart from the Company and its other subsidiaries. Pursuant to separate project financing agreements, the assets of each subsidiary are pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any such subsidiary will be available to satisfy the obligations of the Company or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to the Company or affiliates thereof. "Subsidiaries" means all of the Company's direct or indirect subsidiaries (1) owning interests in CE Electric UK Funding, MidAmerican Funding, HomeServices, CE Generation, or the Imperial Valley, Saranac, Power Resources, Mahanagdong, Malitbog, Upper Mahiao, Casecnan, and Cordova projects or (2) owning interests in the subsidiaries that own interests in the foregoing subsidiaries or projects. F-36 Project loans held by subsidiaries and projects comprise the following at December 31 (in thousands):
2001 2000 ------------- -------------- MidAmerican Funding, LLC Senior Notes and Bonds .......... $ 700,000 $ 700,000 MidAmerican Energy Mortgage Bonds ........................ 340,570 340,570 MidAmerican Energy Pollution Control Bonds ............... 157,185 158,625 MidAmerican Energy Notes ................................. 322,240 422,240 CE Electric UK Funding Eurobonds ......................... 291,643 299,580 CE Electric UK Funding Company Senior Notes and Sterling Bonds .......................................... 646,500 653,750 Yorkshire Electric Debt .................................. 1,491,597 -- CE Gas Loan .............................................. 70,180 73,162 Casecnan Notes and Bonds ................................. 320,138 346,439 Philippine Term Loans .................................... 313,221 392,625 Cordova Funding Senior Secured Bonds ..................... 225,000 225,000 Salton Sea Bonds ......................................... 139,896 140,528 MidAmerican Capital 8.52% Notes .......................... 23,333 46,667 HomeServices 7.12% Senior Notes and Other ................ 36,780 37,607 Other, including fair value adjustments .................. (6,292) (9,119) ---------- ---------- $5,071,991 $3,827,674 ========== ==========
MIDAMERICAN FUNDING, LLC SENIOR NOTES AND BONDS On March 11, 1999, MidAmerican Funding, LLC, a wholly owned subsidiary of the Company, issued $200 million of 5.85% Senior Secured Notes due in 2001, $175 million of 6.339% Senior Secured Notes due in 2009, and $325 million of 6.927% Senior Secured Bonds due in 2029. The proceeds from the offering were used to complete the MidAmerican acquisition in 1999. On March 1, 2001 MidAmerican Funding, LLC retired $200 million of 5.85% Senior Secured Notes due 2001. On March 19, 2001 MidAmerican Funding, LLC issued $200 million of 6.75% Senior Secured Notes due March 1, 2011. MIDAMERICAN ENERGY MORTGAGE BONDS, POLLUTION CONTROL BONDS AND NOTES The components of MidAmerican Energy's Mortgage Bonds, Pollution Control Bonds and Notes at December 31 are as follows (in thousands):
2001 2000 ----------- ----------- Mortgage bonds: 7.125% Series, due 2003 ......... $100,000 $100,000 7.70% Series, due 2004 .......... 55,630 55,630 7% Series, due 2005 ............. 90,500 90,500 7.375% Series, due 2008 ......... 75,000 75,000 7.45% Series, due 2023 .......... 6,940 6,940 6.95% Series, due 2025 .......... 12,500 12,500 -------- -------- $340,570 $340,570 ======== ========
F-37
2001 2000 ----------- ----------- Pollution control revenue obligations: 5.75% Series, due periodically through 2003 ........................ $ 5,760 $ 7,200 5.95% Series, due 2023 (secured by general mortgage bonds) ......... 29,030 29,030 6.7% Series, due 2003 .............................................. 1,000 1,000 6.1% Series, due 2007 .............................................. 1,000 1,000 Variable rate series - Due 2016 and 2017, 1.77% and 4.56% respectively .................. 37,600 37,600 Due 2023 (secured by general mortgage bond, 1.77% and 4.56%, respectively) ........................................ 28,295 28,295 Due 2023, 1.77% and 4.56% respectively ........................... 6,850 6,850 Due 2024, 1.77% and 4.56% respectively ........................... 34,900 34,900 Due 2025, 1.77% and 4.56% respectively ........................... 12,750 12,750 -------- -------- $157,185 $158,625 ======== ======== Notes: 8.75% Series, due 2002 ............................................. $ 240 $ 240 7.375% Series, due 2002 ............................................ 162,000 162,000 6.5% Series, due 2001 .............................................. -- 100,000 6.375% Series, due 2006 ............................................ 160,000 160,000 -------- -------- $322,240 $422,240 ======== ========
CE ELECTRIC UK FUNDING EUROBONDS The balances at December 31, 2001 and 2000 consists of the following (in thousands):
2001 2000 ----------- ----------- 8.625% Bearer bonds due 2005 .......... $145,879 $149,865 8.875% Bearer bonds due 2020 .......... 145,764 149,715 -------- -------- $291,643 $299,580 ======== ========
CE ELECTRIC UK FUNDING COMPANY SENIOR NOTES AND STERLING BONDS The balances at December 31 are comprised of the following (in thousands):
2001 2000 ----------- ----------- 6.853% Senior Notes due 2004 ........... $124,613 $124,503 6.995% Senior Notes due 2007 ........... 235,937 235,804 7.25% Sterling Bonds due 2022 .......... 285,950 293,443 -------- -------- $646,500 $653,750 ======== ========
The CE Electric UK Funding Company Senior Notes and Sterling Bonds prohibit distributions to any of its stockholders unless certain financial ratios are met by the CE Electric UK Funding Company or the long-term debt rating falls below a prescribed level. F-38 YORKSHIRE ELECTRIC DEBT In connection with the Yorkshire/Northern supply swap on September 21, 2001, the Company assumed approximately $1.5 billion in debt. The balance at December 31, 2001 is comprised of the following (in thousands):
2001 ------------ 9.250% Eurobond due 2020 .................. $ 383,576 7.250% Eurobond due 2028 .................. 311,427 Variable rate Trust Securities due 2020 (5.19% at December 31, 2001) ............. 235,313 8.080% Trust Securities due 2038 .......... 261,082 6.496% Yankee Bonds due 2008 .............. 300,199 ---------- $1,491,597 ==========
The Yorkshire Electric Debt prohibits distributions to any of its stockholders unless certain financial ratios are met by Yorkshire or the long-term debt rating falls below a prescribed level. CE GAS LOAN CE Gas borrowed $70.2 million and $73.2 million on a (pounds sterling)70 million revolving facility at December 31, 2001 and 2000, respectively. The amount carries a variable interest rate based on LIBOR (4.87% at December 31, 2001). The revolving facility had utilized (pounds sterling)48.3 million and (pounds sterling)49.0 million at December 31, 2001 and 2000, respectively. CASECNAN NOTES AND BONDS On November 27, 1995 CE Casecnan issued $371.5 million of notes and bonds to finance the construction of the Casecnan Project. The balances at December 31 consist of the following (in thousands):
2001 2000 ----------- ----------- Senior Secured Floating Rate Notes (FRNs) due in 2002 ............................................. $ 23,638 $ 49,939 11.45% Senior Secured Series A Notes due in 2005 ......... 125,000 125,000 11.95% Senior Secured Series B Bonds due in 2010 ......... 171,500 171,500 -------- -------- $320,138 $346,439 ======== ========
The Company held $3.0 million and $6.3 million of the FRNs at December 31, 2001 and 2000, respectively. The Casecnan Notes and Bonds are subject to redemption at the Company's option as provided for in the Trust Indenture. The Casecnan Notes and Bonds are also subject to mandatory redemption based on certain conditions. PHILIPPINE TERM LOANS The Overseas Private Investment Corporation ("OPIC") provided term loan financing for the Company's Malitbog geothermal power project of $46.8 million that was fixed at an interest rate of 9.176%. A syndicate of international commercial banks is providing term loan financing of $84.4 million at a variable interest rate based on LIBOR (4.295% at December 31, 2001). The loans have scheduled repayments through June 2005. Export-Import Bank of the United States ("Ex-Im Bank") provided term loan financing for the Company's Upper Mahiao geothermal power project of $121.3 million at a fixed interest rate of 5.95%. United Coconut Planters Bank of the Philippines is providing term loan financing of $8.3 million at a variable interest rate based on LIBOR (5.130% at December 31, 2001). The loans have scheduled repayments through June 2006. F-39 Ex-Im Bank provided term loan financing for the Company's Mahanagdong geothermal power project of $154.6 million at a fixed rate of 6.92%. OPIC is providing term loan financing of $34.3 million at a fixed interest rate of 7.6%. The loans have scheduled repayments through June 2007. CORDOVA FUNDING SENIOR SECURED BONDS On September 10, 1999 Cordova Funding Corporation ("Cordova Funding"), a wholly owned subsidiary of the Company, closed the $225 million aggregate principal amount financing for the construction of the Cordova Project. The proceeds were loaned to Cordova Energy and comprise the following (in thousands):
SERIES ISSUE DATE DUE DATE INTEREST RATE AMOUNT - ------------------------------------------ -------------------- ---------- --------------- ---------- Series A-1 Senior Secured Bonds .......... September 10, 1999 2019 8.64% $ 93,515 Series A-2 Senior Secured Bonds .......... December 15, 1999 2019 8.79% 31,309 Series A-3 Senior Secured Bonds .......... March 15, 2000 2020 9.07% 29,300 Series A-4 Senior Secured Bonds .......... June 15, 2000 2020 8.82% 58,121 Series A-5 Senior Secured Bonds .......... September 15, 2000 2020 8.48% 12,755 -------- Total .................................... $225,000 ========
MidAmerican Energy Holdings Company has guaranteed a specified portion of the scheduled debt service on the Cordova Funding Senior Secured Bonds equal to $37 million. SALTON SEA BONDS Salton Sea Funding Corporation, an indirect wholly owned subsidiary of CE Generation, had a debt balance of $520.3 million at December 31, 2001. CalEnergy Minerals LLC is one of several guarantors of the Salton Sea Funding Corporation's debt. As a result of a note allocation agreement, CalEnergy Minerals LLC is primarily responsible for $139.9 million of the 7.475% Senior Secured Series F Bonds due November 30, 2018. MidAmerican Energy Holdings Company has guaranteed a specified portion of the scheduled debt service on the Series F Bonds equal to this current principal amount of $139.9 million and associated interest. ANNUAL REPAYMENTS OF SUBSIDIARY AND PROJECT DEBT The annual repayments of the subsidiary and project debt for the years beginning January 1, 2002 and thereafter are as follows (in thousands):
MIDAMERICAN MIDAMERICAN FUNDING, MIDAMERICAN ENERGY MIDAMERICAN CE ELECTRIC LLC SENIOR ENERGY POLLUTION ENERGY AND HOME SALTON UK NOTES AND MORTGAGE CONTROL CAPITAL SERVICES NOTES SEA FUNDING BONDS BONDS BONDS NOTES AND OTHER BONDS EUROBONDS ------------- ------------- ------------ ------------- ---------------- ---------- ------------ 2002 ........... $ -- $ -- $ 1,440 $185,573 $ 706 $ 2,108 $ -- 2003 ........... -- 100,000 5,320 -- 583 1,405 -- 2004 ........... -- 55,630 -- -- 5,133 1,757 -- 2005 ........... -- 90,500 -- -- 5,048 1,756 145,879 2006 ........... -- -- -- 160,000 5,036 1,827 -- Thereafter ..... 700,000 94,440 150,425 -- 20,274 131,043 145,764 -------- -------- -------- -------- -------- -------- -------- $700,000 $340,570 $157,185 $345,573 $ 36,780 $139,896 $291,643 ======== ======== ======== ======== ======== ======== ========
F-40
CE ELECTRIC UK CORDOVA FUNDING COMPANY FUNDING SENIOR NOTES CASECNAN PHILIPPINE SENIOR AND STERLING YORKSHIRE CE NOTES AND TERM SECURED BONDS ELECTRIC DEBT GAS LOAN BONDS LOANS BONDS TOTAL ----------------- --------------- ---------- ----------- ------------ ------------ ------------ 2002 ............... $ -- $ -- $ 25,642 $ 32,214 $ 68,259 $ 1,238 $ 317,180 2003 ............... -- -- 13,050 41,467 72,148 9,000 242,973 2004 ............... 124,613 -- 16,897 49,360 67,148 8,100 328,638 2005 ............... -- -- 14,455 54,752 63,034 7,875 383,299 2006 ............... -- -- 136 36,015 30,037 4,500 237,551 Thereafter ......... 521,887 1,491,597 -- 106,330 12,595 194,287 3,568,642 --------- ---------- -------- --------- --------- --------- ---------- $ 646,500 $1,491,597 $ 70,180 $ 320,138 $ 313,221 $ 225,000 $5,078,283 ========= ========== ======== ========= ========= ========= ==========
9. INCOME TAXES Provision for (benefit from) income taxes was comprised of the following (in thousands):
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ Current: State ........... $ 2,669 $ 10,527 $ (1,886) $ 7,337 Federal ......... 51,025 17,387 9,147 128,839 Foreign ......... 43,450 40,823 16,012 13,889 --------- --------- -------- --------- 97,144 68,737 23,273 150,065 --------- --------- -------- --------- Deferred: State ........... 22,095 (1,933) 834 1,791 Federal ......... (36,441) (32,469) 1,854 (75,510) Foreign ......... 167,266 18,942 5,047 17,129 --------- --------- -------- --------- 152,920 (15,460) 7,735 (56,590) --------- --------- -------- --------- Total ............ $ 250,064 $ 53,277 $ 31,008 $ 93,475 ========= ========= ======== =========
A reconciliation of the federal statutory tax rate to the effective tax rate applicable to income before provision for income taxes follows:
MEHC (PREDECESSOR) ------------------------------- YEAR ENDED MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED DECEMBER 31, THROUGH THROUGH DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 1999 -------------- ------------------- ----------------- ------------- Federal statutory rate ................................ 35.0% 35.0% 35.0% 35.0% Investment and energy tax credits ..................... (1.0) (2.3) (.7) (1.8) State taxes, net of federal tax effect ................ 3.2 2.6 (.8) 1.7 Goodwill amortization ................................. 5.9 12.1 5.9 5.5 Dividends on preferred securities of subsidiary trusts* .............................................. (6.1) (11.1) (2.8) (3.8) Tax effect of foreign income .......................... (2.5) (5.8) (5.0) .3 Non-recurring items on CE Electric UK Funding, net of tax effect of foreign income ......... 19.2 -- -- -- Non-recurring items on Indonesia ...................... -- -- -- (11.0) Dividends received deduction .......................... (2.6) (6.8) (1.0) (3.7) Other items, net ...................................... (1.5) .6 3.4 3.9 ---- ----- ---- ----- Effective tax rate .................................... 49.6% 24.3% 34.0% 26.1% ==== ===== ==== =====
- ---------- * Dividends on preferred securities of subsidiary trusts are included in minority interest. F-41 Deferred tax liabilities (assets) are comprised of the following at December 31 (in thousands):
2001 2000 ------------- ------------- Property, plant, contracts and equipment .................... $1,245,140 $ 866,678 Income taxes recoverable through future rates ............... 185,222 186,427 Fuel cost recoveries ........................................ 20,272 14,598 Reacquired debt ............................................. 7,544 10,256 ---------- ---------- 1,458,178 1,077,959 ---------- ---------- Nuclear reserve and decommissioning ......................... (17,898) (20,690) Deferred income ............................................. (24,732) (8,883) Deferred contract costs ..................................... (65,145) (51,703) Revenue sharing accruals .................................... (24,769) (3,742) Accruals not currently deductible for tax purposes .......... (35,221) (40,563) Other ....................................................... (6,145) (7,350) ---------- ---------- (173,910) (132,931) ---------- ---------- Net deferred income taxes ................................... $1,284,268 $ 945,028 ========== ==========
10. COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUSTS The Company has organized special purpose Delaware business trusts (collectively, the "Trusts") pursuant to their respective amended and restated declarations of trusts (collectively, the "Declarations"). The Company, through these Trusts, issued Company-obligated mandatorily redeemable preferred securities (collectively, the "Trust Securities") as follows (in thousands):
ORIGINAL CARRYING VALUE CARRYING VALUE ISSUE DECEMBER 31, DECEMBER 31, CONVERSION ISSUER ISSUE DATE RATE AMOUNT 2001 2000 RATE - ------------------------------------- ------------------- ---------- ---------- ---------------- --------------- ----------- CalEnergy Capital Trust II .......... February 26, 1997 6.25% $180,000 $ 155,584 $ 156,084 1.1655 CalEnergy Capital Trust III ......... August 12, 1997 6.50% 270,000 269,984 269,984 1.047 MidAmerican Capital Trust I (issued to Berkshire) .............. March 14, 2000 11.00% 454,772 454,772 454,772 N/A Fair value adjustment ............... (92,189) (94,317) --------- --------- $ 788,151 $ 786,523 ========= =========
During 2001 and 2000, CalEnergy Capital Trust II redeemed 10,000 and 477,000 shares, respectively, of preferred securities at an aggregate cost of approximately $.4 million and $19.5 million, respectively. The Company owns all of the common securities of the Trusts. The Trust Securities have a liquidation preference of fifty dollars each and represent undivided beneficial ownership interests in each of the Trusts. The assets of the Trusts consist solely of the Company's Subordinated Debentures due February 25, 2012, September 1, 2027, and March 14, 2010, respectively, in outstanding aggregate principal amounts of approximately $155.5 million, $270 million and $454.8 million, respectively (collectively, the "Junior Debentures") issued pursuant to their respective indentures. The indentures include agreements by the Company to pay expenses and obligations incurred by the Trusts. Prior to the Teton Transaction, each Trust Security issued by CalEnergy Capital Trust II and III with a par value of $50 was convertible at the option of the holder at any time into shares of the Company's common stock based on the conversion rate. As a result of the Teton Transaction, in lieu of shares of the Company's common stock, holders of Trust Securities will receive $35.05 for each share of common stock it would have been entitled to receive on conversion. Distributions on the Trust Securities (and Junior Debentures) are cumulative, accrue from the date of initial issuance and are payable quarterly in arrears. The Junior Debentures are subordinated in right of payment to all senior indebtedness of the Company and the Junior Debentures are subject to certain covenants, events of default and optional and mandatory redemption provisions, all as described in the Junior Debenture indentures. F-42 Pursuant to Preferred Securities Guarantee Agreements (collectively, the "Guarantees"), between the Company and a preferred guarantee trustee, the Company has agreed irrevocably to pay to the holders of the Trust Securities, to the extent that the Trustee has funds available to make such payments, quarterly distributions, redemption payments and liquidation payments on the Trust Securities. Considered together, the undertakings contained in the Declarations, Junior Debentures, Indentures and Guarantees constitute full and unconditional guarantees by the Company of the Trusts' obligations under the Trust Securities. 11. SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY TRUST In December 1996, MidAmerican Energy Financing I, a wholly owned statutory business trust of MidAmerican Energy, issued 4,000,000 shares of 7.98% Series MidAmerican Energy-obligated mandatorily redeemable preferred securities. The sole assets of MidAmerican Energy Financing are $103.1 million of MidAmerican Energy 7.98% Series A Debentures due 2045 (the "Debentures"). There is a full and unconditional guarantee by MidAmerican Energy of MidAmerican Energy Financing's obligations under the preferred securities. MidAmerican Energy has the right to defer payments of interest on the Debentures by extending the interest payment period for up to 20 consecutive quarters. If interest payments on the Debentures are deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon, and MidAmerican Energy may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its capital stock. If the Debentures, or a portion thereof, are redeemed, MidAmerican Energy Financing must redeem a like amount of the preferred securities. If a termination of MidAmerican Energy Financing occurs, MidAmerican Energy Financing will distribute to the holders of the preferred securities a like amount of the Debentures unless such a distribution is determined not to be practicable. If a determination is made, the holders of the preferred securities will be entitled to receive, out of the assets of MidAmerican Energy Financing after satisfaction of its liabilities, a liquidation amount of $25 for each preferred security held plus accrued and unpaid distributions. See Note 21. 12. PREFERRED STOCK In connection with the Teton Transaction, the Company issued 34.6 million shares of no par, zero coupon convertible preferred stock valued at $1,211.4 million. Each share of preferred stock is convertible at the option of the holder into one share of the Company's common stock subject to certain adjustments as described in the Company's Amended and Restated Articles of Incorporation 13. STOCK OPTIONS The Company had various stock option plans under which shares were reserved for grant as incentive or non-qualified stock options, as determined by the Board of Directors. The plans allowed options to be granted at 85% of their fair market value of the common stock at the date of grant. Generally, options were issued at 100% of fair market value of the common stock at the date of grant. Options granted under the 1996 plan became exercisable over a period of two to five years and expired if not exercised within ten years from the date of grant or, in some instances, a lesser term. As a result of the Teton Transaction, the majority of the options were cashed out at $35.05 per share. The remaining options of 2,145,000 were reissued under the new MidAmerican Energy Holdings Company and an additional 703,329 options were issued. The old options are fully vested and the additional options vest monthly over three years. The options are exercisable until the end of the term on March 14, 2008 at exercise prices ranging from $15.94 to $35.05 per share. 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although F-43 management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current transaction. The methods and assumptions used to estimate fair value are as follows: Short-term debt -- Due to the short-term nature of the short-term debt, the fair value approximates the carrying value. Debt instruments -- The fair value of all debt issues listed on exchanges has been estimated based on the quoted market prices. The Company is unable to estimate a fair value for the Philippine term loans as there are no quoted market prices available. Other financial instruments -- All other financial instruments of a material nature are short-term and the fair value approximates the carrying amount.
2001 2000 --------------------------- -------------------------- ESTIMATED ESTIMATED PRINCIPAL FAIR PRINCIPAL FAIR AMOUNT VALUE AMOUNT VALUE ------------ ------------ ----------- ------------ (IN THOUSANDS) 7.63% Senior Notes ................................. $ 350,000 $ 362,425 $ 350,000 $ 360,115 6.96% Senior Notes ................................. 215,000 222,676 215,000 216,570 7.23% Senior Notes ................................. 260,000 268,684 260,000 264,004 7.52% Senior Notes ................................. 450,000 455,085 450,000 459,090 8.48% Senior Notes ................................. 475,000 478,325 475,000 507,918 7.52% Senior Notes ................................. 101,680 102,130 101,888 102,020 MidAmerican Funding, LLC Senior Notes and Bonds ............................................. 700,000 667,402 700,000 657,300 MidAmerican Energy Mortgage Bonds .................. 340,570 356,087 340,570 345,692 MidAmerican Energy Pollution Control Bonds ......... 157,185 157,672 158,625 158,914 MidAmerican Energy Notes ........................... 322,240 329,573 422,240 420,496 MidAmerican Capital Notes .......................... 23,333 23,849 46,667 46,464 HomeServices Senior Notes and Other ................ 36,780 31,143 37,607 34,094 Salton Sea Bonds ................................... 139,896 121,290 140,528 116,947 CE Electric UK Funding Eurobonds ................... 291,643 346,115 299,580 357,456 CE Electric UK Funding Company Senior Notes and Sterling Bonds .......................... 646,500 702,643 653,750 694,031 Yorkshire Electric Debt ............................ 1,491,597 1,482,870 -- -- Casecnan Notes and Bonds ........................... 320,138 291,517 346,439 319,056 Cordova Funding Senior Secured Bonds ............... 225,000 227,442 225,000 224,018 CE Gas Loan ........................................ 70,180 70,180 73,162 73,162 Company-obligated preferred securities of subsidiary trusts ................................. 880,340 801,722 880,840 769,605 Subsidiary-obligated preferred securities of subsidiary trusts ................................. 100,000 99,640 100,000 98,752 Preferred Securities of Subsidiaries ............... 121,183 107,893 145,686 131,255
INTEREST RATE RISK At December 31, 2001, the Company had fixed-rate long-term debt, Company-obligated mandatorily redeemable preferred securities of subsidiary trusts, and subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts of $7,678.0 million in principal amount and having a fair value of $7,808.2 million. These instruments are fixed-rate and therefore do not expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $355.7 million if interest rates were to increase by 10% from their levels F-44 at December 31, 2001. In general, such a decrease in fair value would impact earnings and cash flows only if the Company were to reacquire all or a portion of these instruments prior to their maturity. At December 31, 2001, the Company had floating-rate obligations of $281.4 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. These obligations are not hedged. If the floating rates were to increase by 10% from December 31, 2001 levels, the Company's consolidated interest expense for unhedged floating-rate obligations would increase by approximately $75,000 each month in which such increase continued based upon December 31, 2001 principal balances. F-45 The amortized cost, gross unrealized gain and losses and estimated fair value of investments in debt and equity securities at December 31 are as follows (in thousands):
2001 ------------------------------------------------------ AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ------------ ------------ ---------- Available-for-sale: Equity securities ................... $ 53,663 $24,444 $ (3,144) $ 74,963 Municipal bonds ..................... 27,842 1,315 (92) 29,065 U. S. Government securities ......... 26,725 1,910 (19) 28,616 Corporate securities ................ 18,682 812 (23) 19,471 Cash equivalents .................... 7,120 -- -- 7,120 -------- ------- -------- -------- $134,032 $28,481 $ (3,278) $159,235 ======== ======= ======== ======== Held-to-Maturity: Debt Securities ..................... $ 2,074 $ -- $ -- $ 2,074 U.S. Treasury Strips ................ 1,090 85 -- 1,175 Agency Obligations .................. 611 -- (22) 589 -------- ------- -------- -------- $ 3,775 $ 85 $ (22) $ 3,838 ======== ======= ======== ========
2000 ------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ------------ ------------ ----------- Available-for-sale: Equity securities ................... $ 83,509 $34,110 $ (7,115) $110,504 Municipal bonds ..................... 27,758 1,071 (175) 28,654 U. S. Government securities ......... 26,284 1,163 -- 27,447 Corporate securities ................ 25,737 48 (1,027) 24,758 Cash equivalents .................... 11,150 -- -- 11,150 -------- ------- -------- -------- $174,438 $36,392 $ (8,317) $202,513 ======== ======= ======== ======== Held-to-Maturity: Debt Securities ..................... $ 2,077 $ -- $ -- $ 2,077 U.S. Treasury Strips ................ 677 80 -- 757 Agency Obligations .................. 571 -- (53) 518 -------- ------- -------- -------- $ 3,325 $ 80 $ (53) $ 3,352 ======== ======= ======== ========
At December 31, 2001, the debt securities held by the Company had the following maturities (in thousands):
AVAILABLE FOR SALE HELD TO MATURITY ----------------------- ---------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ----------- --------- ----------- -------- Within 1 year .............. $ 3,269 $ 3,332 $ 3 $ 3 1 through 5 years .......... 28,851 30,706 2,323 2,357 5 through 10 years ......... 10,733 11,578 1,449 1,478 Over 10 years .............. 30,396 31,536 -- --
F-46 The proceeds and gross realized gains and losses on the disposition of available-for-sale and held-to-maturity investments are shown in the following table (in thousands). Realized gains and losses are determined by specific identification.
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2001 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ Proceeds from sales ........... $ 68,333 $ 93,531 $ 22,588 $617,262 Gross realized gains .......... 2,676 6,464 1,560 97,545 Gross realized losses ......... (7,314) (10,585) (2,556) (6,437)
15. NON-RECURRING ITEMS TEESSIDE In December 2001, the Company recorded a non-recurring charge of $20.7 million representing an asset valuation impairment charge under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets," relating to the Company's 15.4% interest in Teesside Power Ltd. ("Teesside"). Teesside owns and operates an 1,875 MW combined cycle gas-fired power plant. Enron Corp. ("Enron"), through its subsidiaries, owned a 42.5% interest, operated the plant, and purchased 668MW of capacity. Enron's subsidiary, who owns and operates Teesside, is now in administration and administrators have been appointed to run its business and are attempting to find a buyer. As a result of Enron's subsidiary being in administration, Teesside is in discussion with its lenders over restructuring of the (pounds sterling)650 million debt still outstanding. It is anticipated that there will be no further dividends arising from the investment in Teesside and subsequently, the Company has determined the investment in Teesside to be of negligible value. TELEPHONE FLAT SALE On October 16, 2001, the Company closed on a transaction that transferred all properties and rights of the Telephone Flat Project, a geothermal development project in northern California to Calpine Corp. The Company recorded a pre-tax gain of $20.7 million and an after-tax gain of $12.2 million on the sale of the Telephone Flat Project. WESTERN STATES SALE On June 30, 2001, the Company closed on a transaction in which the Company sold Western States Geothermal, an indirect wholly owned subsidiary of the Company, to Ormat. The Company recorded a pre-tax gain of $9.8 million and an after-tax gain of $6.4 million on the sale of Western States Geothermal. QUALIFIED FACILITIES DISPOSITIONS On February 26, 1999, the Company closed the sale of all of its indirect ownership interests in the Coso Joint Ventures ("Coso") to Caithness Energy LLC ("Caithness") for $205 million in cash. On March 3, 1999, the Company closed the sale of 50% of its ownership interests in CE Generation to an affiliate of El Paso Energy Corporation for an aggregate consideration of approximately $245 million in cash, $6.5 million in contingent payments and $23.5 million in equity commitments. The sales of the qualified facilities resulted in a net non-recurring pre-tax gain of $20.2 million and an after-tax gain of approximately $12.4 million. MCLEOD On May 18, 1999, the Company announced the sale of approximately 6.74 million shares of McLeodUSA ("McLeod") Class A common stock, through a secondary offering by McLeod, at $55.625 per share. Proceeds from the sale were approximately $375 million, with a resulting pre-tax gain to the Company of approximately $78.2 million, and an after-tax gain of approximately $47.1 million. F-47 INDONESIA On December 2, 1994, former subsidiaries of the Company, Himpurna California Energy Ltd. ("HCE") and Patuha Power, Ltd. ("PPL", together with HCE, the "Indonesian Subsidiaries") executed separate joint operation contracts for the development of geothermal steam fields and geothermal power facilities located in Central Java in Indonesia. In 1997 and 1998 a series of Indonesian government decrees and other actions created significant uncertainty as to whether the Indonesian government would honor their contractual obligations to the Indonesian Subsidiaries. In 1997, the Company recorded a non-recurring charge of $87 million representing an asset valuation impairment charge under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets," relating to the Company's assets in Indonesia. The charge of $87 million represented the amount by which the carrying amount of such assets exceeded the estimated fair value of the assets determined by discounting the expected future net cash flows of the Indonesia projects. The Company carried political risk insurance on its investment in HCE and PPL through OPIC, an agency of the U.S. Government, as well as through private market insurers. On November 18, 1999, the Company transferred the Indonesian Subsidiaries to OPIC and received payment from OPIC and the private market insurers totaling $290 million under its political risk insurance policies, reflecting the return of its equity investment less policy deductibles. Due primarily to the timing of the receipt of proceeds, the Company recorded a pre-tax gain of approximately $40.3 million on the insurance proceeds and an additional tax benefit of $17.7 million for an after-tax gain of $58.0 million. On September 13, 2001, the Company transferred shares of Bali Energy Ltd., an indirect wholly owned Indonesian subsidiary of the Company, to PT Tenaga Burni Bali. The Company recorded a pre-tax gain of $10.4 million and an after-tax gain of $6.5 million on the transfer of the shares. 16. ACCOUNTING FOR DERIVATIVES INTEREST RATE RISK MidAmerican Energy has entered into a two-year, $162 million fixed-to-floating interest rate swap agreement in conjunction with its $162 million, 7.375% series of medium-term notes due August 1, 2002. The floating rate of the swap is based on a three-month LIBOR rate and the effective interest rate after the swap was 4.46% in 2001. As of December 31, 2001, the fair value of this swap was $9.1 million. CURRENCY EXCHANGE RATE RISK CE Electric UK Funding entered into certain currency rate swap agreements for the CE Electric UK Funding Company Senior Notes with two large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $125 million of 6.853% Senior Notes, the agreements extend until December 30, 2004 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.744%. For the $237 million of 6.995% Senior Notes, the agreements extend until December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2001 is approximately $44.8 million based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to receive if these agreements were terminated. It is the Company's intention to hold these swap agreements to maturity. Yorkshire entered into certain currency rate swap agreements for the Trust Securities and the Yankee Bonds with five large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $255 million of Trust Securities, the agreements extend until June 30, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 9.4758% to 9.715%. For the $300 million of Yankee Bonds, the agreements extend until February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175% to 7.345%. The estimated fair value of these swap agreements at December 31, 2001 is approximately $8.4 million based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to receive if these agreements were terminated. It is the Company's intention to hold these swap agreements to maturity. F-48 A decrease of 10% in the December 31, 2001 rate of exchange of Sterling to dollars would increase the amount received if these swap agreements were terminated by approximately $106.4 million. ENERGY COMMODITY PRICE RISK Under the current regulatory framework, MidAmerican Energy is allowed to recover in revenues the cost of gas sold from all of its regulated gas customers through a purchased gas adjustment clause. Because the majority of MidAmerican Energy's firm natural gas supply contracts contain pricing provisions based on a daily or monthly market index, MidAmerican Energy's regulated gas customers, although ensured of the availability of gas supplies, retain the risk associated with market price volatility. MidAmerican Energy enters into natural gas futures and swap agreements to mitigate a portion of the market risk retained by its regulated gas customers through the purchased gas adjustment clause. These financial derivative activities are recorded as hedge accounting transactions, with net amounts exchanged or accrued under swap agreements and realized gains or loses on futures contracts included in the cost of gas sold and recovered in revenues from regulated gas customers. MidAmerican Energy also derives revenues from nonregulated sales of natural gas. Pricing provisions are individually negotiated with these customers and may include fixed prices or prices based on a daily or monthly market index. MidAmerican Energy enters into natural gas futures and swap agreements to offset the financial impact of variations in natural gas commodity prices for physical delivery to nonregulated customers. These financial derivative activities are also recorded as hedge accounting transactions. MidAmerican Energy uses natural gas derivative instruments for trading purposes pursuant to EITF 98-10 under strict value-at-risk guidelines outlined by senior management. Derivative instruments held for trading purposes are recorded at fair value and any unrealized gains or losses are reported in earnings. Trading revenues and costs are reported gross on the consolidated statements of operations. MidAmerican Energy is exposed to variations in the price of fuel for generation and the price of purchased power in its Iowa jurisdiction comprising 89% of 2001 electric operating revenues. Fuel price risk is mitigated through forward contracts. Under typical operating conditions, MidAmerican Energy has sufficient generation to supply its retail electric needs. A loss of such generation at a time of high market prices could subject MidAmerican Energy to losses on its energy sales. MidAmerican Energy uses electricity forward contracts to hedge anticipated sales of wholesale electric power. MidAmerican Energy and its customers are exposed to the effect of variations in weather conditions on sales and purchased, respectively, of electricity and natural gas. For the 2001-2002 heating season, MidAmerican Energy entered into several degree-day swaps to offset a portion of the financial impact of those variations on MidAmerican Energy and its customers. MidAmerican Energy had the following financial derivative instruments for its natural gas and electric operations as of December 31: F-49 MidAmerican Energy derivative instruments used for other than trading purposes--
2001 2000 ----------------------- ------------------- Natural Gas Futures Contracts -- NYMEX: Net Contract Volumes -- Long (Short) ......... (600,000) MMBtu 1,460,000 MMBtu Unrealized Gain, in thousands ................ $ 40 $ 7,554 Weighted Average Settlement Price ............ $ (6.77) $ 9.42 Natural Gas Swap Contracts: Contract Volumes -- Pay Fixed ................ 7,853,052 MMBtu 13,496,239 MMBtu Contract Volumes -- Receive Fixed ............ 900,000 MMBtu 10,610,741 MMBtu Unrealized Gain (Loss), in thousands ......... $(7,643) $ 8,055 Weighted Average Pay Fixed Price ............. $ (0.97) $ 0.89 Weighted Average Receive Fixed Price ......... $ 0.04 $ (0.37) Natural Gas Options: Contract Volumes -- Long ..................... 2,300,000 MMBtu 1,790,280 MMBtu Unrealized Gain (Loss), in thousands ......... $(1,212) $ 953 Degree Day Swap Contracts: Contract Volumes -- Long ..................... 20,000 $/Degree day -- $/Degree Day Unrealized Gain (Loss), in thousands ......... $(3,486) $ -- Electric Forward Contracts: Contract Volumes -- (Short) .................. (728,800) MWh (139,200) MWh Unrealized Gain (Loss), in thousands ......... $ 6,313 $(4,731)
A $1.00 decrease in underlying natural gas prices would decrease unrealized gains on the futures contracts held at December 31, 2001, by approximately $0.6 million and would decrease unrealized losses on the above swap contracts by approximately $7.0 million. A $5.00 increase in underlying electricity prices would decrease unrealized gains on the forward contracts held at December 31, 2001, by approximately $3.6 million. The weighted average maturity for all derivative instruments used for hedging purposes is under one year. Unrealized gains and losses on cash flow hedges of future transactions are recorded in other comprehensive income. Only hedges that are highly effective in offsetting the risk of variability in future cash flows are accounted for in this manner. Future transactions include purchases of gas for resale to regulated and nonregulated customers, purchases of gas for storage, and purchases and sales of wholesale electric energy. When the associated hedged future transaction occurs or if a hedging relationship is no longer appropriate, the unrealized gains and losses are reversed from other comprehensive income and recognized in net income. Realized gains on cash flow hedges are recorded in either cost of sales or operating revenues, depending upon the nature of the physical transaction being hedged. For 2001, a net loss of $408,000 and a net gain of $36,000, representing the ineffectiveness of cash flow hedges, are reflected in cost of sales. During the twelve months beginning January 1, 2002, it is anticipated that $3.4 million of the $3.5 million after-tax, net unrealized gains on cash flow hedges presently recorded as accumulated other comprehensive income will be realized and recorded in earnings. MidAmerican Energy has hedged a portion of its exposure to the variability of cash flows for future transactions through December 2003. Unrealized gains and losses on fair value hedges are recognized in income as either operating revenues or cost of sales depending upon the nature of the item being hedged. Purchase and sales commitments hedged by fair value hedges are recorded at fair value, with the changes in values also recognized in income and substantially offsetting the impact of the hedges on earnings. For 2001, a net pre-tax gain of $18,000, representing the ineffectiveness of fair value hedges, is included in operating revenues. F-50 MidAmerican Energy derivative instruments used for trading purposes--
2001 2000 -------------------- ------------------- Natural Gas Futures Contracts -- NYMEX: Net Contract Volumes -- (Short) .............. 120,000 MMBtu (20,000) MMBtu Unrealized (Loss), in thousands .............. $ (224) $ (79) Weighted Average Settlement Price ............ $ 1.69 $(15.92) Natural Gas Swap Contracts: Contract Volumes -- Pay Fixed ................ 17,519,581 MMBtu 1,000,000 MMBtu Contract Volumes -- Receive Fixed ............ 17,850,372 MMBtu 1,010,000 MMBtu Unrealized Gain (Loss), in thousands ......... $2,045 $ (261) Weighted Average Pay Fixed Price ............. $(0.99) $ 0.92 Weighted Average Receive Fixed Price ......... $ 1.09 $ (1.17)
A change in underlying natural gas prices would not materially affect unrealized losses on the above future and swap contracts. 17. SECURITIZATION OF ACCOUNTS RECEIVABLE In December 1998, CE Electric UK Funding entered into a revolving receivable purchase agreement with Kitty Hawk Funding Corporation ("Kitty Hawk"), an unaffiliated special purpose entity established to purchase accounts receivable. In October 2000, the facility was transferred to Mont Blanc Capital Corp, administered by ING Barings, which allowed CE Electric UK Funding to sell all of its rights, title and interest in the majority of its billed electricity accounts receivable and to borrow against its unbilled electricity accounts receivable. In March 1999, CE Electric UK Funding received $161 million in cash associated with the agreement. In connection with the Northern Supply/Yorkshire swap on September 21, 2001, CE Electric UK Funding repaid the outstanding balance of this purchase agreement and ended their arrangement with Mont Blanc Capital Corp. CE Electric UK Funding does not have any amounts outstanding at December 31, 2001. In 1997, MidAmerican Energy entered into a revolving agreement, which expires in October 2002, to sell all of its right, title and interest in the majority of its billed accounts receivable to MidAmerican Energy Funding Corporation, a special purpose entity established to purchase accounts receivable from MidAmerican Energy. MidAmerican Energy Funding Corporation in turn sells receivable interests to outside investors. In consideration of the sale, MidAmerican Energy received cash and a subordinated note, bearing interest at 8%, from MidAmerican Energy Funding Corporation. As of December 31, 2001, the revolving cash balance was $44 million, down $26 million from December 31, 2000, and the amount outstanding under the subordinated note was $28.7 million. The agreement is structured as a true sale under which the creditors or MidAmerican Energy Funding Corporation will be entitled to be satisfied out of the assets of MidAmerican Energy Funding Corporation prior to any value being returned to MidAmerican Energy or its creditors. Therefore, the accounts receivable sold are not reflected on the consolidated balance sheets. At December 31, 2001, $71.5 million of accounts receivable, net of reserves, was sold under the agreement. 18. REGULATORY MATTERS CE ELECTRIC UK FUNDING Most revenue of each Distribution License Holder ("DLH") is controlled by a distribution price control formula. The current formula requires that regulated distribution income per unit is increased or decreased each year by RPI-Xd where the Retail Price Index ("RPI") reflects the average of the 12-month inflation rates recorded for each month in the previous July to December period. The distribution price control formula also reflects an adjustment factor ("Xd") which was established by the regulatory body, the Office of Gas and Electricity Markets ("Ofgem"), at the last price control review (and continues to be set) at 3%. The formula also takes account of the changes in system electrical losses, the number of F-51 customers connected and the voltage at which customers receive the units of electricity distributed. This formula determines the maximum average price per unit of electricity distributed (in pence per kilowatt hour) which a DLH is entitled to charge. The distribution price control formula permits DLHs to receive additional revenues due to increased distribution of units and a predetermined increase in customer numbers. The price control does not seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH's costs. During the lifetime of the price control, additional cost savings therefore contribute directly to profit. MIDAMERICAN ENERGY In 1997, pursuant to a rate proceeding before the Iowa Utilities Board ("IUB"), MidAmerican Energy, the Office of Consumer Advocate and other parties entered into a pricing plan settlement agreement establishing MidAmerican Energy's Iowa retail electric rates. That settlement agreement expired on December 31, 2000. On March 14, 2001, the Office of the Consumer Advocate filed a petition with the IUB to reduce Iowa retail electric rates by approximately $77 million annually. On June 11, 2001, MidAmerican Energy responded to that petition by filing a request with the IUB to increase MidAmerican Energy's Iowa retail electric rates by $51 million annually. On December 21, 2001, the IUB approved a settlement agreement that freezes the rates in effect on December 31, 2000, through December 31, 2005, and, with modifications, reinstates the revenue sharing provisions of the 1997 pricing plan settlement agreement. Under the 2001 settlement agreement, an amount equal to 50% of revenues associated with returns on equity between 12% and 14%, and 83.33% of revenues associated with returns on equity above 14%, in each year will be recorded as a regulatory liability to be used to offset a portion of the cost of future generating plant investments. An amount equal to the regulatory liability will be recorded as depreciation expense. As of December 31, 2001, MidAmerican Energy has recorded a $47.1 million regulatory liability that is reflected in other long-term accrued liabilities on the consolidated balance sheet. Under an Illinois restructuring law enacted in 1997, a sharing mechanism is in place for MidAmerican Energy's Illinois regulated retail electric operations whereby earnings above a computed threshold will be shared equally between customers and shareholders. A two-year average return on common equity greater than a two-year average benchmark will trigger an equal sharing of earnings on the excess. MidAmerican Energy's computed level of return on common equity is based on a rolling two-year average of the 30-year Treasury bond rates plus a premium of 5.50% for 1998 and 1999 and a premium of 8.5% for 200 through 2004. The two-year average above which sharing must occur for 2001 was 14.33%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of regulatory assets. On September 21, 2001, MidAmerican Energy filed a petition with the South Dakota Public Utilities Commission ("SDPUC") to increase its South Dakota natural gas rates. On February 20, 2002, the SDPUC approved a settlement agreement allowing increased rates of $3.1 million annually. On October 19, 2001, MidAmerican Energy filed a petition with the Illinois Commerce Commission to increase its Illinois natural gas rates by $3.2 million annually. A final decision on the petition is required within eleven months of the date of filing. On March 15, 2002, MidAmerican Energy made a filing with the IUB requesting an increase in rates of approximately $26.6 million for its Iowa retail natural gas customers. As part of the filing, MidAmerican Energy requested an interim rate increase of approximately $20.4 million annually. The IUB may adjust the requested interim amount and delay its implementation for up to ninety days. MidAmerican Energy expects the final rates, which may differ from the requested amount, to be implemented in the fourth quarter. 19. PENSION COMMITMENTS UNITED KINGDOM OPERATIONS CE Electric UK Funding participates in the Electricity Supply Pension Scheme, which provides pension and other related defined benefits, based on final pensionable pay, to substantially all employees throughout the Electricity Supply Industry in the United Kingdom. F-52 The actuarial computation for December 31, 2001, 2000 and 1999 assumed interest rates of 5.75%, 6.0% and 6.0% respectively, an expected return on plan assets of 7.0%, 6.5% and 6.5%, respectively, and annual compensation increases of 2.5%, 3.0% and 3.0%, respectively, over the remaining service lives of employees covered under the plan. Amounts funded to the pension are primarily invested in equity and fixed income securities. The following table details the funded status and the amount recognized in the Company's consolidated balance sheets for CE Electric UK Funding's plan as of December 31, 2001 and 2000 (in thousands):
2001 2000 ------------- ------------ Change in benefit obligation: Benefit obligation at beginning of year .................... $ 951,553 $ 940,600 Service cost ............................................... 7,854 8,660 Interest cost .............................................. 51,926 50,765 Participant contributions .................................. 5,236 4,927 Benefits paid .............................................. (49,453) (49,272) FAS 88 curtailment ......................................... 7,127 6,570 Northern Supply/Yorkshire swap net effect .................. 44,216 -- Experience gain and change of assumptions .................. (44,381) (10,697) ---------- ---------- Benefit obligation at end of the year ...................... 974,078 951,553 ---------- ---------- Change in plan assets: Fair value of plan assets at beginning of the year ......... 1,166,111 1,283,600 Actual return on plan assets ............................... (98,799) (73,741) Net asset transfer resulting from Northern Supply/Yorkshire Swap .................................... 46,980 -- Employer contributions ..................................... 582 597 Participant contributions .................................. 5,236 4,927 Benefits paid .............................................. (49,453) (49,272) ---------- ---------- Fair value of plan assets at end of the year ............... 1,070,657 1,166,111 ---------- ---------- Funded status .............................................. 96,579 214,558 Unrecognized net loss ...................................... (196,648) (77,193) ---------- ---------- Prepaid benefit cost ....................................... $ 293,227 $ 291,751 ========== ==========
Net periodic pension cost (benefit) for CE Electric UK Funding's plan for 2001, 2000 and 1999 included the following components (in thousands):
MEHC (PREDECESSOR) ----------------------------- MARCH 14, 2000 JANUARY 1, 2000 THROUGH THROUGH 2001 DECEMBER 31, 2000 MARCH 31, 2000 1999 ------------ ------------------- ---------------- ------------ Service cost -- benefits earned during the period..... $ 7,854 $ 6,933 $ 1,727 $ 10,200 Interest cost on projected benefit obligation ........ 51,926 40,640 10,125 48,500 Expected return on plan assets ....................... (78,979) (50,800) (12,657) (59,500) Curtailment loss ..................................... 7,127 5,260 1,310 38,300 --------- --------- --------- --------- Net periodic pension (benefit) cost .................. $ (12,072) $ 2,033 $ 505 $ 37,500 ========= ========= ========= =========
As a result of the distribution price reviews in 1999, CE Electric UK Funding implemented a review of staffing requirements primarily in its distribution business. Following discussions with the trade unions, CE Electric UK Funding put in place a workforce reduction program. In 1999, the Company recorded a non-recurring pre-tax loss of approximately $47.7 million that included a pension curtailment of $38.3 million. In 2000, the pension curtailment related to this workforce reduction program was $6.6 million. The curtailment loss in 2001 of $7.1 million is a result of the Northern Supply/Yorkshire swap. F-53 DOMESTIC OPERATIONS The Company has primarily noncontributory cash balance defined benefit pension plans covering substantially all domestic employees. Benefit obligations under the plans are based on participants' compensation, years of service and age at retirement. Funding is based upon the actuarially determined costs of the plans and the requirements of the Internal Revenue Code and the Employee Retirement Income Security Act. The Company has been allowed to recover pension costs related to its employees in rates. MidAmerican Energy currently provides certain postretirement health care and life insurance benefits for retired employees. Under the plans, substantially all of MidAmerican Energy's employees may become eligible for these benefits if they reach retirement age while working for MidAmerican Energy. However, MidAmerican Energy retains the right to change these benefits anytime at its discretion. MidAmerican Energy expenses postretirement benefit costs on an accrual basis and includes provisions for such costs in rates. In 1999, the noncontributory cash balance defined benefit pension plans, the noncontributory, nonqualified supplemental executive retirement plan, and the postretirement plans were amended to include participants from the Company. Prior to the amendment, these plans included only employees and participants of MidAmerican Energy. This inclusion increased the benefit obligation by $14.8 million for the pension and nonqualified supplemental retirement plans and $2.8 million for the postretirement plans. MidAmerican Energy also maintains noncontributory, nonqualified supplemental executive retirement plans for active and retired participants. During 2000, MidAmerican Energy adopted a market-related valuation of its pension assets for purposes of calculating net periodic pension costs. This change conforms MidAmerican Energy's accounting practices for pension costs to that of the Company. Net periodic pension, supplemental retirement and postretirement benefit costs included the following components for the Company:
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ PENSION COST Service cost .................. $ 18,114 $ 13,014 $ 3,242 $ 9,854 Interest cost ................. 33,027 28,329 7,058 25,505 Expected return on plan assets (36,326) (38,532) (9,600) (37,392) Amortization of net transition obligation ................... (2,591) (2,074) (517) -- Amortization of prior service cost ......................... 2,729 2,310 575 -- Amortization of prior year gain (3,894) (3,297) (822) -- Curtailment loss .............. -- -- -- 4,270 --------- --------- -------- --------- Net periodic pension cost (benefit) .................... $ 11,059 $ (250) $ (64) $ 2,237 ========= ========= ======== =========
F-54
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ POSTRETIREMENT COST Service cost ....................... $ 4,357 $ 2,089 $ 520 $ 2,478 Interest cost ...................... 10,418 6,688 1,666 6,423 Expected return on plan assets ..... (4,032) (3,947) (984) (3,540) Amortization of net transition obligation ........................ 4,110 3,290 820 -- Amortization of prior service cost .............................. 425 340 85 -- Amortization of prior year (gain) loss ....................... 332 (699) (174) -- -------- -------- ------ -------- Net periodic pension cost .......... $ 15,610 $ 7,761 $1,933 $ 5,361 ======== ======== ====== ========
The pension plan assets are in external trusts and are comprised of corporate equity securities, United States government debt, corporate bonds and insurance contracts. The postretirement benefit plans assets are in external trusts and are comprised primarily of corporate equity securities, corporate bonds, money market investment accounts and municipal bonds. Although the supplemental executive retirement plans had no plan assets as of December 31, 2001, MidAmerican Energy has Rabbi trusts which hold corporate-owned life insurance and other investments to provide funding for the future cash requirements. Because these plans are nonqualified, the fair value of these assets is not included in the following table. The fair value of the Rabbi trust investments was $50.4 million and $44.7 million at December 31, 2001 and 2000, respectively. During 1999 certain participants in the supplemental executive retirement plan left MidAmerican Energy reducing the future service of active employees by 28%. As a result, a curtailment loss of $5.3 million was recognized by the Company in 1999. Additionally, termination benefits provided to the participants, totaling $3.5 million, were expensed by MidAmerican Energy during 1999. The projected benefit obligation and accumulated benefit obligation for the supplemental executive retirement plans were $91.2 million and $88.2 million, respectively, as of December 31, 2001 and $82.7 million and $77.5 million, respectively, as of December 31, 2000. The following table presents a reconciliation of the beginning and ending balances of the benefit obligation, fair value of plan assets and the funded status of MidAmerican Energy's plans to the net amounts recognized in the consolidated balance sheet as of December 31 (dollars in thousands): F-55
2001 2001 2000 2000 PENSION POSTRETIREMENT PENSION POSTRETIREMENT BENEFITS BENEFITS BENEFITS BENEFITS ------------ ---------------- ------------ --------------- Reconciliation of benefit obligation: Benefit obligation at beginning of year ............. $ 472,349 $ 131,822 $ 447,170 $ 107,744 Service cost ........................................ 18,114 4,357 16,256 2,609 Interest cost ....................................... 33,027 10,418 35,387 8,354 Participant contributions ........................... -- 3,059 74 2,395 Plan amendments ..................................... 652 -- (132) -- Actuarial (gain) loss ............................... 17,333 57,101 6,007 20,589 Benefits paid ....................................... (23,267) (11,840) (32,413) (9,869) --------- ---------- ---------- --------- Benefit obligation at end of year .................. 518,208 194,917 472,349 131,822 --------- ---------- ---------- --------- Reconciliation of the fair value of plan assets: Fair value of plan assets at beginning of year ...... 555,208 75,090 605,059 72,622 Employer contributions .............................. 4,576 16,022 4,355 10,543 Participant contributions ........................... -- 3,059 74 2,395 Actual return on plan assets ........................ (20,627) (1,202) (21,867) (601) Benefits paid ....................................... (23,267) (11,840) (32,413) (9,869) --------- ---------- ---------- --------- Fair value of plan assets at end of year ........... 515,890 81,129 555,208 75,090 --------- ---------- ---------- --------- Funded status ....................................... (2,318) (113,788) 82,859 (56,732) Unrecognized net (gain) loss ........................ (52,244) 63,328 (130,423) 1,326 Unrecognized prior service cost ..................... 22,885 4,264 24,962 4,689 Unrecognized net transition obligation (asset) ...... (5,974) 45,212 (8,566) 49,322 --------- ---------- ---------- --------- Net amount recognized in the consolidated balance sheet .................................... $ (37,651) $ (984) $ (31,168) $ (1,395) ========= ========== ========== ========= Amounts recognized in the consolidated balance sheet consist of: Prepaid benefit cost ................................ $ 15,381 $ 1,493 $ 16,773 $ 1,493 Accrued benefit liability ........................... (88,210) (2,477) (77,538) (2,888) Intangible asset .................................... 22,796 -- 25,510 -- Accumulated other comprehensive income .............. 12,382 -- 4,087 -- --------- ---------- ---------- --------- Net amount recognized .............................. $ (37,651) $ (984) $ (31,168) $ (1,395) ========= ========== ========== =========
PENSION AND POSTRETIREMENT ASSUMPTIONS --------------------------------------------- MEHC (PREDECESSOR) ------------------- 2001 2000 1999 ---------- ---------- ------------------- Assumptions used were: Discount rate .............................................. 6.50% 7.00% 7.75% Rate of increase in compensation levels .................... 5.00% 5.00% 5.00% Weighted average expected long-term rate of return on assets 7.00% 9.00% 9.00%
For purposes of calculating the postretirement benefit obligation, it is assumed health care costs for all covered individuals will increase by 11.25% in 2002 and that the rate of increase thereafter will decrease to an ultimate rate of 5.25% by the year 2006. If the assumed health care trend rates used to measure the expected cost of benefits covered by the plans were increased by 1.0%, the total service and interest cost for 2001 would increase by $3.0 million, and the postretirement benefit obligation at December 31, 2001, would increase by $30.6 million. If the assumed health care trend rates were to decrease by 1.0%, the total service and interest cost for 2001 would decrease by $2.3 million and the postretirement benefit obligation at December 31, 2001, would decrease by $24.2 million. F-56 20. COMMITMENTS AND CONTINGENCIES A. FINANCIAL CONDITION OF EDISON Southern California Edison Company ("Edison"), a wholly-owned subsidiary of Edison International, is a public utility primarily engaged in the business of supplying electric energy to retail customers in Central and Southern California, excluding Los Angeles. The Company is aware that there have been public announcements that Edison's financial condition has deteriorated as a result of reduced liquidity. Following Edison's recent financing, Edison's senior unsecured debt obligations were upgraded to Ba3 by Moody's and BB by S&P. Edison failed to pay approximately $119 million due under the power purchase agreement with CE Generation affiliates for power delivered in November and December 2000 and January, February and March 2001, although the Power Purchase Agreements provide for billing and payment on a schedule where payments would have normally been received in early January, February, March, April and May 2001. On February 21, 2001, the Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) filed a lawsuit against Edison in California's Imperial County Superior Court seeking a court order requiring Edison to make the required payments under the Power Purchase Agreements. The lawsuit also requested, among other things, that the court order permit the Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) to suspend deliveries of power to Edison and to permit the Imperial Valley Projects to sell such power to other purchasers in California. On March 22, 2001, the Imperial County Superior Court granted the Imperial Valley Projects' (excluding the Salton Sea V and Turbo Projects) Motion for Summary Adjudication and a Declaratory Judgment ordering that: 1) under the Power Purchase Agreements, the Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) have the right to temporarily suspend deliveries of capacity and energy to Edison, 2) such Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) are entitled to resell the energy and capacity to other purchasers and 3) the interim suspension of deliveries to Edison shall not in any respect result in the modifications or termination of the Power Purchase Agreements, and the Power Purchase Agreements shall in all respects continue in full force and effect other than the temporary suspension of deliveries to Edison. As a result of the March 22, 2001 Declaratory Judgment, the Imperial Valley Projects (excluding the Salton Sea V and Turbo Projects) suspended deliveries of energy to Edison and entered into a transaction agreement with El Paso Merchant Energy, L.P. ("EPME") in which the Imperial Valley Projects' (excluding the Salton Sea V and Turbo Projects) available power was sold to EPME based on percentages of the Dow Jones SP-15 Index. On June 18, 2001 the Superior Court prospectively vacated its order authorizing the Imperial Valley Projects' (excluding the Salton Sea V and Turbo Projects) right to resell power pursuant to the Declaratory Judgment. On June 20, 2001, the Imperial Valley Projects (excluding Salton Sea Unit V and CE Turbo) entered into Agreements Addressing Renewable Energy Pricing and Payment Issues with Edison ("Settlement Agreements") and, as a result, resumed power sales to Edison on June 22, 2001. The Settlement Agreements required that Edison make an initial payment to repay the past due balances under the Power Purchase Agreements (the "stipulated amounts"). The initial payment of approximately $11.6 million, which represented 10% of the stipulated amounts, was received June 22, 2001. On October 2, 2001, the California Public Utilities Commission announced an agreement with Edison that allowed Edison to recover in retail electric rates its past due obligations. On November 30, 2001, the Settlement Agreements were amended to reflect when Edison would be required to make the final payment on past due amounts. On March 1, 2002, Edison obtained $1.8 billion in secured financing that, when combined with cash on hand, enabled Edison to pay off its past due debts. The final payment of approximately $104.6 million, representing the remaining stipulated amounts, was received March 1, 2002. In addition to these payments, Edison was required to make monthly interest payments calculated at a rate of 7% per annum on the outstanding stipulated amounts. The amended Settlement Agreements provide a revised energy pricing structure, whereby Edison elects to pay the Imperial Valley Projects a fixed energy price in lieu F-57 of the Commission-approved Avoided Cost of Energy Methodology under the Power Purchase Agreements. The fixed energy price is 3.25 cents/kWh from December 2001 through April 30, 2002 and 5.37 cents/kWh commencing May 1, 2002 for a five year period. Following the five year period, the energy payments revert back to the Commission-approved Avoided Cost of Energy Methodology under the Power Purchase Agreements. Estimates of Edison's future Avoided Cost of Energy vary substantially from year to year. As a result of Edison's failure to make the payments due under the Power Purchase Agreements and the downgrades of Edison's credit rating, Moody's downgraded the ratings for the Salton Sea Funding Corporation (the "Funding Corporation") Securities to Caa2 (negative outlook) and S&P downgraded the ratings for the Funding Corporation Securities to BBB- and placed the Securities on "credit watch negative." Moody's downgraded the ratings for the CE Generation Securities to B1 from Baa3 (review for possible downgrade). Following the execution of the Settlement Agreements, Moody's placed the Salton Sea Funding and CE Generation securities on "credit watch positive." The Funding Corporation Securities are currently rated Ba3 by Moody's and BBB- by S&P. CE Generation Securities are currently Ba2 by Moody's and BBB- by S&P. B. CASECNAN The Casecnan Project was initially being constructed pursuant to a fixed-price, date-certain, turnkey construction contract (the "Hanbo Contract") on a joint and several basis by Hanbo Corporation ("Hanbo") and Hanbo Engineering and Construction Co., Ltd. ("HECC"), both of which are South Korean corporations. As of May 7, 1997, the Company terminated the Hanbo Contract due to defaults by Hanbo and HECC including the insolvency of both companies. On the same date, the Company entered into a new fixed-price, date certain, turnkey engineering, procurement and construction contract to complete the construction of the Casecnan Project (the "Replacement Contract"). The work under the Replacement Contract is being conducted by a consortium consisting of Cooperativa Muratori Cementisti CMC di Ravenna and Impresa Pizzarotti & C. Spa., working together with Siemens A.G., Sulzer Hydro Ltd., Black & Veatch and Colenco Power Engineering Ltd. (collectively, the "Contractor"). On November 20, 1999, the Replacement Contract was amended to extend the Guaranteed Substantial Completion Date for the Casecnan Project to March 31, 2001. This amendment was approved by the lender's independent engineer under the Casecnan Indenture. On February 12, 2001, the Contractor filed a Request for Arbitration with the International Chamber of Commerce seeking an extension of the Guaranteed Substantial Completion Date by up to 153 days through August 31, 2001 resulting from various alleged force majeure events. In a March 20, 2001 Supplement to Request for Arbitration, the Contractor also seeks compensation for alleged additional costs of approximately $4 million it incurred from the claimed force majeure events to the extent it is unable to recover from its insurer. On April 20, 2001, the Contractor filed a further supplement seeking an additional approximately $62 million in damages for the alleged force majeure event (and geologic conditions) related to the collapse of the surge shaft. The Contractor alleged that the circumstances surrounding the placing of the Casecnan Project into commercial operation on December 11, 2001 amounted to a termination of the Replacement Contract and filed a claim for unspecified quantum meruit damages. CE Casecnan believes such allegations and claims are without merit and is vigorously defending the Contractor's claims. The arbitration is being conducted applying New York law and pursuant to the rules of the International Chamber of Commerce. On June 25, 2001, the arbitration tribunal temporarily enjoined CE Casecnan from making calls on the demand guaranty posted by Banca di Roma in support of the Contractor's obligations to CE Casecnan for delay liquidated damages. Hearings on the force majeure claims were held in London from July 2 to 14, 2001, and hearings on the Contractor's April 20, 2001 supplement were held in London from September 24 to October 3, 2001. Further hearings were held from January 2 to February 1, 2002 and additional hearings were held from March 14 to 19, 2002. As of December 31, 2001 the Company has received approximately $6.0 million of liquidated damages from demands made or the demand guarantees posted by Commerzbank on behalf of the Contractor. F-58 Although the outcome of the arbitration is difficult to assess, CE Casecnan believes it will prevail and receive substantial additional liquidated damages in the arbitration. Under the Project Agreement, if NIA is able to accept delivery of water into the Pantabangan Reservoir and NPC has completed the Project's related transmission line, the Company is liable to pay NIA $5,500 per day for each day of delay in completion of the Casecnan Project beyond July 27, 2000, increasing to $13,500 per day for each day of delay in completion beyond November 27, 2000. NIA completed the installation of the transmission line on August 13, 2001. Accordingly, the Company accrued $1.6 million liquidated damages payable to NIA for 120 days of delay. The Company's ability to make payments on any of its existing and future obligations is dependent on NIA's and the Republic of the Philippines' performance of their obligations under the Project Agreement and the Performance Undertaking, respectively. Except to the extent expressly provided for in the Shareholder Support Letters, no shareholders, partners or affiliates of the Company, including MidAmerican, and no directors, officers or employees of the Company will guarantee or be in any way liable for payment of the Company's obligations. As a result, payment of the Company's obligations depends upon the availability of sufficient revenues from the Company's business after the payment of operating expenses. C. DECOMMISSIONING COSTS Expected decommissioning costs for Quad Cities Station and Cooper have been developed based on site-specific decommissioning studies that include decontamination, dismantling, site restoration, dry fuel storage cost and assumed shutdown dates. In Illinois, Cooper nuclear decommissioning costs are recovered through a rate rider on customer billings that permits annual adjustments. Quad Cities Station and Cooper decommissioning costs are reflected as base rates in Iowa tariffs. MidAmerican Energy's share of expected decommissioning costs for Quad Cities Station, in 2001 dollars, is $278 million. MidAmerican Energy has established external trusts for the investment of funds for decommissioning the Quad Cities Station. The total accrued balance as of December 31, 2001, was $158.3 million and is included in other long-term accrued liabilities, and a like amount is reflected in Investments and represents the fair value of the assets held in the trusts. MidAmerican Energy's depreciation expense included costs for Quad Cities Station nuclear decommissioning of $8.3 million, $8.3 million, and $10.4 million for 2001, 2000 and 1999, respectively. The provision charged to depreciation expense is equal to the funding that is being collected in rates. The decommissioning funding component of MidAmerican Energy's Illinois and Iowa tariffs assumes decommissioning costs, related to the Quad Cities Station, will escalate at an annual rate of 4.5% and the assumed annual return on funds in the trust is 6.9%. Realized income (loss), net of investment fees, on the assets in the trust fund was $(0.6) million, $1.9 million and $1.9 million for 2001, 2000 and 1999, respectively. MidAmerican Energy's contribution toward payment of Cooper's projected decommissioning costs have been based on the NPPD decommissioning funding plan for Cooper. Total expected decommissioning costs for Cooper, in 2001 dollars, are $577 million. For purposes of developing a decommissioning funding plan for Cooper, the NPPD assumes that decommissioning costs will escalate at an annual rate of 4.0%. Although Cooper's operating license expires in 2014, the funding plan assumes decommissioning will start in 2004, the anticipated plant shutdown date. As of December 31, 2001, total funds set aside in the internal and external accounts for Cooper decommissioning that are maintained by the NPPD were $291.3 million. In addition, the funding plan for Cooper also assumes various funds and reserves currently held to satisfy the NPPD bond resolution requirements will be available for plant decommissioning, which is to begin with the assumed plant shutdown in September 2004. The funding schedule assumes a long-term return on funds in the trust of 6.75% annually. Certain funds will be required to be invested on a short-term basis when decommissioning begins and are assumed to earn at a rate of 4.0% annually. Earnings from the internal account and external trust fund, which are recognized by the NPPD as the owner of the plant, are tax exempt and serve to reduce future funding requirements. F-59 Beginning in December 2000, MidAmerican Energy ceased contributing to the accounts maintained by NPPD and began contributing funds to a separate MidAmerican Energy bank account based on the NPPD decommissioning funding plan for Cooper. A liability equal to the amount of funds contributed, plus the earnings on those funds, is reflected in other long-term accrued liabilities on the consolidated balance sheets. MidAmerican Energy records expense equal to the funds contributed to the separate account plus investment fees paid to the NPPD for funds in the accounts they maintain. MidAmerican Energy's expense for Cooper decommissioning was $11.6 million, $11.5 million and $11.3 million for the years 2001, 2000 and 1999, respectively, and is included in other operating expenses. MidAmerican Energy is currently involved in litigation with NPPD in part related to the determination of MidAmerican Energy's obligation, if any, for costs of decommissioning Cooper. Refer to Note (20)(E) for a discussion of the proceedings. D. NUCLEAR INSURANCE MidAmerican Energy maintains financial protection against catastrophic loss associated with its interest in Quad Cities Station and Cooper through a combination of insurance purchased by NPPD (the owner and operator of Cooper) and Exelon Generation Company, LLC (the operator and joint owner of Quad Cities Station), insurance purchased directly by MidAmerican Energy, and the mandatory industry-wide loss funding mechanism afforded under the Price-Anderson Amendments Act of 1988. The general types of coverage are: nuclear liability, property coverage and nuclear worker liability. NPPD and Exelon Generation each purchase nuclear liability insurance for Cooper and Quad Cities Station, respectively, in the maximum available amount of $200 million. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above the amount is provided by a mandatory industry-wide program under which the licensees of nuclear generating facilities could be assessed for liability incurred due to a serious nuclear incident at any commercial nuclear reactor in the United States. Currently, MidAmerican Energy's aggregate maximum potential share of an assessment for Cooper and Quad Cities Station combined is $88.1 million per incident, payable in installments not to exceed $10 million annually. The property coverage provides for property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning. For Quad Cities Station, Exelon Generation purchases primary and excess property insurance protection for the combined interests in Quad Cities Station, with coverage limits totaling $2.1 billion. For Cooper, MidAmerican Energy and NPPD separately purchase primary and excess property insurance protection for their respective obligations, with coverage limits of $1.375 billion each. This structure provides that both MidAmerican Energy and NPPD are covered for their respective 50% obligation in the event of a loss totaling up to $2.75 billion. MidAmerican Energy also directly purchases extra expense/business interruption coverage for its share of replacement power and/or other extra expenses in the event of a covered accidental outage at Cooper or Quad Cities Station. The coverages purchased directly by MidAmerican Energy, and the property coverages purchased by Exelon Generation, which includes the interests of MidAmerican Energy, are underwritten by an industry mutual insurance company and contain provisions for retrospective premium assessments should two or more full policy-limit losses occur in one policy year. Currently, the maximum retrospective amounts that could be assessed against MidAmerican Energy from industry mutual policies for its obligations associated with Cooper and Quad Cities Station combined, total $20.5 million. The master nuclear worker liability coverage, which is purchased by NPPD and Exelon Generation for Cooper and Quad Cities Station, respectively, is an industry-wide guaranteed-cost policy with an aggregate limit of $200 million for the nuclear industry as a whole, which is in effect to cover tort claims in nuclear-related industries. E. COOPER LITIGATION On July 23, 1997, the Nebraska Public Power District ("NPPD") filed a complaint, in the United States District Court for the District of Nebraska, naming MidAmerican Energy as the defendant and seeking F-60 declaratory judgment as to three issues under the parties' long-term power purchase agreement for Cooper capacity and energy. More specifically, the NPPD sought a declaratory judgment in the following respects: (1) that MidAmerican Energy is obligated to pay 50% of all costs and expenses associated with decommissioning Cooper, and that in the event NPPD continues to operate Cooper after expiration of the power purchase agreement (September 2004), MidAmerican Energy is not entitled to reimbursement of any decommissioning funds it has paid to date or will pay in the future; (2) that the current method of allocating transition costs as a part of the decommissioning cost is proper under the power purchase agreement; and (3) that the current method of investing decommissioning funds is proper under the power purchase agreement. MidAmerican Energy filed its answer and counterclaims. The counterclaims filed by MidAmerican Energy are generally as follows: (1) that MidAmerican Energy has no duty under the power purchase agreement to reimburse or pay 50% of the decommissioning costs unless conditions to reimbursement occur; (2) that the term "monthly power costs" as defined in the power purchase agreement does not include costs and expenses associated with decommissioning the plant; (3) that NPPD violated MidAmerican Energy's directions for application of payments; (4) that transition costs are not included in any decommissioning costs and are not any kind of costs that MidAmerican Energy is obligated to pay; (5) that NPPD has the duty to repay all amounts that MidAmerican Energy has prefunded for decommissioning in the event the Nebraska Public Power District operates the plant after the term of the power purchase agreement; (6) that NPPD is equitably estopped from continuing to operate the plant after the term of the power purchase agreement so long as NPPD does not repay all amounts MidAmerican Energy has prefunded for estimated decommissioning costs together with other amounts in certain funds and accounts and for so long as NPPD fails to provide MidAmerican Energy with certain requested accountings and information; (7) that certain funds, accounts, and reserves are excessive and are required to be paid to MidAmerican Energy or credited to MidAmerican Energy's pre-2004 monthly power costs; (8) that MidAmerican Energy has no duty to pay for nuclear fuel, operations and maintenance projects or capital improvements that have useful lives after the term of the power purchase agreement; (9) that NPPD has mismanaged the plant in numerous described transactions resulting in damage to MidAmerican Energy; (10) that NPPD has breached its contractual and other duties to MidAmerican Energy by not joining certain litigation and by failing to credit or agree to credit MidAmerican Energy with any recovery for low-level radioactive waste; and (11) that NPPD has breached its duty to MidAmerican Energy in making investments of decommissioning funds; On October 6, 1999, the court rendered summary judgment for NPPD on the above-mentioned issue concerning liability for decommissioning (issue one in the first paragraph above) and the related contingent counterclaims filed by MidAmerican Energy (issues one and two in the second paragraph above). The court referred all remaining issues in the case to mediation, and cancelled the November 1999 trial date. F-61 MidAmerican Energy appealed the court's summary judgment ruling. On December 12, 2000, the United States Court of Appeals for the Eighth Circuit reversed the ruling of the district court and granted summary judgment in favor of MidAmerican Energy on issues one and five in the second paragraph above. Additionally, it remanded the case for trial on all other claims and counterclaims. Since the remand to the District Court from the Eighth Circuit Court of Appeals, NPPD has been granted permission, over MidAmerican Energy's objections, to file a second amended complaint. The second amended complaint asserts that even though the Eighth Circuit Court of Appeals held that MidAmerican Energy has no liability under the power purchase agreement to reimburse or pay NPPD a 50% share of decommissioning costs unless certain conditions occur, MidAmerican Energy has unconditional liability for a 50% share based on agreements other than the power purchase agreement as originally written. NPPD's post-remand contentions - all strongly disputed by MEC - are that MidAmerican Energy has unconditional liability for a 50% share of decommissioning based on any of the following alternative theories: (i) the parties without written amendment either modified the power purchase agreement or made a separate agreement that imposes unconditional liability on MidAmerican Energy for decommissioning costs; (ii) absent unconditional liability for a 50% share of decommissioning costs, MidAmerican Energy would be unjustly enriched; (iii) MidAmerican Energy has unconditional liability for a 50% share of decommissioning costs based on promissory estoppel; or (iv) NPPD is entitled to have the power purchase agreement reformed to provide that MidAmerican Energy has unconditional liability for a 50% share of decommissioning costs. In response to NPPD's second amended complaint, MidAmerican Energy filed its first amended answer and third amended counterclaims containing denials, several affirmative defenses, and the counterclaims summarized above. In the course of discovery, NPPD has contended that MidAmerican Energy has some responsibility for some costs of storage of spent fuel resulting from the operation of the plant during the term of the power purchase agreement. MidAmerican Energy disputes this. MidAmerican Energy recently filed a mandamus petition with Eighth Circuit Court of Appeals seeking an order of that court directing the District Court not to permit NPPD to pursue the above alternative theories at trial, since the above alternative theories appear to be contrary to the December 12, 2000 Eighth Circuit Court of Appeals decision. If such relief is not granted, MidAmerican Energy will strongly dispute at trial these contentions and theories put forth by NPPD. Trial in these matters has been recently rescheduled to being on September 9, 2002. F. COAL AND NATURAL GAS CONTRACT COMMITMENTS MidAmerican Energy has supply and related transportation contracts for its fossil fueled generating stations. The contracts, with expiration dates ranging from 2002 to 2007, require minimum payments of $80.3 million, $70.6 million, $36.2 million, $34.0 million and $2.6 million for the years 2002 through 2006, respectively, and $2.6 million for the total of the years thereafter. MidAmerican Energy expects to supplement these coal contracts with additional contracts and spot market purchases to fulfill its future fossil fuel needs. MidAmerican Energy has contracts with various companies to purchase electric capacity. The contracts, with expiration dates ranging from 2002 to 2011, require minimum payments of $27.0 million, $30.5 million, $15.3 million, $2.9 million and $2.2 million for the years 2002 through 2006, respectively, and $11.0 million for the total of the years thereafter. MidAmerican Energy has various natural gas supply and transportation contracts for its gas operations. The minimum commitments under these contracts are $56.6 million, $41.3 million, $13.4 million, $13.2 million and $13.0 million for the years 2002 through 2006, respectively, and $26.7 million for the total of the years thereafter. 21. SUBSEQUENT EVENTS Debt issuance On February 8, 2002, MidAmerican Energy issued $400 million of 6.75% medium-term notes due in 2031. The proceeds will be used to refinance existing debt and preferred securities and for other corporate purposes. On March 11, 2002, MidAmerican Energy redeemed its MidAmerican-obligated mandatorily redeemable preferred securities of subsidiary trust at 100% of the principal amount plus accrued interest. F-62 Prudential California Acquisition In February 2002, HomeServices completed its purchase of a majority interest in Prudential California Realty. The cash purchase price of Prudential California Realty was approximately $74 million, with an option to purchase the remaining interests. Additionally, HomeServices is obligated to pay a maximum earnout of $18.5 million calculated based on certain 2002 financial performance measures. The purchase price was financed using the Company's corporate revolver for $40 million which was contributed to HomeServices as equity and the remaining funds were borrowed from available credit under the HomeServices's $65 million revolving credit facility. It is anticipated that the borrowings in connection with this acquisition will be repaid from HomeServices generated funds. The acquisition will be accounted for by the purchase method of accounting, and the Company is in the process of completing the allocation of the purchase price to the assets acquired and liabilities assumed. Kern River Acquisition On March 7, 2002, the Company reached a definitive agreement with The Williams Companies, Inc. ("Williams") to acquire Williams' Kern River Gas Transmission Company, a 926-mile interstate pipeline transporting Rocky Mountain and Canadian natural gas to markets in California, Nevada and Utah. The purchase price was $956 million, including $506 million of assumed debt. As part of the agreement, the Company will continue the planned expansion of the Kern River system, a project that will more than double the pipeline's capacity with expected capital expenditures of approximately $1.2 billion. The purchase was completed on March 27, 2002. The Kern River pipeline is an important route for the transmission of natural gas from the vast reserves in the Rocky Mountain states to the rapidly growing markets in Utah, Nevada and California. Constructed in 1992, Kern River extends 926 miles from Opal, Wyoming, to the San Joaquin Valley near Bakersfield, California, and has a design capacity of 835 million cubic feet per day. In August 2001, Williams filed with FERC to more than double the capacity on the Kern River system by adding approximately 900 million cubic feet per day of additional capacity from Wyoming to California and markets in between. Upon completion of the expansion project in May 2003, Kern River will be capable of transporting 1.7 billion cubic feet of natural gas per day. When converted to electricity, that is enough energy to power approximately 10 million homes. In connection with the acquisition of Kern River, the Company issued $323 million of Trust Preferred Securities and $127 million of convertible preferred stock to Berkshire Hathaway. In addition to the acquisition of Kern River, the Company also announced its investment of $275 million in Williams, in exchange for shares of 9 7/8 percent cumulative convertible preferred stock of Williams. In connection with this investment, the Company issued $275 million of convertible preferred stock to Berkshire Hathaway. 22. SEGMENT INFORMATION: The Company has identified five reportable operating segments principally based on management structure: CalEnergy Generation -- Domestic, CalEnergy Generation - -- Foreign (primarily the Philippines), MidAmerican Energy (domestic utility operations), CE Electric UK Funding (foreign utility operations) and HomeServices (real estate operations). Information related to the Company's reportable operating segments are shown below (in thousands). F-63
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ REVENUE: (1) CalEnergy Generation -- Domestic .... $ 75,541 $ 40,031 $ 4,520 $ 105,869 CalEnergy Generation -- Foreign ..... 207,386 156,504 42,726 210,571 MidAmerican Energy .................. 2,795,838 2,132,273 491,636 1,525,157 CE Electric UK Funding .............. 1,458,979 1,517,539 499,017 2,098,976 HomeServices ........................ 644,741 405,805 66,880 357,728 ---------- ---------- ---------- ---------- Segment revenue ..................... 5,182,485 4,252,152 1,104,779 4,298,301 Corporate/other ..................... (25,174) (9,403) 1,830 29,420 ---------- ---------- ---------- ---------- $5,157,311 $4,242,749 $1,106,609 $4,327,721 ========== ========== ========== ========== DEPRECIATION AND AMORTIZATION: CalEnergy Generation -- Domestic .... $ 5,439 $ 2,183 $ 250 $ 14,478 CalEnergy Generation -- Foreign ..... 66,315 52,685 13,514 66,063 MidAmerican Energy .................. 286,590 184,955 45,184 182,638 CE Electric UK Funding .............. 125,564 108,637 31,964 137,963 HomeServices ........................ 17,201 8,695 2,891 7,772 ---------- ---------- ---------- ---------- Segment depreciation ................ 501,109 357,155 93,803 408,914 Corporate/other ..................... 37,593 26,196 3,475 18,776 ---------- ---------- ---------- ---------- $ 538,702 $ 383,351 $ 97,278 $ 427,690 ========== ========== ========== ========== INTEREST EXPENSE, NET: CalEnergy Generation -- Domestic .... $ 10,835 $ 1,829 $ 793 $ 17,851 CalEnergy Generation -- Foreign ..... 30,875 34,458 9,713 58,322 MidAmerican Energy .................. 113,980 94,425 24,579 100,046 CE Electric UK Funding .............. 112,308 74,335 21,189 96,759 HomeServices ........................ 3,884 2,328 785 3,228 ---------- ---------- ---------- ---------- Segment interest expense, net ....... 271,882 207,375 57,059 276,206 Corporate/other ..................... 140,912 104,029 28,755 149,967 ---------- ---------- ---------- ---------- $ 412,794 $ 311,404 $ 85,814 $ 426,173 ========== ========== ========== ========== INCOME BEFORE PROVISIONS FOR INCOME TAXES: (1) CalEnergy Generation -- Domestic .... $ 44,335 $ 30,697 $ 2,877 $ 49,095 CalEnergy Generation -- Foreign ..... 89,542 49,787 15,976 68,105 MidAmerican Energy .................. 210,733 181,797 63,315 151,555 CE Electric UK Funding .............. 159,850 83,108 58,673 152,126 HomeServices ........................ 42,945 31,015 (4,929) 16,613 ---------- ---------- ---------- ---------- Segment income ...................... 547,405 376,404 135,912 437,494 Corporate/other ..................... (223,014) (157,200) (37,137) (164,720) ---------- ---------- ---------- ---------- $ 324,391 $ 219,204 $ 98,775 $ 272,774 ========== ========== ========== ==========
F-64
MEHC (PREDECESSOR) ----------------------------------- MARCH 14, 2000 JANUARY 1, 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 ------------------- ------------------- ---------------- ------------------ PROVISIONS FOR INCOME TAXES: (1) CalEnergy Generation -- Domestic .... $ (689) $ (1,929) $ (8) $ 6,347 CalEnergy Generation -- Foreign ..... 27,962 29,194 373 33,912 MidAmerican Energy .................. 95,490 77,450 27,943 64,936 CE Electric UK Funding .............. 47,866 30,065 18,761 59,183 HomeServices ........................ 15,953 12,300 (1,992) 7,193 ---------- --------- --------- --------- Segment income ...................... 186,582 147,080 45,077 171,571 Corporate/other ..................... (100,314) (93,803) (14,069) (80,835) ---------- --------- --------- --------- $ 86,268 $ 53,277 $ 31,008 $ 90,736 ========== ========= ========= ========= CAPITAL EXPENDITURES: CalEnergy Generation -- Domestic .... $ 52,940 $ 151,289 $ 53,011 $ 145,255 CalEnergy Generation -- Foreign ..... 83,954 87,781 22,263 95,552 MidAmerican Energy .................. 252,615 194,045 23,977 194,216 CE Electric UK Funding .............. 176,464 95,806 22,210 231,634 HomeServices ........................ 9,878 6,996 2,052 9,143 ---------- --------- --------- --------- Segment capital expenditures ........ 575,851 535,917 123,513 675,800 Corporate/other ..................... 901 2,812 28 120 ---------- --------- --------- --------- $ 576,752 $ 538,729 $ 123,541 $ 675,920 ========== ========= ========= =========
- ---------- (1) Before non-recurring items
AS OF DECEMBER 31, MEHC (PREDECESSOR) ------------------------------ AS OF DECEMBER 31, 2001 2000 1999 ------------- -------------- ------------------- TOTAL ASSETS: CalEnergy Generation -- Domestic ......... $ 725,716 $ 663,125 $ 538,598 CalEnergy Generation -- Foreign .......... 925,825 965,913 1,115,661 MidAmerican Energy ....................... 5,023,584 5,324,921 5,072,788 CE Electric UK Funding ................... 3,973,457 2,414,394 2,953,288 HomeServices ............................. 226,588 169,470 166,658 ----------- ----------- ----------- Segment assets ........................... 10,875,170 9,537,823 $ 9,846,993 =========== Corporate/other .......................... 1,740,163 2,073,116 ----------- ----------- $12,615,333 $11,610,939 =========== =========== LONG-LIVED ASSETS: CalEnergy Generation -- Domestic ......... $ 441,603 $ 434,523 $ 222,357 CalEnergy Generation -- Foreign .......... 802,092 790,077 809,506 MidAmerican .............................. 4,050,285 4,079,250 3,995,763 CE Electric UK Funding ................... 3,302,560 1,884,951 2,438,877 HomeServices ............................. 165,689 125,894 129,649 ----------- ----------- ----------- Segment long-lived assets ................ 8,762,229 7,314,695 $ 7,596,152 =========== Corporate ................................ 1,404,307 1,707,102 ----------- ----------- $10,166,536 $ 9,021,797 =========== ===========
The remaining differences from the segment amounts to the consolidated amounts described as "Corporate" relate principally to the corporate functions including administrative costs, corporate cash and related interest income, intersegment eliminations, unallocated goodwill and fair value adjustments relating to acquisitions. F-65 23. EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: On January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS ") No. 142, "Goodwill and Other Intangible Assets," which establishes the accounting for acquired goodwill and other intangible assets. SFAS No. 142 requires that amortization of goodwill and indefinite-lived intangible assets be discontinued and that entities disclose net income for prior periods adjusted to exclude such amortization and related income tax effects, as well as a reconciliation from the originally reported net income to the adjusted net income. The Company's related amortization consists of goodwill amortization and the related income tax effect. Following is a reconciliation of net income as originally reported for the year ended December 31, 2001, the period March 14, 2000 through December 31, 2000, the period January 1, 2000 through March 13, 2000, and the year ended December 31, 1999,to adjusted net income (in thousands):
MEHC (PREDECESSOR) --------------------------- MARCH 14, JANUARY 1, 2000 2000 YEAR ENDED THROUGH THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 13, DECEMBER 31, 2001 2000 2000 1999 -------------- -------------- ----------- ------------- Net income as originally reported ......... $142,669 $ 81,257 $51,312 $167,230 Goodwill amortization ..................... 96,418 79,997 14,181 63,953 Income tax benefit ........................ (2,018) (1,433) (352) (1,685) -------- -------- ------- -------- Net income as adjusted .................... $237,069 $159,821 $65,141 $229,498 ======== ======== ======= ========
F-66 DEALER PROSPECTUS DELIVERY OBLIGATION Until , 200 , all dealers that effect transactions in these securities, whether or not participating in the offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. [MIDAMERICAN ENERGY HOLDINGS COMPANY LOGO] All tendered original notes, executed letters of transmittal, and other related documents should be directed to the exchange agent. Requests for assistance and for additional copies of this prospectus, the letter of transmittal and other related documents should be directed to the exchange agent. EXCHANGE AGENT: THE BANK OF NEW YORK By Facsimile: (212) 298-1915 Confirm by telephone: (212) 815-5920 By Mail, Hand or Courier: The Bank of New York Corporate Trust Department Reorganization Unit 101 Barclay Street Floor 7 East New York, New York 10286 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to the Registrant's directors and officers pursuant to the following provisions or otherwise, the Registrant has been advised that, although the validity and scope of the governing statute have not been tested in court, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In addition, indemnification may be limited by state securities laws. Sections 490.850 through 490.858 of the Iowa Business Corporation Act (the "IBCA") permit corporations organized thereunder to indemnify directors, officers, employees and agents against liability under certain circumstances. Section 490.851 of the IBCA provides that a corporation may indemnify its officers and directors if (i) the person acted in good faith, and (ii) the person reasonably believed, in the case of conduct in the person's official capacity with the corporation, that the conduct was in the corporation's best interests, and in all other cases, that the person's conduct was at least not opposed to the corporation's best interests, and (iii) in the case of any criminal proceeding, the person had no reasonable cause to believe the person's conduct was unlawful. The Registrant's Amended and Restated Articles of Incorporation and Bylaws provide that the Registrant shall indemnify, to the fullest extent permitted by the IBCA, its directors, officers, employees and agents, (2) any person serving as the legal representative of a director, officer, employee or agent, and (3) any person who is or was serving at the request of the Registrant as director, officer or employee of another corporation, joint venture, partnership, trust or other venture. Such indemnification is provided by the Registrant to such persons for all reasonable expenses, liability and loss incurred in connection with any civil, criminal, administrative or investigative proceeding, formal or informal, to which the person is, or is threatened to be made a party, whether the basis of such proceeding is alleged action in an official capacity or any other capacity while serving as director, officer, or employee. The Registrant's Amended and Restated Articles of Incorporation and Bylaws provides that if the proceeding for which indemnification is sought is by or in the right of the Registrant, indemnification may be made only for reasonable expenses and may not be made in any proceeding in which the person is adjudged liable to the Registrant. Further, any such person may not be indemnified in any proceeding that charges improper personal benefit to the person in which the person is adjudged to be liable. The Registrant's Amended and Restated Articles of Incorporation and Bylaws allow the Registrant to maintain liability insurance to protect itself and any director, officer, employee, or agent against any expense, liability or loss whether or not the Registrant would have the power to indemnify such person against such incurred expense, liability, or loss. The Registrant 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. The rights to indemnification conferred on any person by the Registrant's Amended and Restated Articles of Incorporation and Bylaws are not exclusive of any right which any person may have or acquire under any statute, provision of the Registrant's Amended and Restated Articles of Incorporation, Bylaws, agreement, or vote of shareholders or disinterested directors. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits
EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation of the Company effective March 6, 2002. (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 4.1 Indenture, dated as of October 4, 2002, by and between the Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 4.2 First Supplemental Indenture, dated as of October 4, 2002, by and between the Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 4.3 Registration Rights Agreement, dated as of October 1, 2002, by and between the Company and Credit Suisse First Boston (as Representative for the Initial Purchasers). 4.4 Indenture for the 6 1/4% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between the Company, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4.5 Indenture, dated as of October 15, 1997, among the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 23, 1997). 4.6 Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 23, 1997). 4.7 Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated September 17, 1998.) 4.8 Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Company's Current Report on Form 8-K dated November 10, 1998). 4.9 Indenture, dated as of March 14, 2000, among the Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 4.10 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 14, 2000 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------- 4.11 Indenture, dated as of March 12, 2002 between the Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.12 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 7, 2002 (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.13 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 12, 2002 (incorporated by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.14 Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002. 4.15 Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002. 4.16 Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000. 4.17 Indenture, dated as of August 16, 2002 between the Company and the Bank of New York, as Trustee. 4.18 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of August 16, 2002. 4.19 Shareholders Agreement dated as of March 14, 2000. 5.1 Opinion of Willkie Farr & Gallagher.* 8.1 Opinion of Willkie Farr & Gallagher with respect to certain tax matters.* 10.1 Employment Agreement between the Company and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.2 Amendment No. 1 to the Amended and Restated Employment Agreement between the Company and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.3 Non-Qualified Stock Options Agreements of David L. Sokol dated March 14, 2000. 10.4 Amended and Restated Employment Agreement between the Company and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.5 Non-Qualified Stock Options Agreements of Gregory E. Abel dated March 14, 2000. 10.6 Employment Agreement between the Company and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.7 MidAmerican Energy Holdings Company Long Term Incentive Partnership Plan.
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EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------------------------------------------------- 10.8 125 MW Power Plant--Upper Mahiao Agreement dated September 6, 1993 between PNOC-Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant--Upper Mahiao Agreement dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.9 Credit Agreement dated April 8, 1994 among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.10 Credit Agreement dated as of April 8, 1994 between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.11 Pledge Agreement among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. dated as of April 8, 1994 (incorporated by reference to Exhibit 10.98 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.12 Overseas Private Investment Corporation Contract of Insurance dated April 8, 1994 between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.13 180 MW Power Plant--Mahanagdong Agreement dated September 18, 1993 between PNOC-Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement dated March 3, 1995 (incorporated by reference to Exhibit 10.100 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.14 Credit Agreement dated as of June 30, 1994 among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.15 Credit Agreement dated as of June 30, 1994 between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.16 Finance Agreement dated as of June 30, 1994 between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------- 10.17 Pledge Agreement dated as of June 30, 1994 among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.18 Overseas Private Investment Corporation Contract of Insurance dated July 29, 1994 between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1 dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.19 231 MW Power Plant--Malitbog Agreement dated September 10, 1993 between PNOC- Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.20 Credit Agreement dated as of November 10, 1994 among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse Bank Agent (incorporated by reference to Exhibit 10.107 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.21 Finance Agreement dated as of November 10, 1994 between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.22 Pledge and Security Agreement dated as of November 10, 1994 among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse as Bank Agent (incorporated by reference to Exhibit 10.109 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.23 Overseas Private Investment Corporation Contract of Insurance dated December 21, 1994 between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.24 Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994 between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to the Company's 1994 Annual Report on Form 10-K for the year ended December 31, 1993). 10.25 Trust Indenture dated as of November 27, 1995 between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). 10.26 Amended and Restated Casecnan Project Agreement between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. dated June 26, 1995 (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996).
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EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 10.27 Term Loan and Revolving Facility Agreement, dated as of October 28, 1996, among CE Electric UK Holdings, CE Electric UK plc and Credit Suisse (incorporated by reference to Exhibit 10.130 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.28 Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.29 General Mortgage Indenture and Deed of Trust dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.30 First Supplemental Indenture dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-2 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.31 Second Supplemental Indenture dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-3 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.32 Third Supplemental Indenture dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4.4 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). 10.33 Fourth Supplemental Indenture dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.5 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.34 Fifth Supplemental Indenture dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.6 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.35 Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505). 10.36 Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947 (incorporated by reference to Exhibit 7B filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-6922). 10.37 Sixth Supplemental Indenture dated as of July 1, 1967 (incorporated by reference to Exhibit 2.08 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-28806). 10.38 Twentieth Supplemental Indenture dated as of May 1, 1982 (incorporated by reference to Exhibit 4.B.23 to the Iowa-Illinois Gas and Electric Company Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573).
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EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 10.39 Resignation and Appointment of successor Individual Trustee (incorporated by reference to Exhibit 4.B.30 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 33-39211). 10.40 Twenty-Eighth Supplemental Indenture dated as of May 15, 1992 (incorporated by reference to Exhibit 4.31.B to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573). 10.41 Twenty-Ninth Supplemental Indenture dated as of March 15, 1993 (incorporated by reference to Exhibit 4.32.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated March 24, 1993, Commission File No. 1-3573). 10.42 Thirtieth Supplemental Indenture dated as of October 1, 1993 (incorporated by reference to Exhibit 4.34.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated October 7, 1993, Commission File No. 1-3573). 10.43 Thirty-First Supplemental Indenture dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.16 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended dated December 31, 1995, Commission File No. 1-11505). 10.44 Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 4-C-2 filed by Iowa Power Inc. as part of Registration Statement No. 2-27681). 10.45 Amendments Nos. 1 and 2 to Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District (incorporated by reference to Exhibit 4-C-2a filed by Iowa Power Inc. as part of Registration Statement No. 2-35624). 10.46 Amendment No. 3 dated August 31, 1970, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 5-C-2-b filed by Iowa Power Inc. as part of Registration Statement No. 2-42191). 10.47 Amendment No. 4 dated March 28, 1974, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 5-C-2-c filed by Iowa Power Inc. as part of Registration Statement No. 2-51540). 10.48 Amendment No. 5 dated September 2, 1997, to the Power Sales Contract between MidAmerican Energy Company and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 10.2 to the former MidAmerican Energy Holdings Company and MidAmerican Energy Company respective Quarterly Reports on the combined Form 10-Q for the quarter ended September 30, 1997, Commission File Nos. 333-90553 and 1-11505, respectively). 10.49 Amendment No. 6 dated July 31, 2002, to the Power Sales Contract between MidAmerican Energy Company and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 10.1 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Quarterly Reports on the combined Form 10-Q for the quarter ended June 20, 2002, Commission File Nos. 1-12459 and 1-11505, respectively). 10.50 CalEnergy Company, Inc. Voluntary Deferred Compensation Plan effective December 1, 1997, First Amendment dated as of August 17, 1999 and Second Amendment effective March 2000.
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EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------------------------------------------------- 10.51 MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan. 10.52 MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999. 10.53 MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.54 MidAmerican Energy Holdings Company Restated Deferred Compensation Plan--Board of Directors (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.55 MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan--Board of Directors (incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.56 Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). 10.57 Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.24 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.58 Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan for Designated Officers, as amended as of July 28, 1994 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-3573). 10.59 Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Designated Officers, as amended as of July 1, 1993 (incorporated by reference to Exhibit 10.K.2 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573). 10.60 Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Key Employees, dated as of April 26, 1991 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-3573). 10.61 Iowa-Illinois Gas and Electric Company Board of Directors' Compensation Deferral Plan (incorporated by reference to Exhibit 10.K.4 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573). 10.62 Iowa Utilities Board Settlement Agreement among MidAmerican Energy Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company, Interstate Power Company and IES Utilities, Inc. (incorporated by reference to Exhibit 10.16 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Annual Reports on the combined Form 10-K for the year ended December 31, 2000, Commission File Nos. 333-90553 and 1-11505, respectively). 10.63 Share Sale Agreement among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc dated as of August 6, 2001.
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EXHIBIT NO. DESCRIPTION - ------------- ------------------------------------------------------------------------------------------- 10.64 Purchase Agreement among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and the Company, KR Holding, LLC, KR Acquisition 1, LLC and KR Acquisition 2, LLC, dated as of March 7, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated March 28, 2002). 10.65 Stock Purchase Agreement among The Williams Companies, Inc., MEHC Investment, Inc. and the Company dated as of March 7, 2002 (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated March 28, 2002). 10.66 Completion Guarantee given by the Company to Union Bank of California, Administrative Agent, dated as of June 21, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated June 27, 2002). 10.67 Purchase and Sale Agreement between Dynegy Inc., NNGC Holding Company, Inc. and the Company, dated as of July 28, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated July 30, 2002). 12.1 Statement regarding Computation of Earnings to Fixed Charges. 15.1 Awareness Letter of Independent Accountants. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and Exhibit 8.1).* 23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (included on the signature pages hereto). 25.1 Statement on Form T-1 of Eligibility of Trustee relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 99.1 Form of Letter of Transmittal relating to the 4.625% Senior Notes due 2007. 99.2 Form of Notice of Guaranteed Delivery relating to the 4.625% Senior Notes due 2007. 99.3 Form of Letter to Clients relating to the 4.625% Senior Notes due 2007. 99.4 Form of Letter to Nominees relating to the 4.625% Senior Notes due 2007. 99.5 Form of Letter of Transmittal relating to the 5.875% Senior Notes due 2012. 99.6 Form of Notice of Guaranteed Delivery relating to the 5.875% Senior Notes due 2012. 99.7 Form of Letter to Clients relating to the 5.875% Senior Notes due 2012. 99.8 Form of Letter to Nominees relating to the 5.875% Senior Notes due 2012.
(b) Financial Statement Schedules Schedule I--Condensed Financial Statements (MidAmerican Energy Holdings Company only) Schedule II--Consolidated Valuation and Qualifying Accounts - ---------- * To be filed by amendment. II-9 ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for the purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) 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. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant, pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities 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 any 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 of whether or not such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus 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. The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 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. The undersigned registrant hereby undertakes 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. II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Des Moines, State of Iowa, on the 6th day of December, 2002. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ David L. Sokol ---------------------------------------------- David L. Sokol Chairman of the Board of Directors and Chief Executive Officer POWER OF ATTORNEY The undersigned officers and directors of MidAmerican Energy Holdings Company hereby severally constitute and appoint Douglas L. Anderson and Paul J. Leighton, and each of them, attorneys-in-fact for the undersigned, in any and all capacities, with the power of substitution, to sign any amendments to this registration statement (including post-effective amendments) and any subsequent registration statement for the same offering which may be filed under Rule 462(b) under the Securities Act of 1933, as amended, and to file the same with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all interests and purposes as he might or could do in person, hereby ratifying and confirming all that each said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons, in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - -------------------------------- -------------------------------- ---------------- /s/ David L. Sokol Chairman of the Board of December 6, 2002 ----------------------------- Directors, Chief Executive David L. Sokol Officer and Director (principal executive officer) /s/ Patrick J. Goodman Senior Vice President and December 6, 2002 ----------------------------- Chief Financial Officer Patrick J. Goodman (principal financial and accounting officer) /s/ Gregory E. Abel Director December 6, 2002 ----------------------------- Gregory E. Abel
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SIGNATURE TITLE DATE - -------------------------------- ---------- ---------------- /s/ Edgar D. Aronson Director December 6, 2002 ----------------------------- Edgar D. Aronson /s/ John K. Boyer Director December 6, 2002 ----------------------------- John K. Boyer /s/ Stanley J. Bright Director December 6, 2002 ----------------------------- Stanley J. Bright /s/ Warren E. Buffett Director December 6, 2002 ----------------------------- Warren E. Buffett /s/ Marc D. Hamburg Director December 6, 2002 ----------------------------- Marc D. Hamburg /s/ Richard R. Jaros Director December 6, 2002 ----------------------------- Richard R. Jaros /s/ W. David Scott Director December 6, 2002 ----------------------------- W. David Scott /s/ Walter Scott, Jr. Director December 6, 2002 ----------------------------- Walter Scott, Jr.
II-12 MIDAMERICAN ENERGY HOLDINGS COMPANY SCHEDULE I PARENT COMPANY ONLY CONDENSED BALANCE SHEETS As of December 31, 2001 and 2000 (In thousands)
2001 2000 -------------- -------------- ASSETS Current Assets: Cash and cash equivalents ............................................. $ 2,524 $ 8,223 ---------- ---------- Total current assets ................................................. 2,524 8,223 Investments in and advances to subsidiaries and joint ventures ......... 3,432,528 3,125,487 Equipment, net ......................................................... 17,605 17,228 Excess of cost over fair value of net assets acquired, net ............. 1,211,814 1,216,550 Deferred charges and other assets ...................................... 129,501 127,966 ---------- ---------- Total Assets ........................................................... $4,793,972 $4,495,454 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and other accrued liabilities ........................ $ 68,445 $ 54,073 Short term debt ....................................................... 153,500 85,000 ---------- ---------- Total current liabilities ............................................ 221,945 139,073 Non-current liabilities ................................................ 6,480 6,435 Notes payable -- affiliate ............................................. 197,153 122,177 Parent company debt .................................................... 1,834,498 1,829,971 ---------- ---------- Total liabilities ..................................................... 2,260,076 2,097,656 ---------- ---------- Deferred income ........................................................ 37,578 34,874 Company-obligated mandatorily redeemable preferred securities of subsidiary trusts ..................................................... 788,151 786,523 Stockholders' Equity: Zero coupon convertible preferred stock -- authorized 50,000 shares, no par value, 34,563 shares issued and outstanding at December 31, 2001 and 2000 ......................................................... -- -- Common stock -- authorized 60,000 shares, no par value; 9,281 shares issued and outstanding at December 31, 2001 and 2000 .................. -- -- Additional paid in capital ............................................. 1,553,073 1,553,073 Retained earnings ...................................................... 223,926 81,257 Accumulated other comprehensive loss, net .............................. (68,832) (57,929) ---------- ---------- Total stockholders' equity ............................................. 1,708,167 1,576,401 ---------- ---------- Total Liabilities and Stockholders' Equity ............................. $4,793,972 $4,495,454 ========== ==========
The notes to the consolidated financial statements of MidAmerican Energy Holdings Company are an integral part of this financial statement schedule. S-1 MIDAMERICAN ENERGY HOLDINGS COMPANY SCHEDULE I PARENT COMPANY ONLY CONDENSED STATEMENTS OF OPERATIONS For the three years ended December 31, 2001 (In thousands)
2001 2000 1999 ----------- ----------- ----------- Revenue: Equity in undistributed earnings of subsidiary companies and joint ventures ....................................... $608,896 $390,194 $ 166,428 Cash dividends and distributions from subsidiary companies and joint ventures ............................. 87,625 96,342 345,430 Interest and other income ................................. 2,248 13,818 34,002 -------- -------- --------- Total revenues ........................................... 698,769 500,354 545,860 -------- -------- --------- Expenses: General and administration ................................ 41,078 45,089 39,174 Depreciation and amortization ............................. 31,537 25,716 1,088 Interest, net of capitalized interest ..................... 148,680 141,891 163,589 -------- -------- --------- Total expenses ........................................... 221,295 212,696 203,851 -------- -------- --------- Income before provision for income taxes .................. 477,474 287,658 342,009 Provision for income taxes ................................ 250,064 84,285 93,475 -------- -------- --------- Income before minority interest ........................... 227,410 203,373 248,534 Minority interest ......................................... 80,137 70,804 31,863 -------- -------- --------- Income before extraordinary items and cumulative effect of change in accounting principle ........................ 147,273 132,569 216,671 Extraordinary items, net of tax ........................... -- -- (49,441) Cumulative effect of change in accounting principle, net of tax ...................................................... (4,604) -- -- -------- -------- --------- Net income available to common stockholders ............... $142,669 $132,569 $ 167,230 ======== ======== =========
The notes to the consolidated financial statements of MidAmerican Energy Holdings Company are an integral part of this financial statement schedule. S-2 MIDAMERICAN ENERGY HOLDINGS COMPANY SCHEDULE I PARENT COMPANY ONLY CONDENSED STATEMENTS OF CASH FLOWS For the three years ended December 31, 2001 (In thousands)
2001 2000 1999 --------------- --------------- --------------- Cash flows from operating activities .......................... $ (272,906) $ (299,862) $ (261,276) ----------- ------------ ------------ Cash flows from investing activities: Decrease (increase) in advances to and investments in subsidiaries and joint ventures .............................. 204,118 143,052 (53,215) Acquisition of MEHC (Predecessor) ............................. -- (2,048,266) -- Other ......................................................... (5,297) 28,458 (4,390) ----------- ------------ ------------ Cash flows from investing activities .......................... 198,821 (1,876,756) (57,605) ----------- ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common and preferred stock .......... -- 1,428,024 -- Proceeds from issuance of trust preferred securities .......... -- 454,772 -- Repayments of parent company debt ............................. (32) -- (853,420) Net proceeds from revolver .................................... 68,500 85,000 -- Purchase of treasury stock .................................... -- -- (104,847) Other ......................................................... (82) (23,893) (4,208) ----------- ------------ ------------ Cash flows from financing activities .......................... 68,386 1,943,903 (962,475) ----------- ------------ ------------ Net increase (decrease) in cash and cash equivalents .......... (5,699) (232,715) (1,281,356) Cash and cash equivalents at beginning of period .............. 8,223 240,938 1,522,294 ----------- ------------ ------------ Cash and cash equivalents at end of period .................... $ 2,524 $ 8,223 $ 240,938 ----------- ------------ ------------ Supplemental disclosures: Interest paid (net of amount capitalized) ..................... $ 148,999 $ 144,147 $ 180,274 =========== ============ ============ Income taxes paid ............................................. $ 133,139 $ 94,405 $ 130,875 =========== ============ ============
The notes to the consolidated financial statements of MidAmerican Energy Holdings Company are an integral part of this financial statement schedule. S-3 SCHEDULE II MIDAMERICAN ENERGY HOLDINGS COMPANY CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 (IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- ------------ ---------------------- ------------- ----------- ADDITIONS BALANCE AT ---------------------- BALANCE AT BEGINNING CHARGED OTHER END DESCRIPTION OF YEAR TO INCOME ACCOUNTS DEDUCTIONS OF YEAR - ----------- ------------ ----------- ---------- ------------- ----------- Reserves Deducted From Assets To Which They Apply: Reserve for uncollectible accounts receivable: Year ended 2001 ............................ $ 32,685 $ 17,061 $ -- $ (42,427) $ 7,319 ======== ======== ====== ========= ======= Year ended 2000 ............................ $ 18,666 $ 40,024 $ -- $ (26,005) $32,685 ======== ======== ====== ========= ======= Year ended 1999 ............................ $ 11,994 $ 14,483 $ -- $ (7,811) $18,666 ======== ======== ====== ========= ======= Reserves Not Deducted From Assets (1): Year ended 2001 ............................ $ 25,063 $ 5,046 $ -- $ (16,478) $13,631 ======== ======== ====== ========= ======= Year ended 2000 ............................ $ 17,696 $ 10,832 $ -- $ (3,465) $25,063 ======== ======== ====== ========= ======= Year ended 1999 ............................ $ 5,660 $ 15,112 $2,148 $ (5,224) $17,696 ======== ======== ====== ========= =======
- ---------- (1) Reserves not deducted from assets include estimated liabilities for losses retained by MHC Inc. for workers compensation, public liability and property damage claims. The notes to the consolidated financial statements of MidAmerican Energy Holdings Company are an integral part of this financial statement schedule. S-4 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation of the Company effective March 6, 2002. (incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 4.1 Indenture, dated as of October 4, 2002, by and between the Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 4.2 First Supplemental Indenture, dated as of October 4, 2002, by and between the Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 4.3 Registration Rights Agreement, dated as of October 1, 2002, by and between the Company and Credit Suisse First Boston (as Representative for the Initial Purchasers). 4.4 Indenture for the 6 1/4% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between the Company, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 4.5 Indenture, dated as of October 15, 1997, among the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 23, 1997). 4.6 Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated October 23, 1997). 4.7 Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated September 17, 1998.) 4.8 Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between the Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to the Company's Current Report on Form 8-K dated November 10, 1998). 4.9 Indenture, dated as of March 14, 2000, among the Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 4.10 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 14, 2000 (incorporated by reference to Exhibit 4.10 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------- 4.11 Indenture, dated as of March 12, 2002 between the Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.12 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 7, 2002 (incorporated by reference to Exhibit 4.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.13 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of March 12, 2002 (incorporated by reference to Exhibit 4.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001). 4.14 Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002. 4.15 Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002. 4.16 Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000. 4.17 Indenture, dated as of August 16, 2002 between the Company and the Bank of New York, as Trustee. 4.18 Subscription Agreement executed by Berkshire Hathaway Inc. dated as of August 16, 2002. 4.19 Shareholders Agreement by and among Berkshire Hathaway, the Scott Family Entities, David L. Sokol, Gregory E. Abel and Teton Acquisition Corp., dated as of March 14, 2000. 5.1 Opinion of Willkie Farr & Gallagher.* 8.1 Opinion of Willkie Farr & Gallagher with respect to certain tax matters.* 10.1 Employment Agreement between the Company and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.2 Amendment No. 1 to the Amended and Restated Employment Agreement between the Company and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.3 Non-Qualified Stock Options Agreements of David L. Sokol dated March 14, 2000. 10.4 Amended and Restated Employment Agreement between the Company and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.5 Non-Qualified Stock Options Agreements of Gregory E. Abel dated March 14, 2000. 10.6 Employment Agreement between the Company and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.7 MidAmerican Energy Holdings Company Long Term Incentive Partnership Plan.
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EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------------------------------------------------- 10.8 125 MW Power Plant--Upper Mahiao Agreement dated September 6, 1993 between PNOC-Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant--Upper Mahiao Agreement dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.9 Credit Agreement dated April 8, 1994 among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.10 Credit Agreement dated as of April 8, 1994 between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.11 Pledge Agreement among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. dated as of April 8, 1994 (incorporated by reference to Exhibit 10.98 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.12 Overseas Private Investment Corporation Contract of Insurance dated April 8, 1994 between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.13 180 MW Power Plant--Mahanagdong Agreement dated September 18, 1993 between PNOC-Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement dated March 3, 1995 (incorporated by reference to Exhibit 10.100 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.14 Credit Agreement dated as of June 30, 1994 among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.15 Credit Agreement dated as of June 30, 1994 between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.16 Finance Agreement dated as of June 30, 1994 between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------- 10.17 Pledge Agreement dated as of June 30, 1994 among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.18 Overseas Private Investment Corporation Contract of Insurance dated July 29, 1994 between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1 dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.19 231 MW Power Plant--Malitbog Agreement dated September 10, 1993 between PNOC- Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.20 Credit Agreement dated as of November 10, 1994 among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse Bank Agent (incorporated by reference to Exhibit 10.107 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.21 Finance Agreement dated as of November 10, 1994 between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.22 Pledge and Security Agreement dated as of November 10, 1994 among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse as Bank Agent (incorporated by reference to Exhibit 10.109 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.23 Overseas Private Investment Corporation Contract of Insurance dated December 21, 1994 between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993). 10.24 Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994 between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to the Company's 1994 Annual Report on Form 10-K for the year ended December 31, 1993). 10.25 Trust Indenture dated as of November 27, 1995 between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996). 10.26 Amended and Restated Casecnan Project Agreement between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. dated June 26, 1995 (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.'s Registration Statement on Form S-4 dated January 25, 1996).
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EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 10.27 Term Loan and Revolving Facility Agreement, dated as of October 28, 1996, among CE Electric UK Holdings, CE Electric UK plc and Credit Suisse (incorporated by reference to Exhibit 10.130 to the Company's Annual Report on Form 10-K for the year ended December 31, 1995). 10.28 Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998). 10.29 General Mortgage Indenture and Deed of Trust dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.30 First Supplemental Indenture dated as of January 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-2 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.31 Second Supplemental Indenture dated as of January 15, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4(b)-3 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654). 10.32 Third Supplemental Indenture dated as of May 1, 1993, between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee (incorporated by reference to Exhibit 4.4 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). 10.33 Fourth Supplemental Indenture dated as of October 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.5 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.34 Fifth Supplemental Indenture dated as of November 1, 1994, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.6 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.35 Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505). 10.36 Indenture of Mortgage and Deed of Trust, dated as of March 1, 1947 (incorporated by reference to Exhibit 7B filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-6922). 10.37 Sixth Supplemental Indenture dated as of July 1, 1967 (incorporated by reference to Exhibit 2.08 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 2-28806). 10.38 Twentieth Supplemental Indenture dated as of May 1, 1982 (incorporated by reference to Exhibit 4.B.23 to the Iowa-Illinois Gas and Electric Company Quarterly Report on Form 10-Q for the period ended June 30, 1982, Commission File No. 1-3573).
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EXHIBIT NO. DESCRIPTION - ------------- -------------------------------------------------------------------------------------------- 10.39 Resignation and Appointment of successor Individual Trustee (incorporated by reference to Exhibit 4.B.30 filed by Iowa-Illinois Gas and Electric Company as part of Commission File No. 33-39211). 10.40 Twenty-Eighth Supplemental Indenture dated as of May 15, 1992 (incorporated by reference to Exhibit 4.31.B to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated May 21, 1992, Commission File No. 1-3573). 10.41 Twenty-Ninth Supplemental Indenture dated as of March 15, 1993 (incorporated by reference to Exhibit 4.32.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated March 24, 1993, Commission File No. 1-3573). 10.42 Thirtieth Supplemental Indenture dated as of October 1, 1993 (incorporated by reference to Exhibit 4.34.A to the Iowa-Illinois Gas and Electric Company Current Report on Form 8-K dated October 7, 1993, Commission File No. 1-3573). 10.43 Thirty-First Supplemental Indenture dated as of July 1, 1995, between Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.16 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended dated December 31, 1995, Commission File No. 1-11505). 10.44 Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 4-C-2 filed by Iowa Power Inc. as part of Registration Statement No. 2-27681). 10.45 Amendments Nos. 1 and 2 to Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District (incorporated by reference to Exhibit 4-C-2a filed by Iowa Power Inc. as part of Registration Statement No. 2-35624). 10.46 Amendment No. 3 dated August 31, 1970, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 5-C-2-b filed by Iowa Power Inc. as part of Registration Statement No. 2-42191). 10.47 Amendment No. 4 dated March 28, 1974, to the Power Sales Contract between Iowa Power Inc. and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 5-C-2-c filed by Iowa Power Inc. as part of Registration Statement No. 2-51540). 10.48 Amendment No. 5 dated September 2, 1997, to the Power Sales Contract between MidAmerican Energy Company and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 10.2 to the former MidAmerican Energy Holdings Company and MidAmerican Energy Company respective Quarterly Reports on the combined Form 10-Q for the quarter ended September 30, 1997, Commission File Nos. 333-90553 and 1-11505, respectively). 10.49 Amendment No. 6 dated July 31, 2002, to the Power Sales Contract between MidAmerican Energy Company and Nebraska Public Power District, dated September 22, 1967 (incorporated by reference to Exhibit 10.1 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Quarterly Reports on the combined Form 10-Q for the quarter ended June 20, 2002, Commission File Nos. 1-12459 and 1-11505, respectively). 10.50 CalEnergy Company, Inc. Voluntary Deferred Compensation Plan effective December 1, 1997, First Amendment dated as of August 17, 1999 and Second Amendment effective March 2000.
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EXHIBIT NO. DESCRIPTION - ------------- --------------------------------------------------------------------------------------------- 10.51 MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan. 10.52 MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999. 10.53 MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.54 MidAmerican Energy Holdings Company Restated Deferred Compensation Plan--Board of Directors (incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.55 MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan--Board of Directors (incorporated by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1999). 10.56 Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest Energy Company Supplemental Retirement Plan (incorporated by reference to Exhibit 10.10 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-10654). 10.57 Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10.24 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-10654). 10.58 Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan for Designated Officers, as amended as of July 28, 1994 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1994, Commission File No. 1-3573). 10.59 Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Designated Officers, as amended as of July 1, 1993 (incorporated by reference to Exhibit 10.K.2 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1993, Commission File No. 1-3573). 10.60 Iowa-Illinois Gas and Electric Company Compensation Deferral Plan for Key Employees, dated as of April 26, 1991 (incorporated by reference to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1991, Commission File No. 1-3573). 10.61 Iowa-Illinois Gas and Electric Company Board of Directors' Compensation Deferral Plan (incorporated by reference to Exhibit 10.K.4 to the Iowa-Illinois Gas and Electric Company Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-3573). 10.62 Iowa Utilities Board Settlement Agreement among MidAmerican Energy Company, Office of Consumer Advocate, Iowa Energy Consumers, Aluminum Company of America, Deere & Company, Cargill Inc., U.S. Gypsum Company, Interstate Power Company and IES Utilities, Inc. (incorporated by reference to Exhibit 10.16 to the MidAmerican Funding, LLC and MidAmerican Energy Company respective Annual Reports on the combined Form 10-K for the year ended December 31, 2000, Commission File Nos. 333-90553 and 1-11505, respectively). 10.63 Share Sale Agreement among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc dated as of August 6, 2001.
7
EXHIBIT NO. DESCRIPTION - ------------- ------------------------------------------------------------------------------------------- 10.64 Purchase Agreement among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and MidAmerican Energy Holdings Company, KR Holding, LLC, Kr Acquisition 1, LLC and KR Acquisition 2, LLC, dated as of March7, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated March 28, 2002). 10.65 Stock Purchase Agreement among The Williams Companies, Inc., MEHC Investment, Inc. and MidAmerican Energy Holdings Company dated as of March7, 2002 (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated March 28, 2002). 10.66 Completion Guarantee given by MidAmerican Energy Holdings Company to Union Bank of California, Administrative Agent, dated as of June 21, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated June 27, 2002). 10.67 Purchase and Sale Agreement between Dynegy Inc., NNGC Holding Company, Inc. and MidAmerican Energy Holdings Company, dated as of July 28, 2002 (incorporated by reference to Exhibit 99.2 to the Company's Current Report on Form 8-K dated July 30, 2002). 12.1 Statement regarding Computation of Earnings to Fixed Charges. 15.1 Awareness Letter of Independent Accountants. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Willkie Farr & Gallagher (included in their opinions filed as Exhibits 5.1 and Exhibit 8.1).* 23.2 Consent of Deloitte & Touche LLP. 24.1 Powers of Attorney (included on the signature pages hereto). 25.1 Statement on Form T-1 of Eligibility of Trustee relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012. 99.1 Form of Letter of Transmittal relating to the 4.625% Senior Notes due 2007. 99.2 Form of Notice of Guaranteed Delivery relating to the 4.625% Senior Notes due 2007. 99.3 Form of Letter to Clients relating to the 4.625% Senior Notes due 2007. 99.4 Form of Letter to Nominees relating to the 4.625% Senior Notes due 2007. 99.5 Form of Letter of Transmittal relating to the 5.875% Senior Notes due 2012. 99.6 Form of Notice of Guaranteed Delivery relating to the 5.875% Senior Notes due 2012. 99.7 Form of Letter to Clients relating to the 5.875% Senior Notes due 2012. 99.8 Form of Letter to Nominees relating to the 5.875% Senior Notes due 2012.
(b) Financial Statement Schedules Schedule I--Condensed Financial Statements (MidAmerican Energy Holdings Company only) Schedule II--Consolidated Valuation and Qualifying Accounts - ---------- * To be filed by amendment. 8 EX-4.1 3 file002.txt INDENTURE MIDAMERICAN ENERGY HOLDINGS COMPANY and THE BANK OF NEW YORK, as Trustee INDENTURE Dated as of October 4, 2002 Senior Debt Securities TABLE OF CONTENTS
PAGE ---- RECITALS OF THE COMPANY...........................................................................................1 ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................................1 Section 1.01. Definitions........................................................................1 Act.............................................................................................2 Affiliate.......................................................................................2 Applicable Procedures...........................................................................2 Attributable Value..............................................................................2 Authenticating Agent............................................................................2 Authorized Agent................................................................................2 Berkshire Hathaway..............................................................................2 Board of Directors..............................................................................2 Board Resolution................................................................................2 Business Day....................................................................................2 Capital Stock...................................................................................2 Capitalized Lease...............................................................................3 Capitalized Lease Obligation....................................................................3 Cash Equivalent.................................................................................3 Change of Control...............................................................................4 Change of Control Offer.........................................................................4 Clearstream.....................................................................................4 Commission......................................................................................4 Common Stock....................................................................................4 Company.........................................................................................5 Company Request.................................................................................5 Company Order...................................................................................5 Consolidated Net Tangible Assets................................................................5 Corporate Trust Office..........................................................................5 corporation.....................................................................................5 Covenant Defeasance.............................................................................5 Currency Protection Agreement...................................................................5 Debt............................................................................................5 default.........................................................................................6 Defaulted Interest..............................................................................6 Defeasance......................................................................................6 Definitive Security.............................................................................6 Depositary......................................................................................6 Dollar..........................................................................................7 $...............................................................................................7 DTC.............................................................................................7 Euroclear.......................................................................................7 PAGE ---- Event of Default................................................................................7 Exchange Act....................................................................................7 Expiration Date.................................................................................7 GAAP............................................................................................7 Global Security.................................................................................7 Guarantee.......................................................................................7 Holder..........................................................................................8 holder of Securities............................................................................8 Holding Period..................................................................................8 IAI.............................................................................................8 Incur...........................................................................................8 Indebtedness For Borrowed Money.................................................................8 Indenture.......................................................................................8 Indirect Participant............................................................................8 Initial Principal Amount........................................................................8 Initial Securities..............................................................................8 Intangible Assets...............................................................................8 interest........................................................................................9 Interest Payment Date...........................................................................9 Interest Rate Protection Agreement..............................................................9 Investment Grade................................................................................9 Joint Venture...................................................................................9 judgment currency...............................................................................9 Lien............................................................................................9 Maturity........................................................................................9 Moody's.........................................................................................9 Non-Recourse....................................................................................9 Notice of Default..............................................................................10 Officers' Certificate..........................................................................10 Opinion of Counsel.............................................................................10 Optional Definitive Security Request...........................................................10 Original Issue Discount Security...............................................................10 Outstanding....................................................................................10 Participant....................................................................................11 Paying Agent...................................................................................11 Permanent Global Security......................................................................11 Person.........................................................................................11 Place of Payment...............................................................................11 Predecessor Security...........................................................................12 Preferred Stock................................................................................12 Principal Amount...............................................................................12 Private Exchange...............................................................................12 Private Exchange Securities....................................................................12 Property.......................................................................................12 Purchase Date..................................................................................12 ii PAGE ---- QIB............................................................................................12 Rating.........................................................................................12 Rating Agency..................................................................................12 Rating Category................................................................................12 Rating Date....................................................................................13 Rating Decline.................................................................................13 Redeemable Stock...............................................................................13 Redemption Date................................................................................13 Redemption Price...............................................................................13 Registered Exchange Offer......................................................................13 Registered Security............................................................................14 Registration Rights Agreement..................................................................14 Regular Record Date............................................................................14 Regulation S...................................................................................14 Regulation S Global Security...................................................................14 Regulation S Global Permanent Security.........................................................14 Regulation S Security..........................................................................14 Regulation S Global Temporary Security.........................................................14 Relevant Date..................................................................................14 Responsible Officer............................................................................14 Restricted Definitive Securities...............................................................15 Restricted Period..............................................................................15 Restricted Securities..........................................................................15 Rule 144.......................................................................................15 Rule 144A......................................................................................15 Rule 144A Global Security......................................................................15 Rule 144A Security.............................................................................15 S&P............................................................................................15 Securities.....................................................................................15 Securities Act.................................................................................15 Security Register..............................................................................15 Security Exchange Agent/Registrar..............................................................15 Shelf Registration Statement...................................................................15 Significant Subsidiary.........................................................................15 Special Record Date............................................................................16 Stated Maturity................................................................................16 Subsidiary.....................................................................................16 Trade Payables.................................................................................16 Transfer Agent.................................................................................16 Trust Indenture Act............................................................................16 Trustee........................................................................................16 United States..................................................................................16 U.S............................................................................................16 U.S. Government Obligation.....................................................................16 Unrestricted Security..........................................................................17 Voting Stock...................................................................................17 iii PAGE ---- Section 1.02. Certificates and Opinions.........................................................17 Section 1.03. Form of Documents Delivered to Trustee............................................17 Section 1.04. Acts of Holders; Record Dates.....................................................18 Section 1.05. Notices, Etc., to Trustee and Company.............................................20 Section 1.06. Notice to Holders; Waiver.........................................................21 Section 1.07. Effect of Headings and Table of Contents..........................................21 Section 1.08. Successors and Assigns............................................................21 Section 1.09. Separability Clause...............................................................21 Section 1.10. Benefits of Indenture.............................................................21 Section 1.11. Governing Law.....................................................................22 Section 1.12. Legal Holidays....................................................................22 Section 1.13. Incorporation by Reference of Trust Indenture Act.................................22 Section 1.14. Conflict with Trust Indenture Act.................................................23 Section 1.15. No Recourse Against Others........................................................23 ARTICLE II. SECURITY FORMS.......................................................................................23 Section 2.01. Forms Generally...................................................................23 Section 2.02. (a) Form of Face of Initial Security..............................................25 (b) Form of Reverse of Initial Security...........................................32 Section 2.03. (a) Form of Face of Exchange Security.............................................39 (b) Form of Reverse of Exchange Security..........................................43 Section 2.04. Form of Trustee's Certificate of Authentication...................................49 Section 2.05. Form of Trustee's Certificate of Authentication by an Authenticating Agent........50 ARTICLE III. THE SECURITIES......................................................................................51 Section 3.01. Amount Unlimited; Issuable in Series..............................................51 Section 3.02. Denominations.....................................................................53 Section 3.03. Execution, Authentication, Delivery and Dating....................................53 Section 3.04. Temporary Securities..............................................................54 Section 3.05. Registrar and Paying Agent; Registration, Registration of Transfer and Exchange...55 Section 3.06. Restricted Securities.............................................................57 Section 3.07. Global Securities.................................................................58 Section 3.08. Mutilated, Destroyed, Lost and Stolen Securities..................................66 Section 3.09. Payment of Interest; Interest Rights Reserved.....................................67 Section 3.10. Persons Deemed Owners.............................................................68 Section 3.11. Cancellation......................................................................69 Section 3.12. Computation of Interest...........................................................69 Section 3.13. Certification Form................................................................69 Section 3.14. CUSIP and ISIN Numbers............................................................84 ARTICLE IV. SATISFACTION, DISCHARGE AND DEFEASANCE...............................................................84 Section 4.01. Satisfaction and Discharge of Indenture...........................................84 Section 4.02. Defeasance, Discharge and Covenant Defeasance.....................................85 iv PAGE ---- Section 4.03. Application of Trust Money........................................................88 Section 4.04. Reinstatement.....................................................................89 ARTICLE V. REMEDIES..............................................................................................89 Section 5.01. Events of Default.................................................................89 Section 5.02. Acceleration of Maturity; Rescission and Annulment................................91 Section 5.03. Collection of Debt and Suits for Enforcement by Trustee...........................91 Section 5.04. Trustee May File Proofs of Claim..................................................92 Section 5.05. Trustee May Enforce Claims Without Possession of Securities.......................93 Section 5.06. Application of Money Collected....................................................93 Section 5.07. Limitation on Suits...............................................................94 Section 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest.........94 Section 5.09. Restoration of Rights and Remedies................................................95 Section 5.10. Rights and Remedies Cumulative....................................................95 Section 5.11. Delay or Omission Not Waiver......................................................95 Section 5.12. Control by Holders................................................................95 Section 5.13. Waiver of Past Defaults...........................................................96 Section 5.14. Undertaking for Costs.............................................................96 ARTICLE VI. THE TRUSTEE..........................................................................................96 Section 6.01. Certain Duties and Responsibilities...............................................96 Section 6.02. Notice of Defaults................................................................97 Section 6.03. Certain Rights of Trustee.........................................................98 Section 6.04. Not Responsible for Recitals or Issuance of Securities............................99 Section 6.05. May Hold Securities...............................................................99 Section 6.06. Money Held in Trust...............................................................99 Section 6.07. Compensation and Reimbursement....................................................99 Section 6.08. Disqualification; Conflicting Interests..........................................100 Section 6.09. Corporate Trustee Required; Eligibility..........................................100 Section 6.10. Resignation and Removal; Appointment of Successor Trustee........................101 Section 6.11. Acceptance of Appointment by Successor...........................................102 Section 6.12. Merger, Conversion, Consolidation or Succession to Business......................103 Section 6.13. Preferential Collecting of Claims Against Company................................103 Section 6.14. Authenticating Agents............................................................106 ARTICLE VII. HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY..................................................108 Section 7.01. Company to Furnish Trustee Names and Addresses of Holders........................108 Section 7.02. Preservation of Information; Communications to Holders...........................108 Section 7.03. Reports by Trustee...............................................................109 Section 7.04. Reports by Company...............................................................110 ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE..................................................110 Section 8.01. Company May Consolidate, Etc. Only on Certain Terms..............................110 Section 8.02. Successor Corporation to be Substituted..........................................111 v PAGE ---- ARTICLE IX. SUPPLEMENTAL INDENTURES.............................................................................111 Section 9.01. Supplemental Indenture without Consent of Holders................................111 Section 9.02. Supplemental Indentures with Consent of Holders..................................113 Section 9.03. Execution of Supplemental Indentures.............................................113 Section 9.04. Effect of Supplemental Indentures................................................113 Section 9.05. Conformity with Trust Indenture Act..............................................114 Section 9.06. Reference in Securities to Supplemental Indentures...............................114 ARTICLE X. COVENANTS............................................................................................114 Section 10.01. Payment of Principal, Premium, if any, and Interest..............................114 Section 10.02. Maintenance of Office or Agency..................................................114 Section 10.03. Money for Securities Payments to Be Held in Trust................................115 Section 10.04. Limitation on Liens..............................................................116 Section 10.05. Statement by Officers as to Default..............................................117 Section 10.06. Modification or Waiver of Certain Covenants......................................117 Section 10.07. Further Assurances...............................................................118 Section 10.08. Copies Available to Holders......................................................118 Section 10.09. Reports by Company...............................................................118 Section 10.10. Purchase of Securities Upon Change of Control....................................119 Section 10.11. Calculation of Original Issue Discount...........................................120 ARTICLE XI. REDEMPTION OF SECURITIES............................................................................120 Section 11.01. Applicability of Article.........................................................120 Section 11.02. Election to Redeem; Notice to Trustee............................................120 Section 11.03. Selection by Trustee of Securities to Be Redeemed................................121 Section 11.04. Notice of Redemption.............................................................121 Section 11.05. Deposit of Redemption Price......................................................122 Section 11.06. Securities Payable on Redemption Date............................................122 Section 11.07. Securities Redeemed in Part......................................................122 ARTICLE XII. MEETINGS OF HOLDERS OF SECURITIES..................................................................123 Section 12.01. Purposes of Meeting..............................................................123 Section 12.02. Place of Meetings................................................................123 Section 12.03. Voting at Meetings...............................................................124 Section 12.04. Voting Rights, Conduct and Adjournment...........................................124 Section 12.05. Revocation of Consent by Holders.................................................124 ARTICLE XIII. MISCELLANEOUS.....................................................................................125 Section 13.01. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process.......125 Section 13.02. Counterparts.....................................................................127
vi CROSS-REFERENCE TABLE
Trust Indenture Indenture Act Section Section - ----------------- ----------- ss. 310 (a)(1).............................................................................................6.09 (a)(2).............................................................................................6.09 (a)(3)...................................................................................Not Applicable (a)(4)...................................................................................Not Applicable (b)..........................................................................................6.08, 6.10 ss. 311 (a)................................................................................................6.13 (b)................................................................................................6.13 (c)......................................................................................Not Applicable ss. 312 (a)..........................................................................................7.01, 7.02 (b)................................................................................................7.02 (c)................................................................................................7.02 ss. 313 (a)................................................................................................7.03 (b)................................................................................................7.03 (c)................................................................................................7.03 (d)................................................................................................7.03 ss. 314 (a)................................................................................................7.04 (a)(4).......................................................................................1.01, 7.04 (b)......................................................................................Not Applicable (c)(1).............................................................................................1.02 (c)(2).............................................................................................1.02 (c)(3)...................................................................................Not Applicable (d)......................................................................................Not Applicable (e)................................................................................................1.02 (f)......................................................................................Not Applicable ss. 315 (a)................................................................................................6.01 (b)................................................................................................6.02 (c)................................................................................................6.01 (d)................................................................................................6.01 (e)................................................................................................5.14 ss. 316 (a)................................................................................1.01 ("Outstanding") (a)(1)(A)....................................................................................5.02, 5.12 (a)(1)(B)..........................................................................................5.13 (a)(2)...................................................................................Not Applicable (b)................................................................................................5.08 (c)................................................................................................1.04 ss. 317 (a)(1).............................................................................................5.03 (a)(2).............................................................................................5.04 (b)...............................................................................................10.03 ss. 318 (a)................................................................................................1.13 (b)......................................................................................Not Applicable (c)................................................................................................1.13
- ----------------------------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. vii INDENTURE, dated as of October 4, 2002, between MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa corporation (herein called the "Company"), having its principal office at 666 Grand Avenue, Des Moines, Iowa 50303, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (in such capacity, the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of certain of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as provided in this Indenture. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are deemed to be incorporated into this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary to make this Indenture a valid and legally binding agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. Definitions For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the respective meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein to the extent applicable; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP (whether or not such is indicated herein); and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. Certain terms, used principally in Article VI, are defined in that Article. "Act," when used with respect to any Holder, has the meaning specified in Section 1.04. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Applicable Procedures" means the rules and procedures of DTC, Euroclear and Clearstream, in each case pertaining to beneficial interests in a Global Security. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with GAAP. "Authenticating Agent" means any Person authorized to authenticate and deliver Securities on behalf of the Trustee pursuant to Section 6.14. "Authorized Agent" has the meaning specified in Section 13.01. "Berkshire Hathaway" means Berkshire Hathaway Inc. and any Subsidiary of Berkshire Hathaway Inc. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that Board. "Board Resolution" means a copy of a resolution of the Company certified by the Secretary or any Assistant Secretary of the Company or by other authorized designee of the Board of Directors to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Business Day," when used with respect to the Place of Payment of the Securities of any series, means each day which is not a Saturday, a Sunday or a day on which banking institutions in any Place of Payment for the Securities of that series are authorized or obligated by law to remain closed. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in, or interests (however designated) in, the equity of such Person 2 that is outstanding or issued on or after the date hereof, including, without limitation, all Common Stock and Preferred Stock and partnership and joint venture interests in such Person. "Capitalized Lease" means, as applied to any Person, any lease of any Property of which the discounted present value of the rental obligations of such Person as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person. "Capitalized Lease Obligation" means the rental obligations under any Capitalized Lease. "Cash Equivalent" means any of the following: (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof); (ii) time deposits and certificates of deposit of any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000 with a maturity date not more than two years from the date of acquisition; (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (i) or (v) that were entered into with any bank meeting the qualifications set forth in clause (ii) or another financial institution of national reputation; (iv) direct obligations issued by any state or other jurisdiction of the United States or any other country or any political subdivision or public instrumentality thereof maturing, or subject to tender at the option of the holder thereof, within 90 days after the date of acquisition thereof and, at the time of acquisition, having a rating of at least A from "S&P" or A-2 from Moody's (or, if at any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the Trustee); (v) commercial paper issued by (a) the parent corporation of any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000, and (b) others having one of the two highest ratings obtainable from either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the Trustee) and in each case maturing within one year after the date of acquisition; (vi) overnight bank deposits and bankers' acceptances at any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000; 3 (vii) deposits available for withdrawal on demand with any commercial bank organized in the United States having capital and surplus in excess of $500,000,000 or any commercial bank organized under the laws of any other country having total assets in excess of $500,000,000; (viii) investments in money market funds substantially all of whose assets comprise securities of the types described in clauses (i) through (vi) and (ix); and (ix) auction rate securities or money market preferred stock having one of the two highest ratings obtainable from either S&P or Moody's (or, if at any time neither S&P nor Moody's may be rating such obligations, then from another nationally recognized rating service acceptable to the Trustee). "Change of Control" means the occurrence of one or more of the following events: (i) a transaction pursuant to which Berkshire Hathaway ceases to own, on a diluted basis (assuming conversion of all of the Company's convertible Preferred Stock and any other Capital Stock of the Company that is issued and outstanding, regardless of whether any such convertible Preferred Stock or other Capital Stock is then presently convertible), at least a majority of the issued and outstanding Common Stock of the Company; or (ii) the Company or its Subsidiaries sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Property of the Company and its Subsidiaries taken as a whole to any Person or entity other than a Person or entity at least a majority of the issued and outstanding Common Stock of which is owned by Berkshire Hathaway (calculated on a diluted basis as described in clause (i) above); provided that with respect to the foregoing paragraphs (i) and (ii), a Change of Control will not be deemed to have occurred unless and until a Rating Decline has occurred as well. "Change of Control Offer" has the meaning specified in Section 10.10. "Clearstream" means Clearstream Banking, S.A. "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. 4 "Company" means the Person named as the "Company" in the first paragraph of this Indenture until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by the Chairman of the Board of Directors, the President or a Vice President of the Company and by the Treasurer, an Assistant Treasurer, Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Consolidated Net Tangible Assets" means, as of the date of any determination thereof, the total amount of all assets of the Company determined on a consolidated basis in accordance with GAAP as of such date less the sum of (i) the consolidated current liabilities of the Company determined in accordance with GAAP and (ii) assets properly classified as Intangible Assets. "Corporate Trust Office" means the principal office of the Trustee in The City of New York, at which at any particular time its corporate trust business shall be administered, which at the date hereof is located at 101 Barclay Street, Floor 8W, New York, New York 10286, Attn: Corporate Trust Administration. "corporation" includes corporations, associations, companies and business trusts. "Covenant Defeasance" has the meaning specified in Section 4.02(b). "Currency Protection Agreement" means, with respect to any Person, any foreign exchange contract, currency swap agreement or other similar agreement or arrangement intended to protect such Person against fluctuations in currency values to or under which such Person is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary hereafter. "Debt" means, with respect to any Person, at any date of determination (without duplication): (i) all Indebtedness for Borrowed Money of such Person; (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit, bankers' acceptances, surety, bid, operating and performance bonds, performance guarantees or other similar instruments or obligations (or reimbursement obligations with respect thereto) (except, in each case, to the extent incurred in the ordinary course of business); 5 (iv) all obligations of such Person to pay the deferred purchase price of property or services, except Trade Payables; (v) the Attributable Value of all obligations of such Person as lessee under Capitalized Leases; (vi) all Debt of others secured by a Lien on any Property of such Person, whether or not such Debt is assumed by such Person, provided that, for purposes of determining the amount of any Debt of the type described in this clause, if recourse with respect to such Debt is limited to such Property, the amount of such Debt will be limited to the lesser of the fair market value of such Property or the amount of such Debt; (vii) all Debt of others Guaranteed by such Person to the extent such Debt is Guaranteed by such Person; (viii) all Redeemable Stock valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and (ix) to the extent not otherwise included in this definition, all net obligations of such Person under Currency Protection Agreements and Interest Rate Protection Agreements. For purposes of determining any particular amount of Debt that is or would be outstanding, Guarantees of, or obligations with respect to letters of credit or similar instruments supporting (to the extent the foregoing constitutes Debt), Debt otherwise included in the determination of such particular amount will not be included. For purposes of determining compliance with this Indenture, in the event that an item of Debt meets the criteria of more than one of the types of Debt described in the above clauses, the Company, in its sole discretion, will classify such item of Debt and only be required to include the amount and type of such Debt in one of such clauses. "default" means, for purposes of Section 6.01 hereof, an "Event of Default" as specified in Section 5.01 hereof. For purposes of Section 310(b) of the Trust Indenture Act (if applicable to the Securities of any series), "default" shall mean an "Event of Default" as specified in Section 5.01 hereof, but exclusive of any period of grace or requirement of notice. "Defaulted Interest" has the meaning specified in Section 3.09. "Defeasance" has the meaning specified in Section 4.02(a). "Definitive Security" means a physical security in fully registered form. "Depositary" means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, 6 the Person designated as Depositary by the Company pursuant to Section 3.01, and, if so provided pursuant to Section 3.01 with respect to the Securities of a series, any successor to such Person. If at any time there is more than one such Person, "Depositary" shall mean, with respect to any series of Securities, the qualifying entity which has been appointed with respect to the Securities of that series. "Dollar" or "$" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debt. "DTC" means The Depository Trust Company or its successors, or any successor clearing agency which is registered as such under the Exchange Act and approved by the Company. "Euroclear" means Euroclear Bank S.A./N.V., as operator of the Euroclear System, or its successors. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Exchange Securities" means any Securities to be issued pursuant to this Indenture in connection with a Registered Exchange Offer pursuant to any Registration Rights Agreement. "Expiration Date" has the meaning specified in Section 1.04. "GAAP" means generally accepted accounting principles in the United States, as in effect from time to time, applied on a basis consistent with the principles, methods, procedures and practices employed in the preparation of the Company's audited financial statements, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. "Global Security" means a Registered Security which evidences all or part of a series of Securities and which is issued to the Depositary for such series or its nominee. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Debt of any other Person and, without limiting the generality of the foregoing, any Debt obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt of such other Person (whether arising by virtue of partnership 7 arrangements (other than solely by reason of being a general partner of a partnership), or by agreement to keep-well, to purchase assets, goods, securities or services or to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Debt of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term "Guarantee" will not include endorsements for collection or deposit in the ordinary course of business or the grant of a Lien in connection with any Non-Recourse Debt. The term "Guarantee" used as a verb has a corresponding meaning. "Holder," "holder of Securities" and other similar terms mean the Person in whose name a Security is registered in the Security Register. "Holding Period" has the meaning specified in Section 2.01. "IAI" has the meaning specified in Section 2.01. "Incur" means with respect to any Debt, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Debt, provided that neither the accrual of interest (whether such interest is payable in cash or kind) nor the accretion of original issue discount will be considered an Incurrence of Debt. The term "Incurrence" has a corresponding meaning. "Indebtedness For Borrowed Money" means any indebtedness for money borrowed which is Incurred by the Company. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01 and the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Indenture. "Indirect Participant" means a Person that holds a beneficial interest in a Global Security through a Person that has an account with DTC. "Initial Principal Amount" has the meaning specified in Section 2.02. "Initial Securities" means Securities of any series issued under this Indenture which are offered and sold pursuant to an exemption from registration under the Securities Act. "Intangible Assets" means, as of the date of determination thereof, all assets of the Company properly classified as intangible assets determined on a consolidated basis in accordance with GAAP. 8 "interest," when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity at the rate prescribed in such Original Issue Discount Security. "Interest Payment Date," when used with respect to any installment or interest in respect of a Security, means the Stated Maturity of such installment of interest. "Interest Rate Protection Agreement" means, with respect to any Person, any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement intended to protect such Person against fluctuations in interest rates to or under which such Person or any of its Subsidiaries is a party or a beneficiary on the date of this Indenture or becomes a party or a beneficiary thereafter. "Investment Grade" means with respect to the Securities, (i) in the case of S&P, a rating of at least BBB-, (ii) in the case of Moody's, a rating of at least Baa3, and (iii) in the case of a Rating Agency other than S&P or Moody's, the equivalent rating, or in each case, any successor, replacement or equivalent definition as promulgated by S&P, Moody's or such other Rating Agency, as the case may be. "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form. "judgment currency" has the meaning specified in Section 13.01. "Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property, but will not include any partnership, joint venture, shareholder, voting trust or other similar governance agreement with respect to Capital Stock in a Subsidiary or Joint Venture. For purposes of this Indenture, the Company will be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property. "Maturity," when used with respect to any Security or any installment of principal thereof, means the date on which the principal of such Security or installment of principal, as applicable, becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Moody's" means Moody's Investors Service, Inc., and any Subsidiary or successor thereof. "Non-Recourse" means any Debt or other obligation (or that portion of such Debt or other obligation) that is without recourse to the Company or any Property or assets directly owned by the Company (other than a pledge of the 9 equity interests in any Subsidiary of the Company, to the extent recourse to the Company under such pledge is limited to such equity interests). "Notice of Default" means a written notice of the kind specified in Section 5.01(d). "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, the President or any Vice President of the Company and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate delivered pursuant to Section 10.05 shall be the principal executive, financial or accounting officer of the Company. "Opinion of Counsel" means a written opinion of counsel, who, unless otherwise specified herein or required by the Trust Indenture Act, may be an employee of or regular counsel for the Company, or may be other counsel to the Company. "Optional Definitive Security Request" has the meaning specified in Section 3.07(b)(ii). "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02. "Outstanding," when used with respect to the Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities, or portions thereof, for whose payment or redemption money or U.S. Government Obligations in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Securities which have been paid pursuant to Section 3.10 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; 10 provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02, (b) if the principal amount of a Security payable at Maturity is to be determined by reference to an index or indices, the principal amount of such Security that shall be deemed to be Outstanding shall be the face amount thereof, (c) if, as of such date, the principal amount payable at the Stated Maturity of a Security is not determinable, the principal amount of such Security which shall be deemed to be Outstanding shall be the amount as established as contemplated by Section 3.01, (d) the principal amount of a Security denominated in one or more foreign currencies or currency units which shall be deemed to be Outstanding shall be the U.S. dollar equivalent, determined as of such date in the manner established as contemplated by Section 3.01, of the principal amount of such Security (or, in the case of a Security described in clause (a) or (b) above, of the amount determined as provided in such clause), and (e) Securities owned by the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned as described in (e) above which have been pledged in good faith may be regarded as Outstanding if the pledgee certifies to the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). "Paying Agent" means The Bank of New York until a successor Paying Agent shall have become such pursuant to the applicable provisions of this Indenture and, thereafter, "Paying Agent" shall mean such successor Paying Agent. "Permanent Global Security" means a Global Security that is, at the time of the initial issuance of the related series of Securities, issued in permanent form. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment," when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest, if any, on the Securities of that series are payable as specified in or as contemplated by Section 3.01. 11 "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purpose of this definition, any Security authenticated and delivered under Section 3.08 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen security. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of preferred or preference stock of such Person that is outstanding or issued on or after the date of original issuance of any series of Securities. "Principal Amount" has the meaning specified in Section 2.02. "Private Exchange" means the offer by the Company, pursuant to any Registration Rights Agreement, to the initial purchaser(s) of any series of Securities to issue and deliver to such initial purchaser(s), in exchange for the Initial Securities held by such initial purchaser(s) as part of the initial distribution, a like aggregate principal amount of Private Exchange Securities. "Private Exchange Securities" means Securities issued pursuant to this Indenture in connection with a Private Exchange effected pursuant to any Registration Rights Agreement. "Property" of any Person means all types of real, personal, tangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person under GAAP. "Purchase Date" has the meaning specified in Section 10.10. "QIB" means a Qualified Institutional Buyer, as defined in Rule 144A. "Rating" means, for each Rating Agency, the credit rating assigned to the Securities of any series by such Rating Agency. "Rating Agency" means (i) S&P and (ii) Moody's or (iii) if S&P or Moody's or both do not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which will be substituted for S&P, Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories), (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the equivalent of any such category of S&P or 12 Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P, 1, 2 and 3 for Moody's or the equivalent gradations for another Rating Agency) will be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Date" means the earlier of (i) the date of public notice of the occurrence of a Change of Control or (ii) the date of public notice of the intention of the Company to effect a Change of Control. "Rating Decline" means the occurrence of the following on, or within 90 days after, the earlier of (i) the occurrence of a Change of Control and (ii) the associated Rating Date, which period will be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrading by any of the Rating Agencies: (1) in the event that any series of the Securities are rated by either Rating Agency on the Rating Date as Investment Grade, the rating of such Securities by both such Rating Agencies will be reduced below Investment Grade, or (2) in the event the Securities are rated below Investment Grade by both such Rating Agencies on the Rating Date, the rating of such Securities by either Rating Agency will be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is (i) required to be redeemed prior to the Stated Maturity of any series of the Securities, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of any series of Securities or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Debt having a scheduled maturity prior to the Stated Maturity of any series of Securities, provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require the Company to purchase or redeem such Capital Stock upon the occurrence of a "change of control" occurring prior to the Stated Maturity of any series of Securities will not constitute Redeemable Stock if the "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in the covenants described in Section 10.10. "Redemption Date" means any date on which the Company redeems all or any portion of the Securities in accordance with the terms of this Indenture. "Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture, exclusive of accrued and unpaid interest. "Registered Exchange Offer" means an offer by the Company, pursuant to any Registration Rights Agreement, to certain Holders of a series of Initial Securities, to issue and deliver to such Holders, in exchange for such Initial Securities, a like aggregate principal amount of Exchange Securities which have been registered under the Securities Act. 13 "Registered Security" means any Security that is payable to a registered owner or registered assigns thereof as registered in the Security Register. "Registration Rights Agreement" means any Registration Rights Agreement which may from time to time be entered into between the Company and the initial purchaser(s) with respect to any series of Initial Securities issued and sold under this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01. "Regulation S" means Regulation S promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. "Regulation S Global Security" means a Regulation S Temporary Global Security or a Regulation S Permanent Global Security, as applicable. "Regulation S Permanent Global Security" means a permanent Global Security in the form provided for herein and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Securities upon expiration of the Restricted Period. "Regulation S Security" means Securities of any series offered and sold in their initial distribution to non-U.S. Persons in offshore transaction in reliance on Regulation S. "Regulation S Temporary Global Security" means a temporary Global Security in the form provided for herein and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Securities initially sold in reliance on Rule 903 of Regulation S. "Relevant Date" means, for any payment made with respect to the Securities of any series, the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received in The City of New York by the Depositary or by the Trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Holders in accordance with this Indenture. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Office, including any vice president, assistant vice president, assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated 14 officers; and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject and who shall have direct responsibility for the administration of this Indenture. "Restricted Definitive Securities" means Definitive Securities that are Restricted Securities. "Restricted Period" has the meaning specified in Section 2.01. "Restricted Securities" means Securities required to bear a legend containing Securities Act transfer restrictions, in substantially the form specified in Section 2.02. "Rule 144" means Rule 144 promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. "Rule 144A" means Rule 144A promulgated under the Securities Act, or any successor provision thereto and as may be amended from time to time. "Rule 144A Global Security" has the meaning specified in Section 2.01. "Rule 144A Security" means Securities of any series offered and sold in their initial resale distribution to QIBs in reliance on Rule 144A, until such time as the Holding Period shall have terminated. "S&P" means Standard & Poor's Rating Group, and any Subsidiary or successor thereof. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Securities Act" means the U.S. Securities Act of 1933, as amended. "Security Register" and "Security Exchange Agent/Registrar" have the respective meanings specified in Section 3.05. "Shelf Registration Statement" means any registration statement filed with the Commission by the Company, in connection with the offer and sale of any series of Initial Securities or Private Exchange Securities pursuant to any Registration Rights Agreement. "Significant Subsidiary" means a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act 15 and the Exchange Act, provided that every occurrence of "10 percent" in such Rule 1-02(w) shall be replaced by "20 percent." Unless the context otherwise clearly requires, any reference to a "Significant Subsidiary" is a reference to a Significant Subsidiary of the Company. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.11. "Stated Maturity," when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable. "Subsidiary" means, with respect to any Person, including, without limitation, the Company and its Subsidiaries, any corporation or other entity of which such Person owns, directly or indirectly, a majority of the Capital Stock or other ownership interests and has ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions. "Trade Payables" means, with respect to any Person, any accounts payable or any other indebtedness or monetary obligation to trade creditors Incurred, created, assumed or Guaranteed by such Person or any of its Subsidiaries or Joint Ventures arising in the ordinary course of business. "Transfer Agent" means any Person authorized by the Company to effectuate the exchange or transfer of any Security on behalf of the Company hereunder. "Trust Indenture Act" means the U.S. Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "United States" and "U.S." means the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "U.S. Government Obligation" means any (a) security which is (i) a direct obligation of the United States for the payment of which the full faith and credit of the United States is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency of instrumentality of the United States the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in the case of clause (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (b) depositary receipt issued by a bank (as defined in the Securities Act) as 16 custodian with respect to any security specified in clause (a) above and held by such bank for the account of the holder of such depositary receipt or with respect to any specific payment of principal of or interest on any such security held by any such bank, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. "Unrestricted Security" has the meaning specified in Section 2.01. "Voting Stock" means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors (or persons fulfilling similar responsibilities) of such Person. SECTION 1.02. Certificates and Opinions Except as otherwise expressly provided by this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee (i) an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the Officers' Certificate required by Section 10.05) shall include: (a) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 1.03. Form of Documents Delivered to Trustee In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters 17 and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or instrument required to be given or executed by a Person which is not a natural Person may be given or executed on behalf of such Person by any duly authorized designee of such Person. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. Acts of Holders; Record Dates (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by the Holders of any series of Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by each such Holder in Person or by an agent duly appointed in writing, and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section 1.04. Without limiting the generality of the foregoing, unless otherwise established in or pursuant to a Board Resolution or set forth or determined in an Officers' Certificate, or established in one or more indentures supplemental hereto, in each case pursuant to Section 3.01, (i) a Holder of any Security may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by the Holder of any such Security, (ii) a Holder of any such Security, including a Depositary that is a Holder of a Global Security, entitled hereunder to take any action hereunder with regard to such Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of the principal amount of such Security and (iii) a Depositary that is a Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interests in such Global Security through the Depositary's standing instructions and customary practices. 18 (b) The fact and date of the execution by any Person of any such instrument, writing or proxy may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument, writing or proxy acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument, writing or proxy, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. (c) The ownership of Securities shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) The Company may, in its discretion, by Board Resolution, set any day as a record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give, make or take any request, demand, authorization, direction, consent, waiver or Act provided or permitted by this Indenture to be given, made or taken by Holders of Securities of such series; provided that the Company shall have no obligation to set a record date; and provided, further, that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities of the relevant series on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to any applicable Expiration Date (as defined below) by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect); provided, however, that no new record date may be established with the purpose or effect of rendering, and no other provision of this paragraph shall be construed to render, ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each holder of Securities of the relevant series in the manner set forth in Section 1.06. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 5.02, (iii) any request to 19 institute proceedings referred to in Section 5.07(b) or (d) any direction referred to in Section 5.12; provided that if the Trustee does not set any record date within ten (10) days after first receiving any such notice, declaration, rescission and annulment, request or direction, as the case may be, then the record date shall be the close of business on the date on which the Trustee first receives any such notice, declaration, rescission and annulment, request or direction, as the case may be. If any record date is set by the Trustee pursuant to this paragraph, the Holders of Outstanding Securities of such series on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to any applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities of such series on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect); provided, however, that no new record date may be established with the purpose or effect of rendering, and no other provision of this paragraph shall be construed to render, ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities of the relevant series on the date such action is taken based on such record date previously set. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each holder of Securities of the relevant series in the manner set forth in Section 1.06. With respect to any record date set pursuant to this Section 1.04(e), the party hereto which sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other parties hereto in writing, and to each holder of Securities of the relevant series in the manner set forth in Section 1.06, on or prior to the earlier of (i) the existing Expiration Date and (ii) the proposed new Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 90th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. SECTION 1.05. Notices, Etc., to Trustee and Company Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if in writing and mailed, first-class, postage prepaid, to the Trustee at its Corporate Trust Office, or 20 (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06. Notice to Holders; Waiver Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. If, by reason of the suspension of regular mail service or by reason of any other cause, it shall be impracticable to give such notice by mail, then such notification as shall be made at the direction of the Company in a manner reasonably calculated, to the extent practicable under the circumstances, to provide prompt notice shall constitute a sufficient notification for every purpose hereunder. Any notice required or permitted hereunder may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.07. Effect of Headings and Table of Contents The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.08. Successors and Assigns All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.09. Separability Clause In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the fullest extent permitted by law. 21 SECTION 1.10. Benefits of Indenture Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. This Indenture may not be used to interpret another indenture, loan agreement or debt agreement of the Company or any of its Subsidiaries. No such other indenture, loan agreement or debt agreement may be utilized to interpret this Indenture. SECTION 1.11. Governing Law THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. SECTION 1.12. Legal Holidays In any case where any Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of any Security established as contemplated by Section 3.01 hereof which specifically states that such provision shall apply in lieu of this Section)) payment of interest, if any, or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date, Redemption Date, Purchase Date or at Stated Maturity, and no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity, as the case may be. SECTION 1.13. Incorporation by Reference of Trust Indenture Act Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made part of this Indenture. The following Trust Indenture Act terms used in this Indenture have the following meanings: "indenture securities" means the Securities. "indenture security holder" means a Holder. "indenture to be qualified" means this Indenture, as then supplemented. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" in the indenture securities means the Company and any other obligor on the indenture securities. All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by Commission rule have the meanings assigned to them by such definitions. 22 SECTION 1.14. Conflict with Trust Indenture Act If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 1.15. No Recourse Against Others A director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. ARTICLE II. SECURITY FORMS SECTION 2.01. Forms Generally The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, a Board Resolution or one or more indentures supplemental hereto, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon (i) as may be required by law or to comply with the rules of (a) any securities exchange, (b) DTC or any other clearing agency registered as such under the Exchange Act or (c) Euroclear or Clearstream; or (ii) as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by an authorized director or officer of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities. Each Security shall be dated the date of its authentication. The Trustee's certificate of authentication shall be in substantially the form set forth in this Article. The definitive Securities shall be printed, typewritten, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution thereof. Except as otherwise provided pursuant to Section 3.01, Initial Securities of any series offered and sold in their initial resale distribution to QIBs in reliance on Rule 144A shall 23 initially be issued in the form of one or more Global Securities of such series in definitive, fully registered form, substantially in the form set forth in this Article, with such applicable legends as are provided for in Section 2.02. Such Global Securities shall be duly executed by the Company and authenticated by the Trustee as hereinafter provided, and deposited with the Depositary, which will hold such Global Securities for the benefit of DTC. Until such time as the Holding Period (as defined below) shall have terminated, each such Security shall be referred to as a "Rule 144A Global Security." The aggregate principal amount of any Rule 144A Global Security may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this Indenture. Unless the Company determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed from a Rule 144A Security in accordance with the procedures set forth in Section 3.06(b) after such time as the applicable Holding Period shall have terminated, and each such Security shall thereafter be held as an "Unrestricted Security." As used herein, the term "Holding Period," with respect to Rule 144A Securities of any series, means the period referred to in Rule 144(k) or any successor provision thereto and as may be amended or revised from time to time, beginning from the later of (i) the original issue date of such Securities or (ii) the last date on which the Company or any affiliate of the Company was the beneficial owner of such Securities (or any predecessor thereof). Except as otherwise provided pursuant to Section 3.01, Securities offered and sold in reliance on Regulation S will be issued initially in the form of one or more Regulation S Temporary Global Securities, which will be deposited on behalf of the purchasers of the Securities represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Following the termination of the Restricted Period and upon the receipt by the Trustee of: (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream, certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Securities (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Security or a Restricted Definitive Security, all as contemplated by Section 3.07(d) hereof); and (2) an Officers' Certificate from the Company, beneficial interests in the Regulation S Temporary Global Securities will be exchanged for beneficial interests in Regulation S Permanent Global Securities pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Securities, the Trustee will cancel the Regulation S Temporary Global Securities. The aggregate principal amount of the Regulation S Temporary Global Securities and the Regulation S Permanent Global Securities may be adjusted by endorsements to Schedule A on the reverse thereof in any situation where adjustment is permitted or required by this 24 Indenture. As used herein, the term "Restricted Period," with respect to Regulation S Securities of any series, means the period of 40 consecutive days beginning on and including the later of (i) the date on which interests in such Securities are offered to Persons other than distributors (as defined in Regulation S) and (ii) the original issue date of such Securities. Except as otherwise provided pursuant to Section 3.01, no Regulation S Global Security shall be issued except as provided in this paragraph to evidence Securities offered and sold in their initial distribution in reliance on Regulation S. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Securities and the Regulation S Permanent Global Securities that are held by Participants through Euroclear or Clearstream. Except as otherwise provided pursuant to Section 3.06(b), Initial Securities of any series offered and sold in their initial resale distribution to purchasers who are institutional "accredited investors" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (each an "IAI") and who are not QIBs shall be issued in the form of fully registered, definitive, physical certificates, substantially in the form set forth in this Article, with such applicable legends as are provided for in Section 2.02 hereto (such securities as held by an IAI are herein referred to as "Restricted Definitive Securities"). Unless the Company determines otherwise in accordance with applicable law, the legend setting forth transfer restrictions shall be removed from a Restricted Definitive Security in accordance with the procedures set forth in Section 3.06(b) after such time as the applicable Holding Period shall have terminated, and each such Security shall thereafter be held as an "Unrestricted Security." As used herein, the term "Holding Period," with respect to Restricted Definitive Securities of any series, means the period referred to in Rule 144(k) or any successor provision thereto and as may be amended or revised from time to time, beginning from the later of (i) the original issue date of such Securities or (ii) the last date on which the Company or any affiliate of the Company was the beneficial owner of such Securities (or any predecessor thereof). SECTION 2.02. (a) Form of Face of Initial Security [IF THE SECURITY IS A REGULATION S TEMPORARY GLOBAL SECURITY, INSERT-THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.] [IF THE SECURITY IS TO BE A GLOBAL SECURITY, INSERT-THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES 25 DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. [IF THE SECURITY IS TO BE A RESTRICTED SECURITY, INSERT THE APPLICABLE LANGUAGE- [THIS SECURITY HAS BEEN INITIALLY RESOLD IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE:] [THIS SECURITY HAS INITIALLY BEEN RESOLD TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DESCRIBED BY RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE:] [THIS SECURITY HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE:]] [IF THE SECURITY IS TO BE A RESTRICTED SECURITY, INSERT- THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT [(A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT),] [(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DESCRIBED BY RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT OR] [(C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION,] (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 26 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.] 27 MIDAMERICAN ENERGY HOLDINGS COMPANY [Title of Security] No. __________ $_________ CUSIP No._________ [ISIN No. ________] [Common Code:_________] MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns] [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT-] the Initial Principal Amount specified on Schedule A hereto (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount")] [IF THIS SECURITY IS NOT A GLOBAL SECURITY, INSERT- the principal sum of ___ Dollars (the "Principal Amount")] on ____________, [IF THIS SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT- and to pay interest hereon from ___________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on ________ and _______ in each year, commencing ______, _______ until the Principal Amount hereof is paid or made available for payment. [IF APPLICABLE, INSERT-; provided that any Principal Amount and any premium, and any such installment of interest, which is overdue shall bear interest at the rate of ___% per annum (or, if lower, the maximum rate legally enforceable), from the dates such amounts are due until they are paid or made available for payment, [and such interest shall be payable on demand] [IF APPLICABLE, INSERT- provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of [ ]% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured.] The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the __________ or _________ (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. [IF THIS SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of [yield to maturity]% per annum (to the extent that the 28 payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. [Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of [yield to maturity]% per annum (or, if lower, the maximum rate legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] [IF THIS SECURITY IS A REGULATION S TEMPORARY GLOBAL SECURITY, INSERT--Until this Regulation S Temporary Global Security is exchanged for one or more Regulation S Permanent Global Securities, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Security shall in all other respects be entitled to the same benefits as other Securities under the Indenture.] Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts; provided, however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). [INSERT ANY SPECIAL NOTICE PROVISIONS REQUIRED BY ANY STOCK EXCHANGES UPON WHICH THE SECURITIES OF A SERIES ARE TO BE LISTED.] REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 29 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: --------------------------------- Name: Title: Attest: By: -------------------------- Name: Title: 30 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated:____________ By:______________________________ Authorized Signatory 31 SECTION 2.02. (b) Form of Reverse of Initial Security MIDAMERICAN ENERGY HOLDINGS COMPANY [Title of the Securities] This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (herein called the "Original Indenture"), between the Company and The Bank of New York, as trustee, principal paying agent, security exchange agent/registrar and transfer agent (herein called the "Trustee," which term includes any successor trustee under the Original Indenture) [INSERT PARTICULARS WITH RESPECT TO ANY INDENTURES SUPPLEMENTAL THERETO PURSUANT TO WHICH THE SECURITIES OF THIS SERIES ARE BEING ISSUED] to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof. [IF APPLICABLE, INSERT- This Security is not subject to redemption prior to maturity.] [IF APPLICABLE, INSERT-The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (1) 100% of the Principal Amount; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus _____ basis points, plus, for (1) or (2) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. 32 "Comparable Treasury Price" means, with respect to any Redemption Date, (1) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (2) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof.] [IF THE SECURITY IS A GLOBAL SECURITY- In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof.] The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. [IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default 33 with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent THEREON.] [IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT-If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series (the "Acceleration Amount") may be declared due and payable in the manner and with the effect provided in the Indenture. In case of a declaration of acceleration on or before ______ in any year, the Acceleration Amount per $______ principal amount at Stated Maturity of the Securities shall be equal to the amount set forth in respect of such date below: Acceleration Amount per $_____________ principal amount Date of declaration at Stated Maturity and in case of a declaration of acceleration on any other date, the Acceleration Amount shall be equal to the Acceleration Amount as of the immediately preceding date set forth in the table above, plus accrued original issue discount (computed in accordance with the method used for calculating the amount of original issue discount that accrues for United States federal income tax purposes) from such next preceding date to the date of declaration at the yield to maturity. For the purpose of this computation the yield to maturity is ____%. Upon payment (i) of the Acceleration Amount so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, 34 including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT- a Security of the series of which this Security is a part] [IF THIS SECURITY IS NOT A GLOBAL SECURITY, INSERT- this Security] is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. [IF THIS SECURITY IS A DEFINITIVE REGISTERED SECURITY, INSERT- Definitive Securities of the series of which this Security is a part are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000.] [IF THIS SECURITY IS A REGULATION S TEMPORARY GLOBAL SECURITY, INSERT--This Regulation S Temporary Global Security is exchangeable in whole or in part for one or more Global Securities only (i) on or after the termination of the 40-day distribution compliance period (as defined in Regulation S) and (ii) upon presentation of certificates required by Article 3 of the Indenture. Upon exchange of this Regulation S Temporary Global Security for one or more Global Securities, the Trustee shall cancel this Regulation S Temporary Global Security.] 35 No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. [CUSTOMARY ABBREVIATIONS MAY BE USED IN THE NAME OF A HOLDER OF A REGISTERED SECURITY OF THIS SERIES OR AN ASSIGNEE SUCH AS: TEN COM (= TENANTS IN COMMON), TEN ENT (= TENANTS BY THE ENTIRETIES), JT TEN (= JOINT TENANTS WITH RIGHT OF SURVIVORSHIP AND NOT AS TENANTS IN COMMON), CUST (= CUSTODIAN), AND U/G/M/A (= UNIFORM GIFTS TO MINORS ACT).] Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. [IF THIS SECURITY IS A REGULATION S SECURITY, INSERT- This Security will also bear an ISIN number and a Common Code. No representation is made as to the accuracy of such numbers as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 36 [IF THIS SECURITY IS A GLOBAL SECURITY, INSERT AS A SEPARATE PAGE-] Schedule A SCHEDULE OF ADJUSTMENTS Initial Principal Amount: U.S. $_____
Notation made on Date Principal Principal Principal behalf of the adjustment amount amount amount following Security Exchange made increase decrease adjustment Agent/Registrar ---- -------- -------- ---------- ---------------
37 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: ____________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ 38 SECTION 2.03. (a) Form of Face of Exchange Security MIDAMERICAN ENERGY HOLDINGS COMPANY [Title of Security] No.__________ $_________ CUSIP No._________ MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns] the principal sum of _____________ Dollars (the "Principal Amount")] on ______, [IF THIS SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT- and to pay interest hereon from __________ or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on __________ and _________ in each year, commencing ___________, ___________ until the Principal Amount hereof is paid or made available for payment. [IF APPLICABLE, INSERT-; provided that any Principal Amount and any premium, and any such installment of interest, which is overdue shall bear interest at the rate of ___% per annum (or, if lower, the maximum rate legally enforceable), from the dates such amounts are due until they are paid or made available for payment, and such interest shall be payable on demand]. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the __________ or _________ (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date] and may be paid to [the bearer at the time of payment of such Defaulted Interest] [the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture]. [IF THIS SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of [yield to maturity] % per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal has been made or duly provided for. Interest on any overdue principal shall be payable on demand. [Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of [yield to maturity]% per annum (or, if lower, the maximum rate legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.] 39 Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts; provided however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). [INSERT ANY SPECIAL NOTICE PROVISIONS REQUIRED BY ANY STOCK EXCHANGES UPON WHICH THE SECURITIES OF A SERIES ARE TO BE LISTED.] REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 40 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: -------------------------------- Name: Title: Attest: By: ------------------------ Name: Title: 41 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated:____________ By:_____________________________ Authorized Signatory 42 SECTION 2.03. (b) Form of Reverse of Exchange Security MIDAMERICAN ENERGY HOLDINGS COMPANY [Title of the Securities] This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (herein called the "Original Indenture"), between the Company and The Bank of New York, as trustee, principal paying agent, security exchange agent/registrar and transfer agent (herein called the "Trustee," which term includes any successor trustee under the Original Indenture) [INSERT PARTICULARS WITH RESPECT TO ANY INDENTURE SUPPLEMENTAL THERETO PURSUANT TO WHICH THE SECURITIES OF THIS SERIES ARE BEING ISSUED] to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof. [IF APPLICABLE, INSERT- This Security is not subject to redemption prior to maturity.] [IF APPLICABLE, INSERT- The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (1) 100% of the Principal Amount; or (2) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus _____ basis points, plus, for (1) or (2) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in 43 accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (1) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (2) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof.] The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. [IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such 44 declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent THEREON.] [IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series (the "Acceleration Amount") may be declared due and payable in the manner and with the effect provided in the Indenture. In case of a declaration of acceleration on or before __________ in any year, the Acceleration Amount per $_____ principal amount at Stated Maturity of the Securities shall be equal to the amount set forth in respect of such date below: Acceleration Amount per $_____________ principal amount Date of declaration at Stated Maturity and in case of a declaration of acceleration on any other date, the Acceleration Amount shall be equal to the Acceleration Amount as of the immediately preceding date set forth in the table above, plus accrued original issue discount (computed in accordance with the method used for calculating the amount of original issue discount that accrues for United States federal income tax purposes) from such next preceding date to the date of declaration at the yield to maturity. For the purpose of this computation the yield to maturity is ____%. Upon payment (i) of the Acceleration Amount so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.] As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holder, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of 45 principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Definitive Securities of the series of which this Security is a part are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 46 When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. [CUSTOMARY ABBREVIATIONS MAY BE USED IN THE NAME OF A HOLDER OF A REGISTERED SECURITY OF THIS SERIES OR AN ASSIGNEE SUCH AS: TEN COM (= TENANTS IN COMMON), TEN ENT (= TENANTS BY THE ENTIRETIES), JT TEN (= JOINT TENANTS WITH RIGHT OF SURVIVORSHIP AND NOT AS TENANTS IN COMMON), CUST (= CUSTODIAN), AND U/G/M/A (= UNIFORM GIFTS TO MINORS ACT).] Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. 47 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: _____________________________ (sign exactly as your name appears on the others side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ 48 SECTION 2.04. Form of Trustee's Certificate of Authentication TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated:____________ By:___________________________ Authorized Signatory 49 SECTION 2.05. Form of Trustee's Certificate of Authentication by an Authenticating Agent If at any time there shall be an Authenticating Agent appointed with respect to any series of Securities, then the Trustee's Certificate of Authentication by such Authenticating Agent to be borne by the Securities of each such series shall be substantially as follows: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee [_______________________], as Authenticating Agent Dated:____________ By:____________________________ Authorized Signatory 50 ARTICLE III. THE SECURITIES SECTION 3.01. Amount Unlimited; Issuable in Series The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution and, subject to Section 3.03, set forth or determined in the manner provided in an Officers' Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series: (a) the title of the Securities of the series, including CUSIP numbers (which shall distinguish the Securities of the series from all other Securities); (b) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 3.04, 3.05, 3.06, 3.07, 3.08, 9.06 or 11.07, and except for any Securities which, pursuant to Section 3.03, are deemed never to have been authenticated and delivered hereunder); (c) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name the Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (d) the date or dates on which the principal of the Securities of the series is payable; (e) the rate or rates at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date; (f) the place or places, if any, in addition to or in the place of the Corporate Trust Office, where the principal of (and premium, if any) and interest, if any, on Securities of the series shall be payable and where such Securities may be registered or transferred; (g) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company; (h) if other than denominations of $1,000 and any integral multiple of $1,000, the denominations in which Securities of the series shall be issuable; 51 (i) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02; (j) if other than such coin or currency of the United States as at the time of payment is legal tender for payment of public or private debts, the coin or currency, including composite currencies such as the European Currency Unit, in which payment of the principal of (and premium, if any) and interest, if any, on the Securities of the series shall be payable and the manner of determining the equivalent thereof in the currency of the United States for any purpose, including for purposes of the designation of "Outstanding" in Section 1.01; (k) if the principal of (and premium, if any) or interest, if any, on the Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies or currency units which may be elected and the period or periods within which, and the terms and conditions upon which, such election may be made and the amount so payable; (l) if the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of the series may be determined with reference to an index or pursuant to a formula, the manner in which such amounts shall be determined; (m) if the principal amount payable at the Stated Maturity of any Securities of the series will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which shall be deemed to be the principal amount of such Securities as of any such date for any purpose thereunder or hereunder, including the principal amount thereof which shall be due and payable upon any Maturity other than the Stated Maturity or which shall be deemed to be Outstanding as of any date prior to the Stated Maturity (or, in any such case, the manner in which such amount deemed to be the principal amount shall be determined); (n) any provisions permitted by this Indenture relating to Events of Default or covenants of the Company with respect to such series of Securities; (o) if the Securities of the series shall be issued in whole or in part in the form of one or more Global Securities, whether beneficial owners of interests in any such Global Security may exchange such interests for Securities of such series of like tenor and of authorized form and denomination and the circumstances under which any such changes may occur, if other than in the manner provided in Section 3.07(b)(ii), and any related certificates in addition to those set forth in Section 3.13; (p) any deletion of, addition to or change in the Events of Default which apply to any Securities of the series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 5.02; (q) any deletion of, addition to or change in the covenants set forth in Article X which apply to Securities of the series; 52 (r) any information the Company shall be obligated to provide to the Trustee, and the Trustee shall be obligated to promptly forward to Holders of Securities of the series, pursuant to Section 7.03(b); (s) the form of any legend(s) which shall be borne by any Restricted Securities in addition to or in lieu of those set forth in Section 2.02; any circumstances in addition to or in lieu of those set forth in Section 3.06(b) in which such legend(s) may be removed or modified; any circumstances in addition to or in lieu of those set forth in Section 3.06(a) in which definitive Securities may be registered for transfer; and any certificates in addition to or in lieu of those set forth in Section 3.13; and (t) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above and set forth in the Officers' Certificate referred to above or in any indenture supplemental hereto referred to above. If any of the terms of the Securities of a series, including the form of Security of such series, are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by any authorized officer of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such series of Securities. SECTION 3.02. Denominations The Securities of each series shall be issuable in bearer form or in registered form without coupons, except as otherwise expressly provided in a supplemental indenture hereto, in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple of $1,000. SECTION 3.03. Execution, Authentication, Delivery and Dating The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents. The signature of any such Person on the Securities may be manual or facsimile. Securities bearing the manual or facsimile signature of any Person who was at any time the proper officer of the Company shall bind the Company, notwithstanding that such Person has ceased to hold such office prior to the authentication and delivery of such Securities or did not hold such office at the date of authentication of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with an instrument or instruments establishing such series of Securities as contemplated in Section 3.01 hereof, and a Company Order for the authentication 53 and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 6.01 and 6.03) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture; (b) that the terms of such Securities have been established in conformity with the provisions of this Indenture; and (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general principles of equity and such other matters as counsel may specify therein. Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the documents otherwise required pursuant to Sections 2.01 and 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the time of authentication upon original issuance of the first Security of such series to be issued and reasonably contemplate the issuance of each Security of such series. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee or an Authenticating Agent by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 3.10 together with a written statement (which need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 3.04. Temporary Securities Pending the preparation of definitive Securities of any series, the Company may execute, and upon compliance by the Company with Section 3.03, the Trustee or the Authenticating Agent shall authenticate and deliver, temporary Securities which are printed, 54 lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized, in bearer form, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder except as provided in Section 3.06 (if in connection with a transfer). Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged, the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. Upon any exchange of a portion of a temporary Global Security for a definitive Global Security for the individual Securities represented thereby pursuant to this Section 3.04 or Section 3.05, the temporary Global Security shall be endorsed by the Trustee to reflect the reduction of the principal amount of such temporary Global Security, and such principal amount shall be reduced for all purposes by the amount so exchanged and endorsed. SECTION 3.05. Registrar and Paying Agent; Registration, Registration of Transfer and Exchange The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration, transfer and exchange of Securities. The Company shall maintain an office or agency of the Paying Agent in any Place of Payment where Securities of a series may be presented for payment. The Company may have one or more co-registrars and one or more additional paying agents, and the terms "Security Exchange Agent/Registrar" and "Paying Agent" shall include any additional co-registrars and paying agents, respectively. The Company shall enter into an appropriate agency agreement with any Securities Exchange Agent/Registrar, Paying Agent or additional co-registrars or paying agents not a party to this Indenture, which shall incorporate the terms of the Trust Indenture Act and the provisions of this Indenture that relate to such agent. The Company shall notify the Trustee of the name and address of any such agent. If the Company fails to maintain a Security Exchange Agent/Registrar or Paying Agent, the Trustee shall act as such and shall be entitled to appropriate compensation therefor pursuant to Section 6.07. The Company may act as Security Exchange Agent/Registrar or Paying Agent. 55 The Company hereby initially appoints the Trustee as "Security Exchange Agent/Registrar" for the purpose of registering Securities and transfers of Securities, and for the purpose of exchanging Securities, and as Paying Agent, all as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee or the Authenticating Agent shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, any Security or Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and upon receipt of a Company Order the Trustee or the Authenticating Agent shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities issued upon any registration of transfer or exchange of Securities as provided in this Indenture shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Exchange Agent/Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to the Holder for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 3.04, 9.06 or 11.07 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption under Section 11.04 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part, provided that such Security shall be immediately surrendered for redemption with written instructions for payment consistent with the provisions of this Indenture. The provisions of this Section 3.05 are, with respect to any Global Security, subject to Section 3.07 hereof. 56 SECTION 3.06. Restricted Securities (a) Transfer and Exchange. (i) In General. Every Restricted Security shall be subject to the restrictions on transfer provided in the applicable legend(s) required to be set forth on the face of each Restricted Security pursuant to Section 2.01 or as provided pursuant to Section 3.01, unless such restrictions on transfer shall be waived or modified, in accordance with applicable laws, by the written consent of the Company. Each Holder of a Restricted Security, by its acceptance thereof, agrees to be bound by such restrictions on transfer. (ii) Special Provisions Regarding Transfer of Restricted Securities. Unless expressly provided otherwise in the Indenture, whenever any Restricted Definitive Security is presented or surrendered for registration of transfer, such Restricted Definitive Security must be accompanied by a certificate in substantially the form set forth in or contemplated by Section 3.13(c) (which may be attached to or set forth in the Restricted Definitive Security), appropriately completed, dated the date of such surrender and signed by the Holder of such Restricted Definitive Security, as to compliance with such restrictions on transfer, unless the Company shall have notified the Trustee that there is an effective registration statement under the Securities Act with respect to such Restricted Definitive Security. Neither the Security Exchange Agent/Registrar nor any Transfer Agent shall be required to accept for such registration of transfer or exchange any Restricted Definitive Security not so accompanied by a properly completed certificate. (b) Removal of Transfer Restrictions. Unless with respect to the whole or any portion of any Restricted Security the Company determines otherwise in accordance with applicable law, transfer restrictions and any restrictive legend(s) with respect to Restricted Securities of any series shall be removed by the Company (i) in the case of Rule 144A Securities and Restricted Definitive Securities, upon presentation of such Security by the Holder at any time on or after the expiration of the Holding Period, or (ii) in the case of Regulation S Securities, upon presentation of such Security by the Holder at any time on or after the expiration of the Restricted Period. Thereafter, upon registration of transfer of or exchange of such Securities, the Company shall execute, and the Trustee shall authenticate and deliver, an Unrestricted Security. Except as otherwise provided in the preceding paragraph, if Securities are issued upon the registration of transfer, exchange or replacement of Securities bearing a legend or legends setting forth restrictions on transfer, or if a request is made to remove such legend(s) from a Security, the Securities so issued shall bear such legend(s), or such legend(s) shall not be removed, as the case may be, unless there is delivered to the Company such satisfactory evidence (which may include an opinion, reasonably satisfactory to the Company, of independent counsel experienced in matters of United States securities law) as may be reasonably required by the Company that neither such legend(s) nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A or Rule 144 or Regulation S under the Securities Act or that such Securities are not "restricted securities" within 57 the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence to the Company, the Trustee, at the direction of the Company, shall authenticate and deliver a Security that does not bear such legend(s). In the absence of bad faith on its part, the Trustee may conclusively rely upon such direction of the Company in authenticating and delivering a Security that does not bear such legend(s). As used in this Section 3.06, the term "transfer" encompasses any sale, pledge or other transfer of any Securities referred to herein. Notwithstanding anything else in this Indenture to the contrary, after a transfer of any Initial Securities or Private Exchange Securities during the period of the effectiveness of a Shelf Registration Statement with respect to such Initial Securities or Private Exchange Securities, as the case may be, all requirements pertaining to legends on such Initial Security or such Private Exchange Security will cease to apply, the requirements requiring that any such Initial Security or such Private Exchange Security issued to certain Holders be issued in global form will cease to apply, and a certificated Initial Security or Private Exchange Security without legends will be available to the transferee of the Holder of such Initial Securities or Private Exchange Securities or upon receipt of directions to transfer such Holder's interest in the Global Security, as applicable. Notwithstanding anything else in this Indenture to the contrary, upon the consummation of a Registered Exchange Offer with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain Holders be issued in global form will cease to apply and certificated Initial Securities with the restricted securities legend set forth in Section 2.02 hereto will be available to Holders of such Initial Securities that do not exchange their Initial Securities and Exchange Securities in certificated form will be available to Holders that exchange such Initial Securities in such Registered Exchange Offer. Notwithstanding anything else in this Indenture to the contrary, upon the consummation of a Private Exchange with respect to the Initial Securities pursuant to which Holders of such Initial Securities are offered Private Exchange Securities in exchange for their Initial Securities, all requirements pertaining to such Initial Securities that Initial Securities issued to certain holders be issued in global form will still apply, and Private Exchange Securities in global form with the Restricted Securities legend set forth in Section 2.02 hereto will be available to Holders that exchange such Initial Securities in such Private Exchange. SECTION 3.07. Global Securities (a) Form and Legend. If the Company shall establish pursuant to Section 3.01 that certain of the Securities of a particular series are to be issued in the form of a Global Security, then the Company shall execute and the Trustee shall, in accordance with Section 3.03, authenticate and deliver, a Global Security or Securities which (i) shall represent, and shall be denominated in an aggregate amount equal to the aggregate principal amount of, all of the Securities of such series 58 to be so represented, (ii) shall be registered in the name of the Depositary or its nominee, (iii) shall be delivered by the Trustee to the Depositary for such series or pursuant to the Depositary's instruction and (iv) shall bear a legend substantially to the effect of the first two paragraphs of the form of face of Security set forth in Section 2.02. (b) Transfer and Exchange. (i) Transfers of Global Securities as such. Except as otherwise expressly provided in this Indenture or any supplement hereto, a Global Security representing all or a portion of the Securities of a series may not be transferred in global form, except as a whole (i) by the Depositary for such series to a nominee of such Depositary, (ii) by a nominee of such Depositary to such Depositary or another nominee of such Depositary or (iii) by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary. (ii) Exchanges of Global Securities for Definitive Securities. A Global Security of a series shall be exchangeable, in whole but not in part, for definitive Securities of such series if (a) DTC notifies the Company and the Depositary that it is unwilling or unable to continue to hold book-entry interests in such Global Security or DTC at any time ceases to be a "clearing agency" registered as such under the Exchange Act, and, in either case, a successor is not appointed by the Company within 120 days, (b) while a Global Security is a Restricted Security the book-entry interests in such Global Security cease to be eligible for DTC services because the Securities of such series are neither (i) rated in one of the top four categories by a nationally recognized statistical rating organization nor (ii) included within a Self-Regulatory Organization system approved by the Commission for the reporting of quotation and trade information of securities eligible for transfer pursuant to Rule 144A, such as the PORTAL system, (c) the Depositary for Securities of such series notifies the Company that it is unwilling or unable to continue as Depositary with respect to such Global Security and no successor is appointed within 120 days or (d) the Company in its sole discretion executes and delivers to the Trustee an Officers' Certificate providing that such Global Security shall be so exchangeable; provided that in no event shall the Regulation S Temporary Global Securities be exchanged by the Company for Definitive Securities prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Securities so issued in exchange for any such Global Security shall be of the same series, having the same interest rate, if any, and maturity and having the same terms as such Global Security, in authorized denominations and in the aggregate having the same principal amount as such Global Security and registered in such names as the Depositary for such Global Security shall direct based on the instructions of DTC. Upon such exchange, the surrendered Global Security shall be cancelled by the Trustee. A Global Security of a series shall be exchangeable, in whole or in part, for definitive Registered Securities of such series if there shall have occurred and be continuing an Event of Default with respect to the Securities of such series and the Holder, in such circumstances, shall have requested in writing that all or a part of the Global Security of such series be exchanged for one or more Definitive Securities (an 59 "Optional Definitive Security Request"), provided that in no event shall the Regulation S Temporary Global Securities be exchanged by the Company for definitive Registered Securities prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Upon any such surrender, (i) the Company shall execute and the Trustee shall authenticate and deliver without charge to each Person specified by DTC, in exchange for such Person's beneficial interest in the Global Security, a new Security or Securities of the same series in definitive registered form having the same interest rate, if any, and maturity and having the same terms as such Global Security, in any authorized denomination requested by such Person and in an aggregate principal amount equal to such Person's beneficial interest in the Global Security, and (ii) if the Global Security is being exchanged (x) as a whole, then the surrendered Global Security shall be cancelled by the Trustee, or (y) in part, then the principal amount of the surrendered Global Security shall be reduced by an endorsement on Schedule A thereto in the appropriate amount. Unless otherwise provided pursuant to a Board Resolution, Officers' Certificate or supplemental indenture in accordance with Section 3.01, Definitive Securities issued in exchange for a Global Security pursuant to this Section 3.07(b)(ii) shall be issued only in registered form and shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from DTC and its Participants or Indirect Participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the Persons in whose names such Securities are so registered. (c) Beneficial Interests. Subject to Section 3.06 and Section 3.07, beneficial interests in a Global Security may be transferred in any manner consistent with the Applicable Procedures. (d) Special Provisions Regarding Transfer of Beneficial Interests in a Regulation S Global Security. The transfer of beneficial interests in a Regulation S Global Security shall be effected in a manner not inconsistent with the following provisions: (i) Transfer Through a Rule 144A Global Security. If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Rule 144A Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(d)(i) provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Securities may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an initial purchaser). Upon receipt by the Depositary of the instructions, order and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the 60 Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Rule 144A Global Security equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant to be credited with, and the account of the Participant held for Euroclear or Clearstream to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.13(a) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar, shall (A) reduce the principal amount of the Regulation S Global Security, and increase the principal amount of the Rule 144A Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities, and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding reductions and increases in the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security having a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer. Delivery of a beneficial interest in the Regulation S Global Security of any series may not be taken in the form of a beneficial interest in the Rule 144A Global Security if immediately prior to the contemplated transfer no Rule 144A Global Security of the same series is then Outstanding. (ii) Interests in Regulation S Global Security Initially to be Held Through Euroclear or Clearstream. Beneficial interests in a Regulation S Temporary Global Security may be held only through Participants acting for and on behalf of Euroclear or Clearstream. (iii) Transfer Through Restricted Definitive Security. If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a Restricted Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(d)(iii), provided that in no event shall the Regulation S Temporary Global Securities be exchanged by the Company for Restricted Definitive Securities prior to (x) the expiration of the Restricted Period and (y) the receipt by the Security Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act. Upon receipt by the Depositary of the instructions and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to that of the beneficial interest in the Global Security to be so transferred and (2) a certificate substantially in the form set forth in or 61 contemplated by Section 3.13(f) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Regulation S Global Security by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, as evidenced by appropriate endorsement on Schedule A of the Regulation S Global Security and (B) cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer. (iv) Transfer Through an Unrestricted Global Security. If the holder of a beneficial interest in a Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(d)(iv). Upon receipt by the Depositary of the instructions, order and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Unrestricted Global Security equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant, and the Euroclear or Clearstream account for which such Participant's account is held, to be credited with, and the account of the Participant to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.13(b) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Regulation S Global Security, and increase the principal amount of the Unrestricted Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule Regulation S Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding reductions and increases to the transferor's beneficial interests in the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Unrestricted Global Security having a principal amount equal to the amount by which the principal amount of the Regulation S Global Security was reduced upon such transfer. (v) Beneficial Interests in Regulation S Temporary Global Securities to Definitive Securities. Notwithstanding the foregoing, a beneficial interest in a Regulation S Temporary Global Security may not be exchanged for a Definitive Security or transferred to a Person who takes delivery thereof in the form of a Definitive Security prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. 62 (e) Special Provisions Regarding Transfer of Beneficial Interests in a Rule 144A Global Security. The transfer of beneficial interests in a Rule 144A Global Security shall be effected in a manner not inconsistent with the following provisions: (i) Transfer Through a Regulation S Global Security. If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(e)(i). Upon receipt by the Depositary of the instructions, order and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Regulation S Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant held for Euroclear to be credited with, and the account of the Participant to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.13(d) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the Regulation S Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding reductions and increases to the amounts represented by the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Regulation S Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer. Delivery of a beneficial interest in the Rule 144A Global Security of any series may not be taken in the form of a beneficial interest in the Regulation S Global Security if immediately prior to the contemplated transfer no Regulation S Global Security of the same series is then Outstanding. (ii) Transfer Through an Unrestricted Global Security. If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(e)(ii). Upon receipt by the Depositary of the instructions, order and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the 63 Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be credited to a specified Participant's account a beneficial interest in the Unrestricted Global Security equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred, (2) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Participant to be credited with, and the account of the Participant to be debited for, such beneficial interest, and (3) a certificate substantially in the form set forth in or contemplated by Section 3.13(e) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Rule 144A Global Security, and increase the principal amount of the Unrestricted Global Security, in each case by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsements on Schedule A of the respective Global Securities and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding reductions and increases to the transferor's beneficial interests in the respective Global Securities and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Unrestricted Global Security having a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer. (iii) Transfer Through Restricted Definitive Security. If the holder of a beneficial interest in a Rule 144A Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a Restricted Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(e)(iii). Upon receipt by the Depositary of the instructions and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of (1) written instructions given in accordance with the Applicable Procedures from a Participant directing the Depositary to cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to that of the beneficial interest in the Rule 144A Global Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Section 3.13(g) given by the transferor of such beneficial interest, the Security Exchange Agent/Registrar shall (A) reduce the principal amount of the Rule 144A Global Security by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be so transferred, as evidenced by appropriate endorsement on Schedule A of the Rule 144A Global Security and cause to be issued a Restricted Definitive Security to such Person in a principal amount equal to the amount by which the principal amount of the Rule 144A Global Security was reduced upon such transfer and (B) instruct the Depositary, which shall instruct DTC, to make a corresponding reduction to the transferor's beneficial interest in the Rule 144A Global Security. (f) Special Provisions Regarding Transfer of Restricted Definitive Securities. 64 The transfer of Definitive Securities shall be effected in a manner not inconsistent with the following provisions: (i) Transfer Through Regulation S Global Security. If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(f)(i). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the Depositary to cause to be credited to such Person a beneficial interest in the Regulation S Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Section 3.13(c) given by the transferor of such Restricted Definitive Security, the Security Exchange Agent/Registrar shall (A) increase the principal amount of the Regulation S Global Security by an amount equal to the principal amount of the beneficial interest in the Regulation S Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the Regulation S Global Security, and cancel such Restricted Definitive Security, and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding increases in the amount represented by the Regulation S Global Security and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Regulation S Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled. (ii) Transfer Through Rule 144A Global Security. If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Rule 144A Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(f)(ii). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the Depositary to cause to be credited to such Person a beneficial interest in the Rule 144A Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Section 3.13(c) given by the transferor of such Restricted Definitive Security, the Security Exchange Agent/Registrar shall (A) increase the principal amount of the Rule 144A Global Security by an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the Rule 144A Global Security, and cancel such Restricted Definitive Security, and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding increases in the amount represented by the Rule 144A Global Security and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled. (iii) Transfer Through Unrestricted Global Security. If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who 65 wishes to take delivery thereof in the form of a beneficial interest in the Unrestricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(f)(iii). Upon receipt by the Security Exchange Agent/Registrar at the Corporate Trust Office of (1) written instructions from the transferor directing it to cause the Depositary to cause to be credited to such Person a beneficial interest in the Unrestricted Global Security in a principal amount equal to that of the Restricted Definitive Security to be so transferred and (2) a certificate substantially in the form set forth in or contemplated by Section 3.13(c) given by the transferor of such Restricted Definitive Security, the Security Exchange Agent/Registrar shall (A) increase the principal amount of the Unrestricted Global Security by an amount equal to the principal amount of the beneficial interest in the Unrestricted Global Security to be received by such Person, as evidenced by appropriate endorsement on Schedule A of the Unrestricted Global Security, and cancel such Definitive Security, and (B) instruct the Depositary, which shall instruct DTC, (x) to make corresponding increases in the amount represented by the Rule 144A Global Security and (y) to cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Unrestricted Global Security having a principal amount equal to the principal amount of the Restricted Definitive Security that was cancelled. (iv) Transfer Through Restricted Definitive Security. If the holder of a Restricted Definitive Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in the form of another Restrictive Definitive Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Section 3.07(f)(iv). Upon receipt by the Depositary of the instructions and certificate set forth below, the Depositary shall promptly forward the same to the Security Exchange Agent/Registrar at the Corporate Trust Office. Upon receipt by the Security Exchange Agent/Registrar from the Depositary at the Corporate Trust Office of a certificate substantially in the form set forth in or contemplated by Section 3.13(c) given by the transferor of such Restricted Definitive Security, the Security Exchange Agent/Registrar shall register the transfer of such Restricted Definitive Securities. SECTION 3.08. Mutilated, Destroyed, Lost and Stolen Securities If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such Security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. 66 In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security, in each such case without premium or penalty. Upon the issuance of any new Security under this Section 3.08, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section 3.08 in exchange for any mutilated Security or in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section 3.08 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.09. Payment of Interest; Interest Rights Reserved Except as may otherwise be established as contemplated by Section 3.01 with respect to any series of Securities, interest on any Security which is payable and is punctually paid or duly provided for on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Payment of interest, if any, in respect of any Security will be made by check mailed to the address of the Person entitled thereto at such Person's address appearing in the Security Register. Payment of interest, if any, in respect of any Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, and payment of interest, if any, in respect of a Permanent Global Security shall be made, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or a Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Any interest on any Security of any series which is payable but is not punctually paid or duly provided for on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such 67 Defaulted Interest, which shall be fixed in the following manner: The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. Unless the Trustee is acting as the Security Exchange Agent/Registrar, promptly after such Special Record Date, the Company shall furnish the Trustee with a list, or shall make arrangements satisfactory to the Trustee with respect thereto, of the names and addresses of, and respective principal amounts of such Securities held by, the Holders appearing on the Security Register at the close of business on such Special Record Date. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (b). (b) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any Securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange. Subject to the foregoing provisions of this Section 3.09, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security, shall carry the Rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.10. Persons Deemed Owners Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.09) interest, if any, on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. All such payments so made to any such Person, or upon such Person's order, shall be valid, and, to the extent of the sums so paid, effectual to satisfy and discharge the liability for monies payable upon any such Security. 68 Holders of beneficial interests in a Global Security of any series will not be entitled to receive certificates therefor, except in the limited circumstances set forth in Section 3.07(b)(ii). No holder of any beneficial interest in a Global Security shall have any rights under this Indenture with respect to such Global Security. The Trustee shall not deem requests or directions from, or votes by, the Depositary for a Global Security of any series to be inconsistent if made on behalf of different holders of beneficial interests. SECTION 3.11. Cancellation All Securities surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee and disposed of in its customary manner. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 3.11 except as expressly permitted by this Indenture. SECTION 3.12. Computation of Interest Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest, if any, on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.13. Certification Form (a) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Regulation S Global Security pursuant to Section 3.07(d)(i) of this Indenture, in connection with the transfer of a beneficial interest therein to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Rule 144A Global Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), including or omitting bracketed language as appropriate, but otherwise with only such changes as may be approved in writing by the Company: 69 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM REGULATION S GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY (Transfers Pursuant to ss.3.07(d)(i) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S. $_________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities in fully registered form (CUSIP No._________; ISIN No. __________) and held with the Depositary by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Regulation S Global Security to a Person that will take delivery thereof (the "Transferee") in the form of any equal principal amount of Securities evidenced by one or more Rule 144A Global Securities (CUSIP No. ____). In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Regulation S Global Security are being transferred pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended, and, accordingly, the Transferor does hereby further certify that the interests in the Regulation S Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States. 70 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers of the Securities being transferred. [Insert Name of Transferor] By: ------------------------------- Name: Title: Dated: __________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signature Guaranty:_____________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (b) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Regulation S Global Security pursuant to Section 3.07(d)(iv) of this Indenture in connection with the transfer of a beneficial interest in the Regulation S Global Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such certification shall be provided substantially in the form of the following certificate, with only such changes as shall be approved in writing by the Company. 71 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM REGULATION S GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (Transfers pursuant to ss.3.07(d)(iv) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S.$ _________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities (CUSIP No._________; ISIN No. __________) and held with the Depositary by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Unrestricted Global Securities (CUSIP No._________). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with either Rule 903, Rule 904 or Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor does hereby further certify that: (1) if the transfer has been effected pursuant to Rule 903 or Rule 904: (A) the offer of the Securities was not made to a Person in the United States; (B) either: (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor 72 any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; or (2) if the transfer has been effected pursuant to Rule 144, the Securities have been transferred in a transaction permitted by Rule 144. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers, if any, of the Securities being transferred. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: ------------------------------ Name: Title: Dated: _____________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (c) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by a Holder of a Security pursuant to Section 3.06(a)(ii), 3.07(b)(ii) and 3.07(f) of this Indenture in connection with the transfer or exchange of a Restricted Definitive Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), including or omitting bracketed language as appropriate, but otherwise with only such changes as may be approved in writing by the Company: 73 FORM OF TRANSFER CERTIFICATE FOR TRANSFER AND EXCHANGE OF RESTRICTED DEFINITIVE SECURITIES (Transfers Pursuant to ss.3.06(a)(ii), 3.07(b)(ii) and ss.3.07(f) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S. $________________ principal amount of Securities presented or surrendered on the date hereof (the "Surrendered Securities") which are registered in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such Surrendered Securities registered in the name of a Person (the "Transferee") other than the Transferor (each such transaction being referred to herein as a "transfer"). In connection with such request and in respect of such Surrendered Securities, the Transferor does hereby certify that: [CHECK ONE] [ ] (1) the Surrendered Securities are being transferred to the Company or an Affiliate thereof; [ ] (2) the Surrendered Securities are being transferred pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") and, accordingly, the Transferor does hereby further certify that the Surrendered Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Surrendered Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A, in each case in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States; [ ] (3) the Surrendered Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Surrendered Securities for its own account or for one or more accounts with respect to which such Person exercise sole investment discretion, and such Person and each such account is an institutional 74 "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act and is purchasing such Surrendered Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act in a transaction in accordance with any applicable securities laws of the United States or any state thereof. or [ ] (4) the Surrendered Securities are being transferred pursuant to and in accordance with Regulation S and: (A) the offer of the Surrendered Securities was not made to a Person in the United States; (B) either: (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States; (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; or [ ] (5) the Surrendered Securities are being transferred in a transaction permitted by Rule 144. 75 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers of the Securities being transferred. [Insert Name of Transferor] By: ------------------------------- Name: Title: Dated:________________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signature Guaranty:_____________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (d) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Rule 144A Global Security pursuant to Section 3.07(e)(i) of this Indenture in connection with the transfer of a beneficial interest therein to a Person who wishes to take delivery thereof in the form of a beneficial interest in a Regulation S Global Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), with only such changes as shall be approved in writing by the Company. 76 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL SECURITY TO REGULATION S GLOBAL SECURITY (Transfers pursuant to ss.3.07(e)(i) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S.$ ________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No. ________) and held through DTC in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a non-U.S. Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Regulation S Global Securities (CUSIP No.________), which amount, immediately after such transfer, is to be held with DTC through Euroclear or Clearstream (Common Code _______). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with Rule 903 or Rule 904 under the United States Securities Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor does hereby further certify that: (1) the offer of the Securities was not made to a Person in the United States; (2) either: (A) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; 77 (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) upon completion of the transaction, the beneficial interest being transferred as described above is to be held with DTC through Euroclear or Clearstream (Common Code ___________). This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters or initial purchasers, if any, of the initial offering of such Securities being transferred. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: --------------------------- Name: Title: Dated: ________________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signature Guaranty:____________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (e) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Rule 144A Global Security pursuant to Section 3.07(e)(ii) of this Indenture in connection with the transfer of a beneficial interest in the Rule 144A Global Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in an Unrestricted Global Security, such certification shall be provided substantially in the form of the following certificate, with only such changes as shall be approved in writing by the Company. 78 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL SECURITY TO UNRESTRICTED GLOBAL SECURITY (Transfers pursuant to ss.3.07(e)(ii) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S.$ _________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No._________) and held through DTC in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Unrestricted Global Securities (CUSIP No._________). In connection with such request and in respect of such Securities, the Transferor does hereby certify that such transfer has been effected pursuant to and in accordance with either Rule 903, Rule 904 or Rule 144 under the United States Securities Act of 1933, as amended (the "Securities Act"), and accordingly the Transferor does hereby further certify that: (1) if the transfer has been effected pursuant to Rule 903 or Rule 904: (A) the offer of the Securities was not made to a Person in the United States; (B) either: (i) at the time the buy order was originated, the transferee was outside the United States or the Transferor and any Person acting on its behalf reasonably believed that the transferee was outside the United States, or (ii) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any Person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; 79 (C) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (D) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; or (2) if the transfer has been effected pursuant to Rule 144, the Securities have been transferred in a transaction permitted by Rule 144. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers, if any, of the Securities being transferred. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: ---------------------------- Name: Title: Dated: _____________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (f) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Regulation S Global Security pursuant to Section 3.07(d)(iii) of this Indenture in connection with the transfer of a beneficial interest therein to a Person who wishes to take delivery thereof in the form of a Definitive Restricted Security, such certification shall be provided substantially in the form of the following certificate (which may be attached to or set forth on the Security), including or omitting bracketed language as appropriate, but otherwise with only such changes as may be approved in writing by the Company: 80 FORM OF TRANSFER CERTIFICATE FOR TRANSFER OR EXCHANGE FROM REGULATION S GLOBAL SECURITY TO RESTRICTED DEFINITIVE SECURITY (Transfers Pursuant to ss.3.07(d)(iii) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S. $___________ principal amount of Securities which are evidenced by one or more Regulation S Global Securities in fully registered form (ISIN No. _____) and held with the Depositary by means of a book-entry interest through Euroclear or Clearstream in the name of [insert name of transferor] (the "Transferor").] The Transferor has requested a transfer of such beneficial interest in the Regulation S Global Security to a Person that will take delivery thereof (the "Transferee") in the form of an equal principal amount of Securities evidenced by a Definitive Restricted Security. In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Regulation S Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the United States Securities Act of 1933, as amended (the "Securities Act"), and is purchasing such Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, in a transaction in accordance with any applicable securities laws of the United States or any state thereof. 81 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers of the Securities being transferred. [Insert Name of Transferor] By: ----------------------------- Name: Title: Dated:____________ cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. (g) Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, whenever any certification is to be given by an owner of a beneficial interest in a Rule 144A Global Security pursuant to Section 3.07(e)(iii) of this Indenture in connection with the transfer of a beneficial interest in the Rule 144A Global Security to a Person who wishes to take delivery thereof in the form of a Definitive Restricted Security, such certification shall be provided substantially in the form of the following certificate, with only such changes as shall be approved in writing by the Company. 82 FORM OF TRANSFER CERTIFICATE FOR EXCHANGE OR TRANSFER FROM RULE 144A GLOBAL SECURITY TO RESTRICTED DEFINITIVE SECURITY (Transfers pursuant to ss.3.07(e)(iii) of the Indenture) The Bank of New York, as Trustee 101 Barclay Street New York, New York 10286 Re: MIDAMERICAN ENERGY HOLDINGS COMPANY'S [Title of Securities] Reference is hereby made to the Indenture, dated as of October 4, 2002 (the "Indenture"), between MidAmerican Energy Holdings Company and The Bank of New York, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S.$ _________ principal amount of Securities which are evidenced by one or more Rule 144A Global Securities (CUSIP No. __________) and held through DTC in the name of [insert name of transferor] (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by a Restricted Definitive Security. In connection with such request and in respect of such Securities, the Transferor does hereby certify that the interests in the Rule 144A Global Security are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is an institutional "accredited investor" as described in Rule 501(a)(1), (2), (3) or (7) under the United States Securities Act of 1933, as amended (the "Securities Act"), and is purchasing such Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, in a transaction in accordance with any applicable securities laws of the United States or any state thereof. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the underwriters and initial purchasers, if any, of the Securities being transferred. [Insert Name of Transferor] By: ----------------------------- Name: Title: Dated: ____________ 83 cc: MIDAMERICAN ENERGY HOLDINGS COMPANY Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Security Exchange Agent/Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Security Exchange Agent/Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. SECTION 3.14. CUSIP and ISIN Numbers. The Company in issuing the Securities may use "CUSIP" numbers or "ISIN" numbers (in either case, if then generally in use), and, if so, the Trustee shall use "CUSIP" or "ISIN" numbers, as applicable, in notices of redemption as a convenience to Holders; provided that the Trustee shall assume no responsibility for the accuracy of such numbers and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE IV. SATISFACTION, DISCHARGE AND DEFEASANCE SECTION 4.01. Satisfaction and Discharge of Indenture This Indenture shall, on the 123rd day after the deposit referred to in subsection (a)(ii) below has been made (or immediately if an Opinion of Counsel is delivered to the effect described in Section 4.02(c)(iii)(3) hereof), cease to be of further effect, and the Trustee shall execute instruments in form and substance satisfactory to itself and to the Company acknowledging satisfaction and discharge of this Indenture, when: (a) either (i) all Securities theretofore authenticated and delivered (other than (1) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.08 and (2) Securities for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation 84 (1) have become due and payable, or (2) will become due and payable at their Stated Maturity within one year, or (3) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, or (4) are deemed paid and discharged pursuant to Section 4.02, and the Company, in the case of (1), (2) or (3) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount of (A) money or (B) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms will provide not later than one day before the Stated Maturity or Redemption Date, as the case may be, money, or (C) a combination of money and such U.S. Government Obligations, in each case, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal, premium, if any, and accrued and unpaid interest, if any, to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (b) the Company has paid, caused to be paid or made provision satisfactory to the Trustee for payment of all other sums payable hereunder by the Company; and (c) the Company has delivered to the Trustee an Officer's Certificate and Opinion of Counsel stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the following rights and obligations shall survive: (i) the obligations of the Company to the Trustee under Section 6.07(c), (ii) the obligations of the Trustee to any Authenticating Agent under Section 6.14, (iii) if money or U.S. Government Obligations shall have been deposited with or received by the Trustee pursuant to Section 4.01(a)(ii) or Section 4.02, the obligations of the Trustee under Section 4.03 and the last paragraph of Section 10.03 and (iv) any rights of registration of transfer, exchange or replacement of Securities provided in Article III and Sections 9.06, 10.02 and 11.07. SECTION 4.02. Defeasance, Discharge and Covenant Defeasance (a) Defeasance and Discharge of a Series of Securities. The Company shall be deemed to have been discharged from its obligations with respect to Outstanding Securities of any series, as provided in this Section 4.02(a), on and after the date the applicable conditions set forth in subsection (c) hereof are satisfied (hereinafter called "Defeasance") with respect to such Securities. For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness representing the Outstanding Securities of such 85 series and to have satisfied all of its other respective obligations under the Securities of such series and this Indenture insofar as the Securities of such series are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of Securities of such series to receive, solely from the trust fund described in Section 4.03 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities of such series when payments are due, (ii) the Company's obligations with respect to the Securities of such series under Article III and Sections 10.02 and 10.03, (iii) the rights (including, without limitation, the rights set forth in Section 6.07), powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Article. Subject to compliance with this Article, the Company may defease any Securities pursuant to this Section notwithstanding the prior Covenant Defeasance of such Securities pursuant to subsection (b) hereof. (b) Covenant Defeasance. On and after the date the applicable conditions set forth in subsection (c) hereof are satisfied (hereinafter called "Covenant Defeasance") with respect to the Outstanding Securities of any series, (i) the Company shall be released from its obligations under Sections 8.01, 10.04 and 10.10 and any covenants established as contemplated by Section 3.01 or adopted by any indenture supplemental hereto under Section 9.01(b) for the benefit of the Holders of such Securities and (ii) the occurrence of any event specified in Section 5.01(c) and Section 5.01(d) (with respect to any of the Sections described in clause (i) above), Section 5.01(a) (solely with respect to a Change of Control Offer), Section 5.01(e) and Section 5.01(f) shall be deemed not to be or result in an Event of Default, in each case with respect to the Outstanding Securities of such series as provided in this Section. For this purpose, such Covenant Defeasance means that, with respect to such Securities, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 5.01(a) and Section 5.01(d)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document; but the remainder of this Indenture and such Securities of such series shall be unaffected thereby. (c) Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to the Defeasance or the Covenant Defeasance pursuant to this Section 4.02 of the Outstanding Securities of any series: (i) the Company shall elect by Board Resolution to effect a Defeasance or a Covenant Defeasance pursuant to this Section 4.02 with respect to the Outstanding Securities of any series specified in such Board Resolution; (ii) the Company shall irrevocably have deposited or caused to be deposited (except as provided in Section 6.07, Section 4.03(c) and the last paragraph of Section 10.03) with the Trustee (specifying that each such deposit is pursuant to this Section 4.02) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for the benefit of, and dedicated solely to, the Holders of the Outstanding Securities of such series, (1) money, or (2) U.S. Government Obligations which through the payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, 86 money, or (3) a combination thereof, in each case in an amount sufficient, in the opinion of a nationally recognized firm of independent accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge, the principal of and any premium and interest on the Securities of such series on the respective Stated Maturities (or if the Company has designated a Redemption Date pursuant to the next sentence of this clause (ii), to and including the Redemption Date so designated by the Company), in accordance with the terms of this Indenture and the Securities of such series. If the Company shall wish to deposit or cause to be deposited money or U.S. Government Obligations to pay or discharge the principal of (and premium, if any) and interest, if any, on the Outstanding Securities of such series to and including a Redemption Date on which all of the Outstanding Securities of such series are to be redeemed, such Redemption Date shall be irrevocably designated by a Board Resolution delivered to the Trustee on or prior to the date of deposit of such money or U.S. Government Obligations, and such Board Resolution shall be accompanied by an irrevocable Company Request that the Trustee give notice of such redemption in the name and at the expense of the Company not less than 30 nor more than 60 days prior to such Redemption Date in accordance with this Indenture; (iii) the Company shall have delivered to the Trustee: (1) either (A) an Opinion of Counsel to the effect that Holders of such Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred and the Company had paid or redeemed such Securities on the applicable dates, which Opinion of Counsel, in the case of a Defeasance pursuant to Section 4.02(a), must be based upon a ruling of the Internal Revenue Service to the same effect or a change in applicable federal income tax law or related Treasury regulations after the date hereof, or (B) a ruling directed to the Trustee or the Company received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel; (2) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940; and (3) an Opinion of Counsel to the effect that either (A) after the passage of 123 days following the deposit referred to in subsection (c)(ii) of this Section 4.02, the trust fund will not be subject to the effect of Section 547 or 548 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law or (B) based upon existing precedents, if the matter were properly briefed, a court should hold that the deposit of moneys and/or U.S. Government Obligations as provided in subsection (c)(ii) of this Section 4.02 would not constitute a preference voidable under Section 547 or 548 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; 87 (iv) if at such time the Securities are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Securities will not be delisted as a result of such deposit, defeasance and discharge; (v) immediately after giving effect to the deposit referred to in subsection (c)(ii) of this Section 4.02 on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, will have occurred and be continuing on the date of the deposit referred to in subsection (c)(ii) of this Section 4.02 or (unless an Opinion of Counsel is delivered to the effect described in subsection (c)(iii)(3) of this Section 4.02) during the period ending on the 123rd day after the date of such deposit; (vi) if the Trust Indenture Act shall be applicable to the Securities of such series, such Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Securities are in default within the meaning of such Act); (vii) such Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound; and (viii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. SECTION 4.03. Application of Trust Money (a) Subject to the provisions of the last paragraph of Section 10.03, all money or U.S. Government Obligations deposited with the Trustee pursuant to Section 4.01 or 4.02 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 4.01 or 4.02, shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal of (and premium, if any) and interest, if any, on the Securities for whose payment such money has been deposited with or received by the Trustee. (b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the Trustee or the trust created hereby with respect to U.S. Government Obligations deposited pursuant to Sections 4.01 or 4.02 or the interest and principal received in respect thereof other than any such tax, fee or other charge which by law is payable by or on behalf of Holders. (c) The Trustee shall deliver or pay to the Company from time to time upon Company Request any monies or U.S. Government Obligations held by it as provided in Section 4.01 or 4.02 which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of 88 the amount thereof which, at the time of such certification, would have been required to be deposited to effect the discharge of the Indenture or of any series of Securities, or the Defeasance or Covenant Defeasance of the Securities of any series, as the case may be. This paragraph (c) shall not authorize the sale by the Trustee of any U.S. Government Obligations held under this Indenture. SECTION 4.04. Reinstatement If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article with respect to any Securities by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations under this Indenture and such Securities from which the Company has been discharged or released pursuant to Section 4.01 or 4.02 shall be revived and reinstated as though no deposit had occurred pursuant to this Article with respect to such Securities, until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 4.03 with respect to such Securities in accordance with this Article; provided, however, that if the Company makes any payment of principal of or any premium or interest on any such Security following such reinstatement of its obligations, the Company shall be subrogated to the rights (if any) of the Holders of such Securities to receive such payment from the money so held in Trust. ARTICLE V. REMEDIES SECTION 5.01. Events of Default "Event of Default," wherever used herein with respect to Securities of any series, means any one of the following events: (a) default as to the payment of principal of (or premium, if any, on) any Security of that series or as to any payment required in connection with a Change of Control; (b) default as to the payment of interest on any Security of that series for 30 days after payment is due; (c) failure to make a Change of Control Offer as required under Section 10.10 hereof or a failure to purchase Securities of that series tendered in respect of such Change of Control Offer; (d) default in the performance, or breach, of any covenant, agreement or warranty of the Company contained in this Indenture and the Securities of that series (other than a default in performance, or breach, of a covenant, agreement or warranty otherwise specifically addressed by this Section 5.01) and such failure continues for 30 days after written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder is given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in aggregate principal amount of Outstanding Securities of that series, as provided in this Indenture; 89 (e) default on any other Debt of the Company or any Significant Subsidiary (other than Debt that is Non-Recourse) if either (i) such default results from failure to pay principal of such Debt in excess of $100 million when due after any applicable grace period or (ii) as a result of such default, the maturity of such Debt has been accelerated prior to its scheduled maturity and such default has not been cured within the applicable grace period, and such acceleration has not been rescinded, and the principal amount of such Debt, together with the principal amount of any other Debt of the Company and its Significant Subsidiaries (not including Debt that is Non-Recourse) that is in default as to principal, or the maturity of which has been accelerated, aggregates $100 million or more; (f) the entry by a court of one or more judgments or orders against the Company or any Significant Subsidiary for the payment of money that in the aggregate exceeds $100 million (excluding (i) the amount thereof covered by insurance or by a bond written by a Person other than an Affiliate of the Company and (ii) any judgment that is Non-Recourse), which judgments or orders have not been vacated, discharged or satisfied or stayed pending appeal within 60 days from the entry thereof, provided that such a judgment or order will not be an Event of Default if such judgment or order does not require any payment by the Company; (g) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary or of any substantial part of the property of the Company or any Significant Subsidiary, or ordering the winding up or liquidation of the affairs of the Company or any Significant Subsidiary, and any such decree or order for relief or any such other decree or order shall continue unstayed and in effect for a period of 60 consecutive days; or (h) commencement by the Company or any Significant Subsidiary of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under any such applicable Federal or State law, or the consent by the Company or any Significant Subsidiary to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Significant Subsidiary of any substantial part of its property, or the making by the Company or any Significant Subsidiary of an assignment of the benefit of creditors, or the taking of action by the Company or any Significant Subsidiary in furtherance of any such action. 90 SECTION 5.02. Acceleration of Maturity; Rescission and Annulment If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then either the Trustee or (i) in the case of an Event of Default described under subsection (a) or (b) of Section 5.01 above, the Holders of at least 33% in aggregate principal amount of the Outstanding Securities, or (ii) in the case of any other Event of Default, the Holders of a majority in aggregate principal amount of the Outstanding Securities, may declare the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof), and any interest accrued thereon, of all of the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default described under subsection (g) or (h) of Section 5.01 occurs, the entire principal amount of the Outstanding Securities, plus any accrued interest thereon, shall become immediately due and payable without any action by the Trustee, the Holders or any other Person. At any time after such declaration of acceleration with respect to Securities of any series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as hereinafter in this Article provided, if all Events of Default with respect to Securities have been cured or waived (other than the non-payment of principal of the Securities which has become due solely by reason of such declaration of acceleration), then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding Securities may, by written notice to the Company and the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall affect any subsequent default or impair any right consequent thereon. For all purposes under this Indenture, if a portion of the principal of any Original Issue Discount Securities shall have been accelerated and declared due and payable pursuant to the provisions hereof, then, from and after such declaration, unless such declaration has been rescinded and annulled, the principal amount of such Original Issue Discount Securities shall be deemed, for all purposes hereunder, to be such portion of the principal thereof as shall be due and payable as a result of such acceleration, and payment of such portion of the principal thereof as shall be due and payable as a result of such acceleration, together with interest, if any, thereon and all other amounts owing thereunder, shall constitute payment in full of such Original Issue Discount Securities. SECTION 5.03. Collection of Debt and Suits for Enforcement by Trustee The Company covenants that if (a) default is made in the payment of any interest on any Security of a series when such interest becomes due and payable and such default continues for a period of 30 days, or 91 (b) default is made in the payment of the principal of (or premium, if any, on) any Security of a series at the Stated Maturity thereof or in any payment on such Security required in connection with a Change of Control, the Company will, upon written demand of the Trustee, pay to it, for the benefit of the Holders of such Securities of such series, the whole amount then due and payable on such Securities of such series for principal (and premium, if any) and interest, if any, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and any overdue interest, at the rate or rates prescribed therefor in such Securities of such series, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated. If any Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights. SECTION 5.04. Trustee May File Proofs of Claim In case of the pendency of any receivership, insolvency, liquidation (other than a solvent liquidation), bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (a) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the 92 Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 5.06. Application of Money Collected Any money collected by the Trustee pursuant to this Article shall be applied in the following order with respect to the Securities of any series, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; SECOND: In case the principal and premium, if any, of the Securities of such series in respect of which moneys have been collected shall not have become and be then due and payable, to the payment of interest, if any, on the Securities of such a series in default in the order of the maturity of the installments of such interest, with interest (to the extent that such interest has been collected by the Trustee and to the extent permitted by law) upon the overdue installments of interest at the rate prescribed therefor in such Securities, such payments to be made ratably to the Persons entitled thereto, without discrimination or preference; THIRD: In case the principal or premium, if any, of the Securities of such series in respect of which moneys have been collected shall have become and shall be then due and payable, to the payment of the whole amount then owing and unpaid upon all the Securities of such series for principal and premium, if any, and interest, if any, with interest upon the overdue principal and premium, if any, and (to the extent that such interest has been collected by the Trustee and to the extent permitted by law) upon overdue installments of interest at the rate prescribed therefor in the Securities of such series; and in case such moneys shall be insufficient to pay in full the whole amount so due and unpaid upon the Securities of such series, then to the payment of such principal and any premium and interest, without preference or priority of principal over interest, or of interest over principal or premium, or of any installment of interest 93 over any other installment of interest, or of any Security of such series over any other Security of such series, ratably to the aggregate of such principal and any premium and accrued and unpaid interest; and FOURTH: To the payment of the remainder, if any, to the Company. SECTION 5.07. Limitation on Suits No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities; (b) (i) in the case of an Event of Default described under subsection (a) or (b) of Section 5.01 above, the Holders of at least 33% in aggregate principal amount of the Outstanding Securities, or (ii) in the case of any other Event of Default, the Holders of a majority in aggregate principal amount of the Outstanding Securities, shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 90 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 90-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest Subject to Section 5.07, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.11) interest, if any, on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. 94 SECTION 5.09. Restoration of Rights and Remedies If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Company, the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10. Rights and Remedies Cumulative Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11. Delay or Omission Not Waiver No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient by the Trustee or by the Holders, as the case may be. SECTION 5.12. Control by Holders The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture, (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (c) the action so directed would not be prejudicial to Holders of any other series of Outstanding Securities not taking part in such action; provided, further, that the Trustee shall be under no obligation to determine whether any such direction shall be so prejudicial. 95 SECTION 5.13. Waiver of Past Defaults The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (a) in the payment of the principal of (or premium, if any) or interest, if any, on any Security, or in any payment on such Security required in connection with a Change of Control, or (b) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14. Undertaking for Costs All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant in such suit, but the provisions of this Section 5.14 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest, if any, on any Security on or after the Stated Maturity or Maturities expressed in such Security. ARTICLE VI. THE TRUSTEE SECTION 6.01. Certain Duties and Responsibilities (a) Except during the continuance of a default with respect to the Securities of any series, (i) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and 96 (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein). (b) In case a default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that (i) this subsection shall not be construed to limit the effect of subsection (a) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless the Trustee was negligent in ascertaining the pertinent facts; (iii) no provision of this Indenture shall require the Trustee to spend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate indemnity against such risk or liability satisfactory to the Trustee has not been assured to it; and (iv) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in principal amount of the Outstanding Securities of any series, determined as provided in Section 5.12, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct of, or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 6.01. SECTION 6.02. Notice of Defaults Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series notice of such default hereunder known to the Trustee, unless such default shall have been 97 cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest, if any, on any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or a Responsible Officer of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders of Securities of such series; and provided, further, that in the case of any default of the character specified in Section 5.01(d) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section 6.02, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. SECTION 6.03. Certain Rights of Trustee Subject to the provisions of Section 6.01: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order or as otherwise expressly provided herein and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel of its selection, and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to expend or risk its own funds or to exercise, at the request or direction of any of the Holders, any of the rights or powers vested in it by this Indenture pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled upon reasonable prior request and 98 during normal business hours to examine the books, records and premises of the Company, personally or by agent or attorney at the expense of the Company and shall incur no liability of any kind by reason of such inquiry or investigation; (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and shall not be liable for the actions or omissions of such agents appointed by it with due care; (h) the Trustee shall not be charged with knowledge of any default or Event of Default, as the case may be, with respect to the Securities of any series unless either (i) a Responsible Officer of the Trustee shall have actual knowledge of the default or an Event of Default, as the case may be, or (ii) written notice of such default or Event of Default, as the case may be, shall have been given to the Trustee by the Company pursuant to Section 10.05 hereof, by any other obligor on such Securities or by any Holder of such Securities; and (i) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. SECTION 6.04. Not Responsible for Recitals or Issuance of Securities The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent nor any party hereto (other than the Company) assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. Neither the Trustee nor any Authenticating Agent nor any party hereto (other than the Company) shall be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 6.05. May Hold Securities The Trustee, any Authenticating Agent, any Paying Agent, any Security Exchange Agent/Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Exchange Agent/Registrar or such other agent. SECTION 6.06. Money Held in Trust Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. 99 SECTION 6.07. Compensation and Reimbursement The Company agrees (a) to pay to the Trustee from time to time such compensation as is agreed upon in writing, which compensation shall not be limited by any provision of law regarding compensation of the trustee of an express trust; (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel, which compensation, expenses and disbursements shall be set forth in reasonable written detail), except any such expense, disbursement or advance shall be determined to have been caused by its or their own negligence or bad faith; and (c) to indemnify each of the Trustee, its officers, directors and employees for, and to hold each of them harmless against, any loss, liability or expense incurred without negligence, bad faith, or willful misconduct on its or their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself or themselves against any claim or liability in connection with the exercise or performance of any of its or their powers or duties hereunder. Obligations under this Section 6.07(c) will survive the satisfaction and discharge of this Indenture pursuant to Section 4.01 hereof. SECTION 6.08. Disqualification; Conflicting Interests If the Trust Indenture Act shall be applicable to a series of Securities issued hereunder and the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, then the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09. Corporate Trustee Required; Eligibility There shall at all times be a Trustee hereunder which shall be eligible to act as trustee under the Trust Indenture Act and which shall have a combined capital and surplus of at least $50,000,000. If the Trustee does not have an office in The City of New York, the Trustee may appoint an agent in The City of New York reasonably acceptable to the Company to conduct any activities which the Trustee may be required under this Indenture to conduct in The City of New York. If the Trustee does not have an office in The City of New York or has not appointed an agent in The City of New York, the Trustee shall be a Participant in DTC and in the FAST distribution systems. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of a United States federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section 6.09, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 6.09, the Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article. 100 SECTION 6.10. Resignation and Removal; Appointment of Successor Trustee (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series, subject to Section 6.09. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after such removal, the Trustee subject to such removal may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series, subject to Section 6.09. (d) If at any time: (i) the Trustee shall fail to comply with section 310(b) of the Trust Indenture Act pursuant to Section 6.08, with respect to any series of Securities to which the Trust Indenture Act may be applicable, after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (ii) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (iii) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (1) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (2) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of the Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all 101 of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by giving notice in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. SECTION 6.11. Acceptance of Appointment by Successor (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to 102 the Securities of that or those series to which the appointment of such successor Trustee relates; but on request of the Company or any successor trustee, such retiring Trustee shall upon payment of its charges hereunder duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section 6.11, as the case may be. (d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13. Preferential Collecting of Claims Against Company (a) Subject to subsection (b) of this Section 6.13, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in subsection (c) of this Section 6.13, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities, as defined in subsection (c) of this Section 6.13: (i) an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest effected after the beginning of such three-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (ii) of this subsection (a), or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been applied by or against the Company upon the date of such default; and (ii) all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three-month period, or an amount equal to the 103 proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds. Nothing herein contained, however, shall affect the right of the Trustee: (1) to retain for its own account (A) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (B) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (C) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law; (2) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three-month period; (3) to realize, for its own account, but only to extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in subsection (c) of this Section 6.13, would occur within three months; or (4) to receive payment on any claim referred to in paragraph (2) or (3) of this subsection, against the release of any property held as security for such claim as provided in paragraph (2) or (3), as the case may be, to the extent of the fair value of such property. For the purposes of paragraphs (2), (3) and (4) of this Section 6.13, property substituted after the beginning of such three-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any preexisting claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim. If the Trustee shall be required to account for the funds and property held in such special account, the proceeds thereof shall be apportioned among the Trustee, the Holders and the holders of other indenture securities in such manner that the Trustee, the Holders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, as applicable, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Holders and the holders of other indenture securities dividends on claims filed against the 104 Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, as applicable, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, as applicable, whether such distribution is made in cash, securities or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. Any Trustee which has resigned or been removed after the beginning of such three-month period shall be subject to the provisions of this Section 6.13 as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such three-month period, it shall be subject to the provisions of this subsection if and only if the following conditions exist: (i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such three-month period; and (ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal. (b) There shall be excluded from the operation of subsection (a) of this Section 6.13 a creditor relationship arising from: (i) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee; (ii) advances authorized by a receivership or bankruptcy court of competent jurisdiction or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders at the time and in the manner provided in this Indenture; (iii) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depository, or other similar capacity; (iv) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as defined in subsection (c) of this Section 6.13; (v) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; and 105 (vi) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper, as defined in subsection (c) of this Section 6.13. (c) For the purposes of this Section 6.13 only: (i) the term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable; (ii) the term "other indenture securities" means securities upon which the Company is an obligor (as defined in the Trust Indenture Act) outstanding under any other indenture (1) under which the Trustee is also trustee, (2) which contains provisions substantially similar to the provisions of this Section 6.13, and (3) under which a default exists at the time of the apportionment of the funds and property held in such special account; (iii) the term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; (iv) the term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation; (v) the term "Company" means any obligor upon the Securities; and (vi) the term "Federal Bankruptcy Act" means the Bankruptcy Code or Title 11 of the United States Code. SECTION 6.14. Authenticating Agents From time to time the Trustee, with the prior written approval of the Company, may appoint one or more Authenticating Agents with respect to one or more series of Securities with power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Securities of such series issued upon original issuance and upon exchange, registration of transfer or partial redemption thereof or in connection with transfers and exchanges under Sections 3.04, 3.05, 3.06, 3.07, 3.08 and 11.07 as fully to all intents and purposes as though the Authenticating Agent had been expressly authorized by those Sections of this Indenture to authenticate and deliver Securities of such series. For all purposes of this Indenture, the authentication and delivery of Securities by an Authenticating Agent pursuant to 106 this Section 6.14 shall be deemed to be authentication and delivery of such Securities "by the Trustee". Each such Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal, State or District of Columbia authority. If such corporation publishes reports of condition at least annually pursuant to law or the requirements of such authority, then for the purposes of this Section 6.14 the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section 6.14, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section 6.14. Any corporation into which any Authenticating Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation or to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible under this Section 6.14, without the execution or filing of any paper or any further act on the part of the parties hereto or the Authenticating Agent or such successor corporation. An Authenticating Agent may resign at any time by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time any Authenticating Agent shall cease to be eligible under this Section 6.14, the Trustee may appoint a successor Authenticating Agent with the prior written approval of the Company and shall mail notice of such appointment to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as the names and addresses of such Holders appear on the Security Register. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section 6.14. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section 6.14 as may be agreed in a separate writing among the Company, the Trustee and such Authenticating Agent, and the Trustee shall be entitled to be reimbursed for such payments pursuant to Section 6.07. If an appointment with respect to one or more series of Securities is made pursuant to this Section 6.14, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: 107 This is one of the Securities of the series designated herein referred to in the within mentioned Indenture. The Bank of New York, as Trustee as Authenticating Agent Dated:__________ By: ---------------------------------- Authorized Signatory ARTICLE VII. HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders The Company will furnish or cause to be furnished to the Trustee with respect to the Registered Securities of each series (a) semi-annually, not later than 15 days after each Regular Record Date, or, in the case of any series of Registered Securities on which semi-annual interest is not payable, not more than 15 days after such semi-annual dates as may be specified by the Trustee, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date or semi-annual date, as the case may be, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee is Security Exchange Agent/Registrar for any series of Registered Securities, no such list shall be required to be furnished with respect to any such series. SECTION 7.02. Preservation of Information; Communications to Holders The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Exchange Agent/Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. 108 SECTION 7.03. Reports by Trustee (a) Within 60 days after the initial Regular Record Date of each calendar year, commencing in 2003, the Trustee shall transmit by mail to all Holders of Securities a brief report, dated as of such date, of such year with respect to any of the following events which may have occurred within the previous 12 months (but if no such event has occurred within such period no report need be transmitted): (i) any change to its eligibility under Section 6.09 and its qualifications under Section 6.08; (ii) the creation of or any material change to a relationship specified in Section 6.08; (iii) the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than one-half of one percent of the principal amount of the Securities outstanding on the date of such report; (iv) any change to the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Sections 6.13(b)(ii), (iii), (iv) or (vi); (v) any change to the property and funds, if any, physically in the possession of the Trustee as such on the date of such report; (vi) any additional issue of Securities which the Trustee has not previously reported; and (vii) any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 6.02. (b) The Trustee shall transmit by mail to all Holders of Securities a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to subsection (a) of this Section 7.03 (or if no such report has yet been so transmitted, since the date of execution of this Indenture) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee and which it has not previously reported 109 pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the securities outstanding at such time, such report to be transmitted within 90 days after such time. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each U.S. stock exchange upon which any Securities are listed and with the Company. The Company will notify the Trustee when any Securities are listed on any U.S. stock exchange. SECTION 7.04. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE SECTION 8.01. Company May Consolidate, Etc. Only on Certain Terms (a) So long as any of the Securities are Outstanding, the Company shall not consolidate with or merge with or into any other Person, or convey, transfer or lease its consolidated properties and assets substantially as an entirety to any Person, or permit any Person to merge into or consolidate with the Company, unless: (i) the Company is the surviving or continuing corporation or the surviving or continuing corporation or purchaser or lessee is a corporation incorporated under the laws of the United States, one of the States thereof or the District of Columbia or Canada and assumes the Company's obligations under the Securities and under this Indenture; and (ii) immediately before and after such transaction, no Event of Default shall have occurred and be continuing. (b) Except for a sale of the consolidated properties and assets of the Company substantially as an entirety pursuant to subsection (a) of this Section 8.01, and other than properties or assets required to be sold to conform with laws or governmental regulations, the Company shall not, directly or indirectly, sell or otherwise dispose of any of its consolidated properties or assets (other than short-term, readily marketable investments purchased for cash 110 management purposes with funds not representing the proceeds of other asset sales) if on a pro forma basis, the aggregate net book value of all such sales during the most recent 12-month period would exceed 10% of Consolidated Net Tangible Assets computed as of the end of the most recent quarter preceding such sale; provided, however, that any such sales shall be disregarded for purposes of this 10% limitation if the net proceeds are invested in properties or assets in similar or related lines of business of the Company and its Subsidiaries, including, without limitation, any of the lines of business in which the Company or any of its Subsidiaries is engaged on the date of such sale or disposition, and, provided, further, that the Company may sell or otherwise dispose of consolidated properties and assets in excess of such 10% limitation if the net proceeds from such sales or dispositions, which are not reinvested as provided above, are retained by the Company as cash or Cash Equivalents or used to retire Indebtedness for Borrowed Money of the Company (other than Indebtedness for Borrowed Money which is subordinated to the Securities) and its Subsidiaries. SECTION 8.02. Successor Corporation to be Substituted Upon any consolidation by the Company with or merger by the Company into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter the predecessor entity shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE IX. SUPPLEMENTAL INDENTURES SECTION 9.01. Supplemental Indenture without Consent of Holders Without the consent of any Holders, the Company and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (a) to evidence the succession of another entity to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; (b) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; (c) to add any additional Events of Default (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of such series); 111 (d) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to facilitate the issuance of Securities in uncertificated form, or to permit or facilitate the issuance of extendible Securities; (e) to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only as to the Securities of any series created by such supplemental indenture and Securities of any series subsequently created to which such change or elimination is made applicable by the subsequent supplemental indenture creating such series; (f) to secure the Securities pursuant to the requirements of Section 10.04 or otherwise; (g) to establish the form or terms of Securities of any series as permitted by Sections 2.01 and 3.01; (h) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.11(b); (i) to provide for any rights of the Holders of Securities of any series to require the repurchase of Securities of such series by the Company; (j) to modify the restrictive legends set forth on the face of the form of Security in Section 2.02 or as are otherwise set forth pursuant to Section 2.01 and 3.01, or modify the forms of certificates set forth in Section 3.11; provided, however, that any such modification shall not materially and adversely affect the interests of the Holders of the Securities; (k) to amend this Indenture to conform to the provisions of the Trust Indenture Act as in effect at the time of the execution of such supplemental indenture; (l) to cure any ambiguity, omission or defect, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not materially and adversely affect the interests of the Holders of Securities of any series; or (m) to modify, alter, amend or supplement this Indenture in any other respect which is not materially adverse to Holders, which does not involve a change described in clauses (a), (b) or (c) of Section 9.02 hereof and which, in the judgment of the Trustee, is not to the prejudice of the Trustee, or in order to provide for the duties, responsibilities and compensation of the Trustee as a transfer agent in the event one registered Security of any series is issued in the aggregate principal amount of all outstanding Securities of such series in which Holders will hold an interest. 112 SECTION 9.02. Supplemental Indentures with Consent of Holders (a) With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by or pursuant to a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (i) extend the Stated Maturity of the principal of, or any installment of principal of or interest, if any, on, any Security, (ii) reduce the principal amount thereof or the interest rate thereon, (iii) reduce any premium payable upon the redemption or purchase thereof, (iv) impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date) or (v) modify the obligations of the Company in connection with a Change of Control or the definitions related thereto; provided, further, that no such supplemental indenture shall, without the consent of the Holders of all series of Securities Outstanding, reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture. (b) A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. (c) It shall not be necessary for any Act of Holders under this Section 9.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03. Execution of Supplemental Indentures In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be provided with, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04. Effect of Supplemental Indentures Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form 113 a part of this Indenture for all purposes; and every holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05. Conformity with Trust Indenture Act Every supplemental indenture executed pursuant to this Article shall, if so required by the Trust Indenture Act, conform to the requirements of the Trust Indenture Act as then in effect. SECTION 9.06. Reference in Securities to Supplemental Indentures Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. ARTICLE X. COVENANTS SECTION 10.01. Payment of Principal, Premium, if any, and Interest The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. An installment of principal of or interest on the Securities of a series shall be considered paid on the date it is due if the Trustee or Paying Agent holds at 11:00 a.m. New York City time on that date money deposited by the Company in immediately available funds and designated for, and sufficient to pay, the installment in full. Neither the Company nor any agent of the Company (including but not limited to the Paying Agent) will have any responsibility or liability for any aspect relating to payments made or to be made by the Depositary to DTC in respect of the Global Securities of a series or the beneficial interests therein, subject only to limited indemnification rights of the Depository. None of the Company, the Trustee, the Paying Agent, the Depositary or any agent of any of the foregoing will have any responsibility or liability for any aspect relating to payments made or to be made by DTC on account of a Participant's or an Indirect Participant's ownership of a beneficial interest in a Global Security or for maintaining, supervising or reviewing any records relating to a Participant's interests in such Global Security. SECTION 10.02. Maintenance of Office or Agency The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities of any series may be presented or surrendered for payment, and where notices and demands to or upon the Company in respect of the Securities of such 114 series and this Indenture may be served and an office or agency of a Security Exchange Agent/Registrar in such Place of Payment where Securities may be surrendered for registration of transfer or exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, all such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee and the Company hereby appoints the Paying Agent as its agent to receive all such presentations, surrenders, notices and demands. In the event any such notice or demands are so made or served on the Paying Agent, the Paying Agent shall promptly forward copies thereof to the Company and the Trustee. The Company may also from time to time designate one or more other offices or agencies (in or outside of such Place of Payment) where the Securities of one or more series and any appurtenant coupons may be presented or surrendered for any or all of such purposes, and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for any series of Securities for such purposes. The Company will give prompt written notice to the Trustee of any such designation and any change in the location of any such other office or agency. SECTION 10.03. Money for Securities Payments to Be Held in Trust If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest, if any, on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest, if any, so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, no later than 10:00 a.m. New York City Time, on each due date of the principal of (and premium, if any) or interest, if any, on any Securities of that series, deposit with a Paying Agent a sum in immediately available funds sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 10.03, that such Paying Agent will: (a) hold all sums held by it for the payment of the principal of (and premium, if any) or interest, if any, on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; 115 (b) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest, if any, on the Securities of that series; and (c) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by the Company or by any Paying Agent to the Trustee, the Company or such Paying Agent, as the case may be, shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest, if any, on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. SECTION 10.04. Limitation on Liens The Company shall not pledge, mortgage, hypothecate or permit to exist any mortgage, pledge or other Lien upon any property or assets at any time directly owned by the Company to secure any Indebtedness for Borrowed Money, without making effective provisions whereby the Outstanding Securities shall be equally and ratably secured with any and all such Indebtedness for Borrowed Money and with any other Indebtedness for Borrowed Money similarly entitled to be equally and ratably secured; provided, however, that this Section 10.04 shall not apply to or prevent the creation or existence of: (a) any Liens existing prior to the issuance of the Securities; (b) purchase money Liens which do not exceed the cost or value of the purchased property or assets; (c) any Liens not to exceed 10% of Consolidated Net Tangible Assets; and (d) any Liens on property or assets granted in connection with extending, renewing, replacing or refinancing in whole or in part the Indebtedness for Borrowed Money (including, without limitation, increasing the principal amount of such Indebtedness for Borrowed Money) secured by Liens described in the foregoing clauses (a) through (c), provided that the Liens in connection with any such extension, renewal, replacement or refinancing will be limited to the specific property or assets that was subject to the original Lien. 116 In the event that the Company proposes to pledge, mortgage, hypothecate or permit to exist any mortgage, pledge or other Lien upon any property or assets at any time directly owned by the Company to secure any Indebtedness for Borrowed Money, other than as permitted by clauses (a) through (d) of the previous paragraph, the Company will give prior written notice thereof to the Trustee in accordance with Section 1.05 and the Company will, prior to or simultaneously with such pledge, mortgage or hypothecation, effectively secure all the Securities equally and ratably with such Indebtedness for Borrowed Money. The provisions of this Section 10.04 shall not restrict the ability of the Company's Subsidiaries or the Company's Affiliates to pledge, mortgage, hypothecate or permit to exist any mortgage, pledge or Lien upon their property or assets in connection with project financings or otherwise. SECTION 10.05. Statement by Officers as to Default The Company shall give the Trustee notice, in the form of an Officers' Certificate, of any Event of Default or of any condition or event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default within five (5) days after the occurrence of such Event of Default, condition or event becomes known to the Company, and of the measures it is taking to remedy such Event of Default, condition or event. The Company will deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate, stating that in the course of the performance by the signers thereof of their duties as officers of the Company they would normally have knowledge of any default by the Company in the performance and observance of any of the covenants contained in the Indenture, stating whether or not the signers have knowledge of any such default without regard to any period of grace or requirement of notice and, if so, specifying each such default of which such signer has knowledge and the nature thereof. SECTION 10.06. Modification or Waiver of Certain Covenants The Company may omit in any particular instance to comply with any term, provision or condition set forth in this Indenture with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either modify the covenant or waive such compliance in such instance or generally waive compliance with such term, provision or condition, provided that no such modification shall (a) without the consent of each holder of Securities of such series so affected (i) extend the Stated Maturity of the principal of, or any installment of principal of or interest, if any, on, any Security, (ii) reduce the principal amount thereof or the interest rate thereon, (iii) reduce any premium payable upon the redemption or purchase thereof, (iv) impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date) or (v) modify the obligations of the Company in connection with a Change of Control or the definitions related thereto or (b) without the consent of the Holders of all series of Securities Outstanding, reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain 117 provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture. The Securities owned by the Company or any of its Affiliates shall be deemed not to be Outstanding for, among other purposes, consenting to any such modification. SECTION 10.07. Further Assurances The Company and the Trustee shall execute and deliver all such other documents, instruments and agreements and do all such other acts and things as may be reasonably required to enable the Trustee to exercise and enforce its rights under this Indenture and under the documents, instruments and agreements required under this Indenture and to carry out the intent of this Indenture. SECTION 10.08. Copies Available to Holders Copies of this Indenture shall be furnished only to Holders upon the written request of such Holder, without change, provided that such written request is made to the Company in accordance with Section 1.05. SECTION 10.09. Reports by Company (a) So long as the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and any Securities are Outstanding, the Company shall file with the Commission, or cause to be filed with the Commission, and provide copies to the Trustee and the Holders of the Securities of, the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules or regulations prescribe) required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, as applicable. (b) Notwithstanding that the Company may not be required to be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, from and after the date of effectiveness of any registration statement required to be filed by the Company pursuant to any Registration Rights Agreement or otherwise relating to a particular series of Securities, the Company shall file with the Commission or cause to be filed with the Commission and provide copies to the Trustee (and, if the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the Holders of the Securities) with the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is (or would be if it were still so subject) required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. (c) If the reporting requirements of Section 13 or 15(d) of the Exchange Act cease to apply to the Company and any Securities are Outstanding, the Company will provide, without charge, upon the written request of (i) a Holder of any Securities or (ii) a prospective Holder of any of the Securities who is a QIB and is designated by an existing Holder of any of the Securities (in each case, with a copy to the Trustee), with the information with respect to the Company required to be delivered under Rule 144A(d)(4) under the Securities Act to enable resales of the Securities to be made pursuant to Rule 144A. The Company shall also comply with the other provisions of ss. 314(a) of the Trust Indenture Act. 118 Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 10.10. Purchase of Securities Upon Change of Control (a) Upon the occurrence of a Change of Control, each Holder of the Securities of each series will have the right to require that the Company repurchase such Holder's Securities of such series at a purchase price in cash equal to 101% of the principal thereof on the date of purchase plus accrued interest, if any, to the date of purchase. (b) Within 30 days following a Change of Control, the Company will mail a notice to each holder of Securities, with a copy to the Trustee, stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at the purchase price described in subsection (a) of this Section 10.10 (the "Change of Control Offer"); (ii) the circumstances and relevant facts regarding such Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (iii) the purchase date (which will be not earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Purchase Date"); (iv) that after the Purchase Date interest on such Security will continue to accrue (except as provided in paragraph (v)); (v) that any Security properly tendered pursuant to the Change of Control Offer will cease to accrue interest after the Purchase Date (assuming sufficient moneys for the purchase thereof are deposited with the Trustee); (vi) that Holders electing to have a Security of any series purchased pursuant to a Change of Control Offer will be required to surrender the Security of such series, with the form entitled "Option of Holder To Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the fifth Business Day prior to the Purchase Date; (vii) that a Holder will be entitled to withdraw such Holder's election if the Paying Agent receives, not later than the close of business on the third Business Day (or such shorter periods as may be required by applicable law) preceding the Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Securities of such series the Holder delivered for purchase, and a statement that such Holder is withdrawing his election to have such Securities of such series purchased; and 119 (viii) that Holders that elect to have their Securities of any series purchased only in part will be issued new Securities having a principal amount equal to the portion of the Securities of the series that were surrendered but not tendered and purchased. (c) On the Purchase Date, the Company shall (1) accept for payment all Securities of any series or portions thereof tendered pursuant to the Change of Control Offer, (2) deposit with the Trustee money sufficient to pay the purchase price of all Securities of such series or portions thereof so tendered for purchase and (3) deliver or cause to be delivered to the Trustee the Securities of such series properly tendered together with an officer's certificate identifying the Securities of such series or portions thereof tendered to the Company for purchase. The Trustee will promptly mail, to the Holders of the Securities of such series properly tendered and purchased, payment in an amount equal to the purchase price, and promptly authenticate and mail to each Holder a new Security of the same series having a principal amount equal to any portion of such Holder's Securities of such series that were surrendered but not tendered and purchased. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Purchase Date. (d) If the Company is prohibited by applicable law from making the Change of Control Offer or purchasing Securities of any series thereunder, the Company need not make a Change of Control Offer pursuant to this covenant for so long as such prohibition is in effect. (e) The Company will comply with all applicable tender offer rules, including, without limitation, Rule 14e-1 under the Exchange Act, in connection with a Change of Control Offer. SECTION 10.11. Calculation of Original Issue Discount The Company shall file with the Trustee promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. ARTICLE XI. REDEMPTION OF SECURITIES SECTION 11.01. Applicability of Article Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified in or contemplated by Section 3.01 for Securities of any series) in accordance with this Article. SECTION 11.02. Election to Redeem; Notice to Trustee The election of the Company to redeem any Securities shall be authorized by a Board Resolution and evidenced by an Officers' Certificate. In case of any redemption at the 120 election of the Company of less than all the Securities of any series, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or pursuant to an election by the Company which is subject to a condition specified in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition. SECTION 11.03. Selection by Trustee of Securities to Be Redeemed If less than all the Securities of any series are to be redeemed, the particular securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions equal to the minimum authorized denomination for Securities of that series (or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. Securities shall be excluded from eligibility for selection for redemption if they are identified by certificate number in a written statement signed by an authorized officer of the Company and delivered to the Security Exchange Agent/Registrar at least 45 days prior to the Redemption Date as being owned of record and beneficially by, and not pledged or hypothecated by either (a) the Company or (b) an entity specifically identified in such written statement which is an Affiliate of the Company. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 11.04. Notice of Redemption Notice of redemption shall be given not less than 30 days nor more than 60 days prior to the Redemption Date to each holder of Securities to be redeemed in accordance with Section 1.06. All notices of redemption shall include the CUSIP number and shall state: (1) the Redemption Date, (2) the Redemption Price, 121 (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, and (5) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 11.05. Deposit of Redemption Price On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money in same day funds sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date (to the extent that such amounts are not already on deposit at such time in accordance with the provisions of Sections 4.01, 4.02 or 10.03). SECTION 11.06. Securities Payable on Redemption Date Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued and unpaid interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued and unpaid interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, and in the case of Registered Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.06. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. SECTION 11.07. Securities Redeemed in Part Any Security (including any Global Security) which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the 122 Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee upon written direction shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the security so surrendered; provided, that if a Global Security is surrendered for partial redemption, no new Global Security shall be issued but instead the principal amount of the surrendered Global Security shall be reduced by an endorsement to Schedule A to such Global Security by the Security Exchange Agent/Registrar equal to the redeemed portion of the principal of the Global Security so surrendered, whereupon such Global Security shall be delivered to the Depositary; and provided, further that following any such partial redemption the Securities selected for redemption and any beneficial interests therein shall not have had their principal amount reduced below the minimum authorized denomination for Securities of such series and for any beneficial interests therein. In the case of a partial redemption of the Global Securities, DTC (and, in turn, its Participants) shall have the responsibility to select the interests in such Global Securities to be redeemed in accordance with Applicable Procedures. ARTICLE XII. MEETINGS OF HOLDERS OF SECURITIES SECTION 12.01. Purposes of Meeting A meeting of the Holders may be called at any time from time to time pursuant to this Article for any of the following purposes: (a) to give any notice to the Company and to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to Article IX hereof; (b) to remove the Trustee and appoint a successor trustee pursuant to Article VI hereof; and (c) to consent to the execution of an indenture supplemental hereto pursuant to Section 9.02 hereof. SECTION 12.02. Place of Meetings (a) The Trustee may at any time (upon not less than 21 days' notice) call a meeting of Holders to be held at such time and at such place in the location determined by the Trustee pursuant to this Section 12.02. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed to each Holder in the manner contemplated by Section 1.06 hereof. (b) In case at any time the Company or the Holders of at least an aggregate principal amount of the Securities sufficient to take action requested in such notice, shall have requested the Trustee to call a meeting of the Holders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have 123 made the first giving of the notice of such meeting within 20 days after receipt of such request, then the Company or the Holders in the amount above specified may determine the time (not less than 21 days after notice is given) and the place in the location determined by the Company or the Holders pursuant to this Section 12.02 for such meeting and may call such meeting to take any action authorized in Section 12.01 hereof by giving notice thereof as provided in Section 12.02(a) hereof. SECTION 12.03. Voting at Meetings To be entitled to vote at any meeting of Holders, a Person shall be (i) a Holder or (ii) a Person appointed by an instrument in writing as proxy for a Holder or Holders by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons so entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel, and any representatives of the Company and its counsel. SECTION 12.04. Voting Rights, Conduct and Adjournment (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders in regard to proof of the holding of Securities of a series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities of a series shall be proved in the manner specified in Article II hereof and the appointment of any proxy shall be proved in such manner as is deemed appropriate by the Trustee or by having the signature of the person executing the proxy witnessed or guaranteed by any bank, banker or trust company customarily authorized to certify to the holding of a security such as a Global Security. (b) At any meeting of Holders, the representative of Persons holding or representing Securities of a series in an aggregate principal amount sufficient under the appropriate provision of this Indenture to take action upon the business for the transaction of which such meeting was called shall constitute a quorum. Any meetings of Holders duly called pursuant to Section 12.02 hereof may be adjourned from time to time by vote of the Holders (or proxies for the Holders) of a majority of the Securities of a series represented at the meeting and entitled to vote, whether or not a quorum shall be present; and the meeting may be held as so adjourned without further notice. No action at a meeting of Holders shall be effective unless approved by Persons holding or representing Securities of a series in the aggregate principal amount required by the provision of this Indenture pursuant to which such action is being taken. (c) At any meeting of Holders, each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of outstanding Securities of a series held or represented. SECTION 12.05. Revocation of Consent by Holders At any time prior to (but not after) the evidencing to the Trustee of the taking of any action at a meeting of Holders by the Holders of the percentage in aggregate principal 124 amount of the Securities specified in this Indenture in connection with such action, any Holder of a Security the serial number of which is included in the Securities the Holders of which have consented to such action may, by filing written notice with the Trustee at its principal corporate trust office and upon proof of holding as provided herein, revoke such consent so far as concerns such Securities. Except as aforesaid, any such consent given by the Holder of any Securities shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Securities and of any Securities issued in exchange therefore, in lieu thereof or upon transfer thereof, irrespective of whether or not any notation in regard thereto is made upon such Securities. Any action taken by the Holders of the percentage in aggregate principal amount of the Holders specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all the Securities. ARTICLE XIII. MISCELLANEOUS SECTION 13.01. Consent to Jurisdiction; Appointment of Agent to Accept Service of Process (a) The Company irrevocably consents and agrees, for the benefit of the Holders from time to time of the Securities and the Trustee, that any legal action, suit or proceeding against it with respect to its obligations, liabilities or any other matter arising out of or in connection with this Indenture or the Securities may be brought in the United States District Court for the Southern District of New York or in the Supreme Court of New York in New York County, and, until amounts due and to become due in respect of the Securities have been paid, hereby irrevocably consents and submits to the nonexclusive jurisdiction of each such court and any appellate court of either of them in personam, generally and unconditionally with respect to any action, suit or proceeding for itself and in respect of its properties, assets and revenues. (b) The Company hereby designates, appoints and empowers CT Corporation System, acting through its office at 111 Eighth Avenue, New York, New York 10011, as the Company's designee, appointee and agent (the "Authorized Agent") to receive, accept and acknowledge for and on its behalf, and its properties, assets and revenues, service of any and all legal process, summons, notices and documents which may be served in any action, suit or proceeding brought against the Company pursuant to paragraph (a) of this Section. Such appointment shall be irrevocable until all amounts in respect of the principal of and any premium and interest due and to become due on or in respect of all the Securities issued under this Indenture have been paid by the Company to the Trustee pursuant to the terms hereof and of the Securities. Notwithstanding the foregoing, the Company reserves the right to appoint another Person satisfactory to the Trustee and located or with an office in the Borough of Manhattan, The City of New York, as a successor Authorized Agent, and upon acceptance of such appointment by such a successor, the appointment of the prior Authorized Agent shall terminate. The Company shall give notice to the Trustee and all Holders of the appointment by it of a successor Authorized Agent. If for any reason CT Corporation System ceases to be able to act as the Authorized Agent or to have an address in the Borough of Manhattan, The City of New York, the Company will appoint a successor Authorized Agent in accordance with the two preceding 125 sentences. The Company further agrees to take any and all action, including the filing of any and all documents and instruments as may be necessary to continue such designation and appointment of such agent in full force and effect until this Indenture has been satisfied and discharged in accordance with Article IV hereof. The Company further hereby irrevocably consents and agrees to the service of any and all legal process, summons, notices and documents in any action, suit or proceeding against the Company by serving a copy thereof upon the relevant agent for service of process referred to in this Section 14.01 (whether or not the appointment of such agent shall for any reason prove to be ineffective or such agent shall accept or acknowledge such service) or by mailing copies thereof by registered or certified air mail, postage prepaid, to the Company at its address specified in or designated pursuant to this Indenture. The Company agrees that the failure of any such designee, appointee and agent to give any notice of such service to it shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. Nothing herein shall in any way be deemed to limit the ability of the Holders of the Securities and the Trustee to serve any such legal process, summons, notices and documents in any other manner permitted by applicable law or to obtain jurisdiction over the Company or bring actions, suits or proceedings against the Company in such other jurisdictions, and in such manner, as may be permitted by applicable law. The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Indenture brought in the United States District Court for the Southern District of New York or in the Supreme Court of New York in New York County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. If for the purpose of obtaining judgment in any Court it is necessary to convert a sum due hereunder to the Holder of any Security from U.S. dollars into another currency, the Company has agreed, and each Holder by holding such Security will be deemed to have agreed, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures such Holder could purchase U.S. dollars with such other currency in The City of New York on the Business Day preceding the day on which final judgment is given. The obligation of the Company in respect of any sum payable by it to the Holder of a Security shall, notwithstanding any judgment in a currency (the "judgment currency") other than Dollars, be discharged only to the extent that on the Business Day following receipt by the Holder of such security of any sum, adjudged to be so due in the judgment currency, the Holder of such Security may in accordance with normal banking procedures purchase Dollars with the judgment currency; if the amount of Dollars so purchased is less than the sum originally due to the Holder of such Security in the judgment currency (determined in the manner set forth in the preceding paragraph), the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Holder of such Security against such loss, and if the amount of the Dollars so purchased exceeds the sum originally due to the Holder of such Security, such Holder agrees to remit to the Company such excess, provided that such Holder shall have no obligation to remit any such excess as long as the Company shall have failed to pay such Holder any obligations due and payable under such Security, in which case such excess may be applied to such obligations of the Company under such Security in accordance with the terms thereof. 126 SECTION 13.02. Counterparts This Indenture may be executed in any number of Counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. (signature page follows) 127 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed by their respective officers or directors duly authorized thereto, all as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ Douglas L. Anderson ----------------------------------- Name: Douglas L. Anderson Title: Senior Vice President, General Counsel and Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Robert A. Massimillo ----------------------------------- Name: Robert A. Massimillo Title: Vice President 128 EX-4.2 4 file003.txt FIRST SUPPLEMENTAL INDENTURE EXECUTION VERSION MIDAMERICAN ENERGY HOLDINGS COMPANY and THE BANK OF NEW YORK, as Trustee 4.625% Senior Notes due 2007 5.875% Senior Notes due 2012 First Supplemental Indenture Dated as of October 4, 2002 FIRST SUPPLEMENTAL INDENTURE, dated as of October 4, 2002 (the "First Supplemental Indenture"), between MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa corporation (the "Company"), and THE BANK OF NEW YORK, a New York banking corporation, as Trustee (the "Trustee") under the Original Indenture referred to below. WITNESSETH: WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture, dated as of the date hereof (hereinafter called the "Original Indenture"), to provide for the issuance from time to time of its unsecured debentures, notes or other evidences of indebtedness, the form and terms of which are to be established as set forth in Sections 2.01 and 3.01 of the Original Indenture; WHEREAS, Section 9.01 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, the purpose of establishing the form and terms of the Securities of any series as permitted in Sections 2.01 and 3.01 of the Original Indenture and of appointing an Authenticating Agent with respect to the Securities of any series; WHEREAS, the Company desires to create two series of its unsecured debentures, one series of its debentures in an aggregate principal amount of Two Hundred Million Dollars ($200,000,000) to be designated the "4.625% Senior Notes due 2007" and one series of its debentures in an aggregate principal amount of Five Hundred Million Dollars ($500,000,000) to be designated the "5.875% Senior Notes due 2012" (together, the "Securities"), and all action on the part of the Company necessary to authorize the issuance of the Securities under the Original Indenture and this First Supplemental Indenture has been duly taken; and WHEREAS, all acts and things necessary (i) to make the Securities, when executed by the Company and authenticated and delivered by the Trustee as provided in the Original Indenture, the valid and binding obligations of the Company and (ii) to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed. NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: That in consideration of the premises and of the acceptance and purchase of the Securities by the holders thereof and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Securities, as follows: ARTICLE I. DEFINITIONS The use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture and the forms of Securities attached hereto as Exhibits A and B. In addition, for all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise expressly requires, the following terms shall have the respective meanings assigned to them as follows and shall be construed as if defined in Article I of the Original Indenture: "Exchange Security" means a security in global or definitive form substantially in the form set forth in Exhibit A-5, with respect to the 4.625% Senior Notes due 2007, or in the form set forth in Exhibit B-5, with respect to the 5.875% Senior Notes due 2012, in each case, to this First Supplemental Indenture. "Global Security" means a Rule 144A Global Security, a Regulation S Permanent Global Security, or a Regulation S Temporary Global Security, in global form substantially in the form set forth in Exhibits A-l, A-2 and A-3, respectively, with respect to the 4.625% Senior Notes due 2007, or in the forms set forth in Exhibits B-1, B-2 and B-3, respectively, with respect to the 5.875% Senior Notes due 2012, in each case, to this First Supplemental Indenture. "Initial Purchasers" means Credit Suisse First Boston Corporation, Banc One Capital Markets, Inc., BNY Capital Markets, Inc., J.P. Morgan Securities Inc., BNP Paribas Securities Corp., Commerzbank Capital Markets Corp., ING Financial Markets LLC, Mizuho International plc, TD Securities (USA) Inc., The Royal Bank of Scotland plc and U.S. Bancorp Piper Jaffray Inc. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of October 1, 2002, among the Company and the Initial Purchasers. ARTICLE II. TERMS AND ISSUANCE OF THE SECURITIES Section 2.01 Issue of Securities. Two series of the Securities, which shall be designated the "4.625% Senior Notes due 2007" and the "5.875% Senior Notes due 2012" shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Original Indenture and this First Supplemental Indenture (including the forms of Securities set forth in Exhibits A and B, as applicable hereto). The aggregate principal amount of the 4.625% Senior Notes due 2007 and the aggregate principal amount of the 5.875% Senior Notes due 2012 which may be authenticated and delivered under this First Supplemental Indenture shall not exceed $200,000,000 and $500,000,000, respectively. Section 2.02 Optional Redemption. The Securities may be redeemed, in whole or in part, at the option of the Company pursuant to the terms set forth in paragraph 2 of the 2 series of Securities to be redeemed. The provisions of Article XI of the Original Indenture shall also apply to any redemption of the Securities by the Company. Section 2.03 Limitation on Liens. The covenant provided by Section 10.04 of the Original Indenture shall be applicable to the Securities. Section 2.04 Change of Control. The covenant provided by Section 10.10 of the Original Indenture shall be applicable to the Securities. Section 2.05 Place of Payment. The Place of Payment in respect of the Securities will be in The City of New York, initially at the Corporate Trust Office of The Bank of New York (which as of the date hereof is located at 101 Barclay Street, Floor 8W, New York, New York 10286 Attention: Corporate Trust Administration). Section 2.06 Form of Securities; Incorporation of Terms. The forms of the Securities shall be substantially in the forms of Exhibits A and B attached hereto, as applicable, the respective terms of which are incorporated herein by reference and which are part of this First Supplemental Indenture. The Securities shall be issued as one or more Global Securities in fully registered form and one or more Definitive Securities in fully registered form, as determined in accordance with Section 2.01 of the Original Indenture. The Global Securities shall be delivered by the Trustee to the Depositary, as the Holder thereof, or a nominee or custodian therefor, to be held by the Depositary in accordance with the Original Indenture. Section 2.07 Exchange of the Global Securities. Each of the Global Securities shall be exchangeable for Definitive Securities only as provided in Section 3.07(b)(ii) of the Original Indenture. Section 2.08 Regular Record Date for the Securities. The Regular Record Date for the Securities shall be the January 15 or July 15 immediately prior to each Interest Payment Date. Section 2.09 Authorized Denominations. Beneficial interests in Global Securities, as well as Definitive Securities, may be held only in denominations of $1,000 and integral multiples of $1,000. ARTICLE III. DEPOSITARY Section 3.01 Depositary. The Depository Trust Company, its nominees and their respective successors are hereby appointed Depositary with respect to the Global Securities. ARTICLE IV. MISCELLANEOUS Section 4.01 Execution as Supplemental Indenture. This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original 3 Indenture and, as provided in the Original Indenture, this First Supplemental Indenture forms a part thereof. Section 4.02 Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 4.03 Successors and Assigns. All covenants and agreements in this First Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 4.04 Separability Clause. In case any provision in this First Supplemental Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 4.05 Benefits of First Supplemental Indenture. Nothing in this First Supplemental Indenture or in the Securities, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this First Supplemental Indenture. Section 4.06 Execution in Counterparts. This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Section 4.07 Trustee. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture. The statements herein are deemed to be those of the Company and not of the Trustee. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed by their respective officers or directors duly authorized thereto, all as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ Douglas L. Anderson -------------------------------- Name: Douglas L. Anderson Title: Senior Vice President, General Counsel and Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Robert A. Massimillo -------------------------------- Name: Robert A. Massimillo Title: Vice President 5 EXHIBITS -------- EXHIBIT A 4.625% Senior Notes due 2007 - ------------------------------------------ Exhibit A-1 Form of 144A Global Senior Note due 2007 Exhibit A-2 Form of Regulation S Permanent Global Senior Note due 2007 Exhibit A-3 Form of Regulation S Temporary Global Senior Note due 2007 Exhibit A-4 Form of Restricted Definitive Senior Note due 2007 Exhibit A-5 Form of Private Exchange Senior Note due 2007 EXHIBIT B 5.875% Senior Notes due 2012 - ------------------------------------------ Exhibit B-1 Form of 144A Global Senior Note due 2012 Exhibit B-2 Form of Regulation S Permanent Global Senior Note due 2012 Exhibit B-3 Form of Regulation S Temporary Global Senior Note due 2012 Exhibit B-4 Form of Restricted Definitive Senior Note due 2012 Exhibit B-5 Form of Private Exchange Senior Note due 2012 EXHIBIT A-1 FORM OF FACE OF RULE 144A GLOBAL SENIOR NOTE DUE 2007 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN INITIALLY RESOLD IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 $[_____________] No. [__] CUSIP No. 59562V AA 5 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount") on October 1, 2007, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 4.625% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.625% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. 3 Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ------------------------------- Name: Title: Attest: By: ------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: By: -------------- ----------------------------- Authorized Signatory FORM OF REVERSE OF RULE 144A GLOBAL SENIOR NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for R-1 U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority R-2 in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. R-4 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A [SCHEDULE OF ADJUSTMENTS] Initial Principal Amount: U.S.$ -----------------
NOTIFICATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- --------------- - -------------------- ------------ --------- ---------- ---------------
OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $ -------------- Dated: Signature: ----------------------- ----------------------------------- (sign exactly as your name appears on the other side of this Security) Signature Guarantee: -------------------------------- (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: ------------------------------------ EXHIBIT A-2 FORM OF FACE OF REGULATION S TEMPORARY GLOBAL SENIOR NOTE DUE 2007 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 $________ CUSIP No. U59354 AB 3 No. ___ ISIN No. USU59354AB32 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [__________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount"), on October 1, 2007, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 4.625% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.625% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Until this Regulation S Temporary Global Security is exchanged for one or more Regulation S Permanent Global Securities, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Security shall in all other respects be entitled to the same benefits as other Securities under the Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company 3 maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: -------------------------------- Name: Title: Attest: By: -------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: By: ------------------ ---------------------------------- Authorized Signatory FORM OF REVERSE OF REGULATION S TEMPORARY GLOBAL SENIOR NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 1. GENERAL This Security is one of a duly authorized issue of securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published R-1 by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by R-2 reason of such declaration of acceleration) then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities under the Indenture may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver, or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. This Regulation S Temporary Global Security is exchangeable in whole or in part for one or more Global Securities only (i) on or after the termination of the 40-day distribution compliance period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Security for one or more Global Securities, the Trustee shall cancel this Regulation S Temporary Global Security. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. R-4 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. ISIN NUMBER This Security will bear an ISIN number. No representation is made as to the accuracy of such number as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A SCHEDULE OF ADJUSTMENTS Initial Principal Amount: U.S.$
NOTATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- ---------------
OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: _____________________ Signature: __________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT A-3 FORM OF FACE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2007 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 $________ CUSIP No. U59354 AB 3 No. ___ ISIN No. USU59354AB32 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [__________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount"), on October 1, 2007, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003 at the rate of 4.625% per annum until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.625% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. 3 Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: -------------------------------- Name: Title: Attest: By: -------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By:_____________________________ Authorized Signatory FORM OF REVERSE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 1. GENERAL This Security is one of a duly authorized issue of securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company at any time, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published R-1 by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by R-2 reason of such declaration of acceleration) then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver, or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. R-4 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. ISIN NUMBER This Security will bear an ISIN number. No representation is made as to the accuracy of such number as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A SCHEDULE OF ADJUSTMENTS Initial Principal Amount: U.S.$
NOTATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- ---------------
OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: __________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT A-4 FORM OF FACE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2007 THIS SECURITY HAS INITIALLY BEEN RESOLD TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DESCRIBED BY RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 $[__________] No. [__] CUSIP No. [__________] ISIN No. [__________] MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns] the principal sum of ___ Dollars (the "Principal Amount") on October 1, 2007, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 4.625% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.625% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such 3 Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: _______________________________ Name: Title: Attest: By: ___________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: _______________________ Authorized Signatory FORM OF REVERSE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for R-1 U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. R-2 As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly R-3 authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. R-4 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: _________________ Signature: _____________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT A-5 FORM OF FACE OF SENIOR EXCHANGE NOTE DUE 2007 OR PRIVATE EXCHANGE NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 $[__________] No. [__] CUSIP No. 59562V AD 9 ISIN No. US59562VAD91 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount") on October 1, 2007, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 4.625% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 4.625% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 2 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: _________________________________ Name: Title: Attest: By: ________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: __________________________ Authorized Signatory FORM OF REVERSE OF SENIOR EXCHANGE NOTE DUE 2007 OR PRIVATE EXCHANGE NOTE DUE 2007 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% Senior Notes due 2007 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $200,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such R-1 Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on R-2 behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the R-3 principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. R-4 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: _________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT B-1 FORM OF FACE OF RULE 144A GLOBAL SENIOR NOTE DUE 2012 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN INITIALLY RESOLD IN RELIANCE ON RULE 144A UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 $______________ No. [__] CUSIP No. 59562V AC 1 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [_________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount") on October 1, 2012, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003 at the rate of 5.875% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 5.875% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such 3 Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ________________________________ Name: Title: Attest: By: ____________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: ___________________________ Authorized Signatory FORM OF REVERSE OF RULE 144A GLOBAL SENIOR NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $500,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for R-1 U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority R-2 in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver, or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. R-4 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A [SCHEDULE OF ADJUSTMENTS] Initial Principal Amount: U.S.$ _______________
NOTIFICATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- --------------- - -------------------- ------------- --------- ---------- ---------------
OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: __________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT B-2 FORM OF FACE OF REGULATION S TEMPORARY GLOBAL SENIOR NOTE DUE 2012 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL SECURITY, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SECURITIES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL SECURITY SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 $__________ CUSIP No. U59354 AB 3 No. ___ ISIN No. USU59354AB32 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [__________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount"), on October 1, 2012, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 5.875% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 5.875% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Until this Regulation S Temporary Global Security is exchanged for one or more Regulation S Permanent Global Securities, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Security shall in all other respects be entitled to the same benefits as other Securities under the Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company 3 maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ________________________________ Name: Title: Attest: By: _______________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: _________________________ Authorized Signatory FORM OF REVERSE OF REGULATION S TEMPORARY GLOBAL SENIOR NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 1. GENERAL This Security is one of a duly authorized issue of securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $500,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published R-1 by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by R-2 reason of such declaration of acceleration) then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities under the Indenture may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver, or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. This Regulation S Temporary Global Security is exchangeable in whole or in part for one or more Global Securities only (i) on or after the termination of the 40-day distribution compliance period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary Global Security for one or more Global Securities, the Trustee shall cancel this Regulation S Temporary Global Security. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. R-4 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. ISIN NUMBER This Security will bear an ISIN number. No representation is made as to the accuracy of such number as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A SCHEDULE OF ADJUSTMENTS Initial Principal Amount: U.S.$
NOTATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- ---------------
OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: __________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT B-3 FORM OF FACE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2012 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS GLOBAL SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY DEFINITIVE SECURITY IS ISSUED IN THE NAME OR NAMES AS DIRECTED IN WRITING BY THE DEPOSITARY, ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, THE DEPOSITARY, HAS AN INTEREST HEREIN. THIS SECURITY HAS BEEN ISSUED IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 $__________ CUSIP No. U59354 AB 3 No. ___ ISIN No. USU59354AB32 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & Co., or registered assigns, the principal amount of [__________] Dollars (such Initial Principal Amount, as it may from time to time be adjusted by endorsement on Schedule A hereto, is hereinafter referred to as the "Principal Amount"), on October 1, 2012, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003 at the rate of 5.875% per annum until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 5.875% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. 3 Dollar account maintained by the Holder with a bank in the United States; provided that such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: _______________________________ Name: Title: Attest: By: ___________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee ted: __________ By:__________________________ Authorized Signatory FORM OF REVERSE OF REGULATION S PERMANENT GLOBAL SENIOR NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 1. GENERAL This Security is one of a duly authorized issue of securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $500,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company at any time, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published R-1 by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. In the event of redemption of this Security in part only, the Trustee will reduce the Principal Amount hereof by endorsement on Schedule A hereto such that the Principal Amount shown on Schedule A after such endorsement will reflect only the unredeemed portion hereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by R-2 reason of such declaration of acceleration) then, and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver, or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. R-3 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security of the series of which this Security is a part is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. R-4 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 11. ISIN NUMBER This Security will bear an ISIN number. No representation is made as to the accuracy of such number as printed on the Securities of this series and reliance may be placed only on the other identification numbers printed hereon. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 SCHEDULE A SCHEDULE OF ADJUSTMENTS Initial Principal Amount: U.S.$
NOTATION MADE PRINCIPAL ON BEHALF OF PRINCIPAL PRINCIPAL AMOUNT THE SECURITY AMOUNT AMOUNT FOLLOWING EXCHANGE DATE ADJUSTMENT MADE INCREASE DECREASE ADJUSTMENT AGENT/REGISTRAR - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- --------------- - -------------------- --------- --------- ---------- ---------------
R-1 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: _________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ R-2 EXHIBIT B-4 FORM OF FACE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2012 THIS SECURITY HAS INITIALLY BEEN RESOLD TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DESCRIBED BY RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND SHALL BEAR THE FOLLOWING LEGEND UNTIL REMOVABLE IN ACCORDANCE WITH ITS TERMS AND THE TERMS OF THE INDENTURE: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, EACH OF THE HOLDER OF THIS SECURITY AND ANY OWNERS OF INTERESTS HEREIN (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT BEGINNING FROM THE LATER OF (X) THE ORIGINAL ISSUE DATE OF THIS SECURITY OR (Y) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) THROUGH THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT, IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY AFFILIATE THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" THAT PRIOR TO SUCH TRANSFER FURNISHED TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF SECURITIES AT THE TIME OF TRANSFER OF LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. UNLESS THE COMPANY DETERMINES OTHERWISE IN ACCORDANCE WITH APPLICABLE LAW, THIS LEGEND WILL BE REMOVED BY THE COMPANY (1) UPON REQUEST OF THE HOLDER, AFTER THE EXPIRATION OF THE TIME PERIOD REFERRED TO IN RULE 144(K) UNDER THE SECURITIES ACT BEGINNING FROM THE LATER OF (A) THE ORIGINAL ISSUE DATE OF THIS SECURITY AND (B) THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE THEREOF WAS THE BENEFICIAL OWNER OF THIS SECURITY (OR ANY PREDECESSOR HEREOF) OR (2) WITH RESPECT TO SECURITIES SOLD IN RELIANCE ON REGULATION S, FOLLOWING THE EXPIRATION OF 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH INTERESTS IN THIS SECURITY ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE ORIGINAL ISSUE DATE OF THIS SECURITY. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 $[_________] No. [__] CUSIP No. [__________] ISIN No. [__________] MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (herein called the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns] the principal sum of ____ ___ Dollars (the "Principal Amount") on October 1, 2012, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 5.875% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 5.875% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment; provided, further, that if a Registration Default (as defined in the Registration Rights Agreement) occurs with respect to this Security, interest will accrue on this Security at a rate of 0.5% per annum from and including the date on which any such Registration Default shall occur, until but excluding the date on which all Registration Defaults have been cured. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such 3 Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: _______________________________ Name: Title: Attest: By: ___________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: _________________________ Authorized Signatory FORM OF REVERSE OF RESTRICTED DEFINITIVE SENIOR NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $500,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for R-1 U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. R-2 As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of a Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly R-3 authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. R-4 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: ___________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EXHIBIT B-5 FORM OF FACE OF SENIOR EXCHANGE NOTE DUE 2012 OR PRIVATE EXCHANGE NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 $[__________] No. [__] CUSIP No. 59562V AF 4 ISIN No. US59562VAF40 MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation organized under the laws of Iowa (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to [name of registered owner or its registered assigns] the principal sum of _____________ Dollars (the "Principal Amount")] on October 1, 2012, and to pay interest thereon from October 4, 2002, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on January 31 and July 31 in each year, commencing January 31, 2003, at the rate of 5.875% per annum, until the Principal Amount hereof is paid or made available for payment; provided that any Principal Amount and premium, and any such installment of interest, which is overdue shall bear interest at the rate of 5.875% per annum (or, if lower, the maximum rate legally enforceable) from the dates such amounts are due until they are paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 15 or July 15 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Person in whose name this Security (or one or more Predecessor Securities) is registered on such Regular Record Date and may be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest, if any, on this Security will be made at any place of payment or at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States as at the time of payment is legal tender for the payment of public and private debts, provided, however, that, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Payment of interest, if any, in respect of this Security may also be made, in the case of a Holder of at least U.S. $1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S. Dollar account maintained by the Holder with a bank in the United States; provided that such 1 Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 15 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS SECURITY SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 2 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. MIDAMERICAN ENERGY HOLDINGS COMPANY By: _______________________________ Name: Title: Attest: By: _______________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities of the series designated herein and referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee Dated: __________ By: _________________________ Authorized Signatory FORM OF REVERSE OF SENIOR EXCHANGE NOTE DUE 2012 OR PRIVATE EXCHANGE NOTE DUE 2012 MIDAMERICAN ENERGY HOLDINGS COMPANY 5.875% Senior Notes due 2012 1. GENERAL This Security is one of a duly authorized issue of Securities of the Company (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of October 4, 2002 (the "Original Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Original Indenture), as supplemented by the First Supplemental Indenture, dated as of October 4, 2002 (together with the Original Indenture, the "Indenture") between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. Terms defined in the Indenture which are not defined herein are used with the meanings assigned to them in the Indenture. This Security is one of the series designated on the face hereof, limited in aggregate principal amount to $500,000,000. 2. OPTIONAL REDEMPTION The Securities of this series are subject to redemption upon not less than 30 or more than 60 days' notice to the Holders of such Securities as provided in the Indenture, at any time, as a whole or in part, at the election of the Company, at a redemption price equal to the greater of: (i) 100% of the principal amount of the Securities of this series being redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal of and interest on the Securities of this series being redeemed discounted to the Redemption Date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Yield plus 37.5 basis points, plus, for (i) or (ii) above, whichever is applicable, accrued interest on the Securities of this series to the Redemption Date. "Treasury Yield" means, with respect to any Redemption Date, the rate per annum equal to the semiannual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the Securities of this series to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the Securities of this series. "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day in New York City preceding such R-1 Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the Reference Treasury Dealer Quotation for such Redemption Date. "Independent Investment Banker" means an investment banking institution of international standing appointed by the Company. "Reference Treasury Dealer" means a primary U.S. government securities dealer in New York City appointed by the Company. "Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer and any Redemption Date, the average, as determined by the Company, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount and quoted in writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day in New York City preceding such Redemption Date). Notice of redemption pursuant to this paragraph 2 shall be given as provided for in the Indenture not less than 30 days nor more than 60 days prior to the Redemption Date. If fewer than all the Securities of this series are to be redeemed, selection of Securities of this series for redemption will be made by the Trustee in any manner the Trustee deems fair and appropriate. Unless the Company defaults in payment of the Redemption Price, from and after the Redemption Date, the Securities of this series or portions thereof called for redemption will cease to bear interest, and the Holders thereof will have no right in respect of such Securities of this series except the right to receive the Redemption Price thereof. 3. DEFEASANCE The Indenture contains provisions for defeasance of (a) the entire indebtedness of this Security and (b) certain restrictive covenants upon compliance by the Company with certain conditions set forth therein. 4. DEFAULTS AND REMEDIES If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. At any time after such declaration of acceleration with respect to Securities of this series has been made, but before a judgment or decree for payment of money has been obtained by the Trustee as provided in the Indenture, if all Events of Default with respect to Securities of this series have been cured or waived (other than the non-payment of principal of the Securities of this series which has become due solely by reason of such declaration of acceleration) then and in every such case, the Holders of a majority in aggregate principal amount of the Outstanding securities of such series may, by written notice to the Company and to the Trustee, rescind and annul such declaration and its consequences on R-2 behalf of all of the Holders, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding, judicial or otherwise, with respect to the Indenture, or for the appointment of a receiver or trustee or for any other remedy thereunder, unless (a) such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Securities, (b) the Holders of not less than 33% or a majority, as applicable, in principal amount of the Securities at the time Outstanding under the Indenture shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee, (c) such Holder shall have offered the Trustee indemnity satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request, (d) the Trustee shall not have received from the Holders of a majority in principal amount of Securities at the time Outstanding under the Indenture a direction inconsistent with such request and (e) the Trustee for 90 days after its receipt of such notice and offer of indemnity from the Holder, and request from the Holders, shall have failed to institute any such proceeding. The foregoing shall not apply to certain suits described in the Indenture, including any suit instituted by the Holder of this Security for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. 5. AMENDMENT AND WAIVER The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the Indenture or any supplemental indenture or the rights and obligations of the Company and rights of the Holders of the Securities of any series at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest, if any, on this Security at the times, place and rate, and in the coin or currency, herein prescribed. 6. TRANSFER AND EXCHANGE; DENOMINATIONS As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the R-3 principal of (and premium, if any) and interest, if any, on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Definitive Securities of the series of which this Security is a part are issuable only in registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. 7. SUCCESSOR OBLIGORS When a successor assumes all the obligations of its predecessor under the Securities of this series and the Indenture in accordance with the terms of the Indenture, the predecessor will be released from those obligations. 8. TRUSTEE DEALINGS WITH THE COMPANY The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities of this series and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 9. NO RECOURSE AGAINST OTHERS No stockholder, director, officer, employee, incorporator or Affiliate of the Company shall have any liability for any obligation of the Company under the Securities of this series or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of the Securities of this series by accepting a Security of this series waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities of this series. 10. AUTHENTICATION This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. R-4 11. CUSIP NUMBERS Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company will cause CUSIP numbers to be printed on the Securities of this series as a convenience to the Holders of the Securities of this series. 12. GOVERNING LAW This Security shall be governed by and construed in accordance with the laws of the State of New York, including Section 5-1401 of the New York General Obligations Law, but otherwise without regard to the principles of conflict of laws thereof. 13. DEFINED TERMS All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. R-5 OPTION OF HOLDER TO ELECT PURCHASE If you wish to elect to have all or any portion of the Securities purchased by the Company pursuant to a Change of Control Offer made in accordance with Section 10.10 of the Indenture, check the applicable boxes: I wish to have the Securities purchased by the Company: [ ] in whole [ ] in part Amount to be purchased: $________________ Dated: __________________ Signature: __________________________________ (sign exactly as your name appears on the other side of this Security) Signature Guarantee: ______________________________ (Your signature must be guaranteed by a financial institution that is a member of the Securities Transfer Agent Medallion Program ("STAMP"), the Securities Exchange Medallion Program ("SEMP"), the New York Stock Exchange, Inc. Medallion Signature Program ("MSP") or such other signature guarantee program as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, SEMP or MSP, all in accordance with the Securities Exchange Act of 1934, as amended.) Social Security Number or Taxpayer Identification Number: __________________________________ EX-4.3 5 file004.txt REGISTRATION RIGHTS AGREEMENT EXECUTION VERSION $700,000,000 MIDAMERICAN ENERGY HOLDINGS COMPANY 4.625% SENIOR NOTES DUE OCTOBER 1, 2007 5.875% SENIOR NOTES DUE OCTOBER 1, 2012 REGISTRATION RIGHTS AGREEMENT October 1, 2002 Credit Suisse First Boston Corporation The other Initial Purchasers Listed on Schedule A hereto c/o Credit Suisse First Boston Corporation Eleven Madison Avenue New York, New York 10010-3629 Dear Sirs: MidAmerican Energy Holdings Company, an Iowa corporation (the "COMPANY"), proposes to issue and sell to Credit Suisse First Boston Corporation and the other Initial Purchasers listed on Schedule A hereto (collectively, the "INITIAL PURCHASERS"), upon the terms set forth in a purchase agreement of even date herewith (the "PURCHASE AGREEMENT"), $200,000,000 aggregate principal amount of its 4.625% Senior Notes due October 1, 2007 and $500,000,000 aggregate principal amount of its 5.875% Senior Notes due October 1, 2012 (collectively, the "INITIAL SECURITIES"). The Initial Securities will be issued pursuant to an Indenture, to be dated on or about October 4, 2002, as supplemented by a first supplemental indenture to be entered into thereunder, to be dated on or about October 4, 2002 (together, the "INDENTURE"), between the Company and The Bank of New York, as trustee (the "TRUSTEE"). As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company agrees with the Initial Purchasers, for the benefit of the Initial Purchasers and the holders of the Securities (as defined below) (collectively the "HOLDERS"), as follows: 1. Registered Exchange Offer. Unless not permitted by applicable law (after the Company has complied with the ultimate paragraph of this Section 1), the Company shall prepare and file with the Securities and Exchange Commission (the "COMMISSION") a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with respect to a proposed offer (the "REGISTERED EXCHANGE OFFER") to the Holders of Transfer Restricted Securities (as defined in Section 6 hereof), who are not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer, to issue and deliver to such Holders, in exchange for the Initial Securities, a like aggregate principal amount of debt securities of the Company issued under the Indenture, substantially identical in all material respects to the Initial Securities and registered under the Securities Act (the "EXCHANGE SECURITIES" and, together with the Initial Securities, the "SECURITIES"). The Company shall use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act within 270 days (such 270th day being an "EFFECTIVENESS DEADLINE") after the date on which the Initial Purchasers purchase the Initial Securities pursuant to the Purchase Agreement (the "CLOSING DATE") and will keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). If the Company commences the Registered Exchange Offer, the Company will be entitled to consummate the Registered Exchange Offer 30 days after such commencement (provided that the Company has accepted all the Initial Securities theretofore validly tendered in accordance with the terms of the Registered Exchange Offer). Following the declaration of the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of the Registered Exchange Offer to enable each Holder of Transfer Restricted Securities electing to exchange the Initial Securities for Exchange Securities (assuming that such Holder is not an affiliate of the Company within the meaning of the Securities Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements or understanding with any person to participate in the distribution of the Exchange Securities and is not prohibited by any law or policy of the Commission from participating in the Registered Exchange Offer) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act. The Company acknowledges that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, in the absence of an applicable exemption therefrom, (i) each Holder which is a broker-dealer electing to exchange Initial Securities, acquired for its own account as a result of market making activities or other trading activities, for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing the information set forth in (a) Annex A hereto on the cover, (b) Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section, and (c) Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) an Initial Purchaser that elects to sell Securities (as defined below) acquired in exchange for Initial Securities constituting any portion of an unsold allotment, is required to deliver a prospectus containing the information required by Items 507 or 508, as applicable, of Regulation S-K under the Securities Act in connection with such sale. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein, in order to permit such prospectus to be lawfully delivered by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; provided, however, that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer or an Initial Purchaser, such period shall be the lesser of 120 days and the date on which all Exchanging Dealers and the Initial Purchasers have sold all Exchange Securities held by them (unless such period is extended pursuant to Section 3(j) below) and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 120 days after the consummation of the Registered Exchange Offer. If, upon consummation of the Registered Exchange Offer, any Initial Purchaser holds Initial Securities acquired by it as part of its initial distribution, the Company, simultaneously with the delivery of the Exchange Securities pursuant to the Registered Exchange Offer, shall issue and deliver to such Initial Purchaser upon the written request of such Initial Purchaser, in exchange (the "PRIVATE EXCHANGE") for the Initial Securities held by such Initial Purchaser, a like principal amount of debt securities of the Company issued under the Indenture and substantially identical in all material respects to the Initial Securities (the "PRIVATE EXCHANGE SECURITIES"). The Initial Securities, the Exchange Securities and the Private Exchange Securities are herein collectively called the "SECURITIES". 2 In connection with the Registered Exchange Offer, the Company shall: (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice thereof is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York, which may be the Trustee or an affiliate of the Trustee; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply with all applicable laws. As soon as practicable after the close of the Registered Exchange Offer or the Private Exchange, as the case may be, the Company shall: (x) accept for exchange all the Initial Securities validly tendered and not withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (y) deliver to the Trustee for cancellation all the Initial Securities so accepted for exchange; and (z) cause the Trustee to authenticate and deliver promptly to each Holder of the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, equal in principal amount to the Initial Securities of such Holder so accepted for exchange. The Indenture will provide that the Exchange Securities will not be subject to the transfer restrictions set forth in the Indenture and that all the Securities will vote and consent together on all matters as one class and that none of the Securities will have the right to vote or consent as a class separate from one another on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Initial Securities surrendered in exchange therefor or, if no interest has been paid on the Initial Securities, from the date of original issue of the Initial Securities. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of its business, (ii) at the time of commencement of the Registered Exchange Offer, such Holder had no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act, (iii) such Holder is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if such Holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Securities and (v) if such Holder is a broker-dealer, that it will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities and 3 that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If following the date hereof there has been announced a change in Commission policy with respect to exchange offers that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Registered Exchange Offer is permitted by applicable federal law, the Company will seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Registered Exchange Offer. The Company will pursue the issuance of such a decision to the Commission staff level. In connection with the foregoing, the Company will take all such other actions as may be requested by the Commission or otherwise reasonably required in connection with the issuance of such decision, including without limitation (i) participating in telephonic conferences with the Commission, (ii) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that the Registered Exchange Offer should be permitted and (iii) diligently pursuing a resolution (which need not be favorable) by the Commission staff. 2. Shelf Registration. If, (i) because of any change in law or in applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect a Registered Exchange Offer, as contemplated by Section 1 hereof, (ii) the Registered Exchange Offer is not consummated by the date that is 40 days after the date on which the Exchange Offer Registration Statement is declared effective (such 40th day being the "CONSUMMATION DEADLINE"), (iii) any Initial Purchaser so requests with respect to the Initial Securities (or the Private Exchange Securities) not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following consummation of the Registered Exchange Offer or (iv) any Holder (other than an Exchanging Dealer) is not eligible to participate in the Registered Exchange Offer or, in the case of any Holder (other than an Exchanging Dealer) that participates in the Registered Exchange Offer, such Holder does not receive freely tradeable Exchange Securities on the date of the exchange and any such Holder so requests for any reason other than the failure by such Holder to make a timely and valid tender in accordance with the Registered Exchange Offer, the Company shall take the following actions (the date on which any of the conditions described in the foregoing clauses (i) through (iv) occur, including in the case of clauses (iii) or (iv) the receipt of the required notice, being a "TRIGGER DATE"): (a) The Company shall as promptly as practicable prepare and file with the Commission and thereafter use its reasonable best efforts to cause to be declared effective not later than the latter to occur of the date that is (i) 150 days after the Trigger Date and (ii) 270 days after the Closing Date (such 150th or 270th day, as the case may be, being an "EFFECTIVENESS DEADLINE"), a registration statement (the "SHELF REGISTRATION STATEMENT" and, together with the Exchange Offer Registration Statement, a "REGISTRATION STATEMENT") on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities by the Holders thereof from time to time in accordance with the methods of distribution set forth in the Shelf Registration Statement and Rule 415 under the Securities Act (hereinafter, the "SHELF REGISTRATION"); provided, however, that no Holder (other than an Initial Purchaser) shall be entitled to have the Securities 4 held by it covered by the Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus included therein to be lawfully delivered by the Holders of the relevant Securities, for a period of two years (or for such longer period if extended pursuant to Section 3(j) below) from the Closing Date or such shorter period that will terminate when all the Securities covered by the Shelf Registration Statement (i) have been sold pursuant thereto or (ii) are no longer restricted securities (as defined in Rule 144 under the Securities Act, or any successor rule thereof) (such applicable period being called the "SHELF REGISTRATION PERIOD"). (c) Notwithstanding any other provisions of this Agreement to the contrary, the Company shall cause the Shelf Registration Statement and the related prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the Commission promulgated thereunder and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 3. Registration Procedures. In connection with any Shelf Registration Statement contemplated by Section 2 hereof and, to the extent applicable, any Registered Exchange Offer contemplated by Section 1 hereof, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and, in the event that an Initial Purchaser (with respect to any portion of an unsold allotment from the original offering of the Initial Securities) is participating in the Registered Exchange Offer or the Shelf Registration Statement, the Company shall use its best efforts to reflect in each such document, when so filed with the Commission, such comments as such Initial Purchaser reasonably may propose not later than five business days after delivery of such documents to such Initial Purchaser; (ii) include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement and include the information set forth in Annex D hereto in the letter of transmittal delivered pursuant to the Registered Exchange Offer; (iii) if requested by an Initial Purchaser, include the information required by Items 507 or 508, as applicable, of Regulation S-K under the Securities Act in the prospectus forming a part of the Exchange Offer Registration Statement; (iv) include within the prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchasers, which shall contain a summary statement of the positions taken or policies made by the staff of the Commission with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of Exchange Securities received by such broker-dealer in the Registered Exchange Offer (a "PARTICIPATING BROKER-DEALER"), whether such positions or policies have been publicly disseminated by the staff of the Commission or such positions or policies, in the reasonable judgment of the Initial Purchasers based upon advice of counsel (which may be in-house counsel), represent the prevailing views of the staff of the Commission; and (v) in the case of a Shelf Registration Statement, include the names of the Holders who propose to sell Securities pursuant to the Shelf Registration Statement as selling securityholders. 5 (b) The Company shall give written notice to the Initial Purchasers, the Holders of the Securities and any Participating Broker-Dealer from whom the Company has received prior written notice that it will be a Participating Broker-Dealer in the Registered Exchange Offer (which notice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when the Registration Statement or any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose of which the Company has knowledge; and (v) of the happening of any event that requires the Company to make changes in the Registration Statement or the prospectus in order that the Registration Statement or the prospectus do not contain an untrue statement of a material fact nor omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the prospectus, in light of the circumstances under which they were made) not misleading. (c) The Company shall make every reasonable effort to obtain the withdrawal, at the earliest possible time, of any order suspending the effectiveness of the Registration Statement. (d) The Company shall furnish to each Holder of Securities included within the coverage of the Shelf Registration, without charge, at least one copy of the Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company shall deliver to each Exchanging Dealer and each Initial Purchaser, and to any other Holder who so requests, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if any Initial Purchaser or any such Holder requests, all exhibits thereto (including those incorporated by reference). (f) The Company shall, during the Shelf Registration Period, deliver to each Holder of Securities included within the coverage of the Shelf Registration, without charge, as many copies of the prospectus (including each preliminary prospectus) included in the Shelf Registration Statement and any amendment or supplement thereto as such person may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use in accordance with applicable law of the prospectus or any amendment or supplement thereto by each of the selling Holders of the Securities in connection with the offering and sale of the Securities covered by the prospectus, or any amendment or supplement thereto, included in the Shelf Registration Statement. 6 (g) The Company shall deliver to each Initial Purchaser, any Exchanging Dealer, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement and any amendment or supplement thereto as such persons may reasonably request. The Company consents, subject to the provisions of this Agreement, to the use in accordance with applicable law of the prospectus or any amendment or supplement thereto by any Initial Purchaser, if necessary, any Participating Broker-Dealer and such other persons required to deliver a prospectus following the Registered Exchange Offer in connection with the offering and sale of the Exchange Securities covered by the prospectus, or any amendment or supplement thereto, included in such Exchange Offer Registration Statement. (h) Prior to any public offering of the Securities pursuant to any Registration Statement, the Company shall cooperate with the Holders of the Securities included therein and their Special Counsel (as defined in paragraph (p) below) in connection with the registration or qualification of the Securities for offer and sale under the securities or "blue sky" laws of such states of the United States as any Holder of the Securities reasonably requests in writing and do any and all other acts or things reasonably necessary or advisable to enable the offer and sale in such jurisdictions of the Securities covered by such Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject. (i) The Company shall cooperate with the Holders of the Securities to facilitate the timely preparation and delivery of certificates representing the Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders may request a reasonable period of time prior to sales of the Securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraphs (ii) through (v) of Section 3(b) above during the period for which the Company is required to maintain an effective Registration Statement, the Company shall promptly prepare and file a post-effective amendment to the Registration Statement or a supplement to the related prospectus and any other required document so that, as thereafter delivered to Holders of the Securities or purchasers of Securities, the prospectus will not contain an 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, in light of the circumstances under which they were made, not misleading. If the Company notifies the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer in accordance with paragraphs (ii) through (v) of Section 3(b) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Initial Purchasers, the Holders of the Securities and any such Participating Broker-Dealers shall suspend use of such prospectus, and the period of effectiveness of the Shelf Registration Statement provided for in Section 2(b) above and the Exchange Offer Registration Statement provided for in Section 1 above shall each be extended by the number of days from and including the date of the giving of such notice to and including the date when the Initial Purchasers, the Holders of the Securities and any known Participating Broker-Dealer shall have received such amended or supplemented prospectus pursuant to this Section 3(j). (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Initial Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. 7 (l) The Company will use its reasonable best efforts to comply with all rules and regulations of the Commission to the extent and so long as they are applicable to the Registered Exchange Offer or the Shelf Registration and will make generally available to its security holders (or otherwise provide in accordance with Section 11(a) of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act, no later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement, which statement shall cover such 12-month period. (m) The Company shall use its reasonable best efforts to cause the Indenture to be qualified under the Trust Indenture Act of 1939, as amended, in a timely manner and, in connection therewith, cooperate with the Trustee under the Indenture and the Holders of Securities to effect such changes to the Indenture as may be required for such qualification. In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (n) The Company may require each Holder of Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) The Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as any Holder of the Securities shall reasonably request in order to facilitate the disposition of the Securities pursuant to any Shelf Registration. (p) In the case of any Shelf Registration, the Company shall (i) make available at reasonable times and upon reasonable notice for inspection by a representative of the Holders of a majority in aggregate principal amount of the Securities being sold, any underwriter participating in any disposition pursuant to the Shelf Registration Statement and any attorney, accountant or other agent retained by the Holders of the Securities or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and (ii) cause the Company's officers, directors, employees, accountants and auditors to supply all relevant information reasonably requested by the Holders of the Securities or any such underwriter, attorney, accountant or agent in connection with the Shelf Registration Statement, in each case, as shall be reasonably necessary to enable such persons to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the Initial Purchasers by you and on behalf of the other parties, by one counsel designated by and on behalf of such other parties as described herein (which counsel shall be Latham & Watkins or another law firm reasonably acceptable to the Company, such counsel being referred to herein as the "SPECIAL COUNSEL"); provided, further, however, that, as a condition to supplying such information, the Company shall receive an agreement in writing from such Special Counsel agreeing that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Special Counsel and any other person entitled to receive such information pursuant to this paragraph (p) unless (w) disclosure of such information is required pursuant to applicable law or by court or administrative order, (x) disclosure of such information is, in the reasonable opinion of counsel to the Company, necessary to avoid or correct a misstatement or omission of a material fact in any Registration Statement, prospectus or any 8 supplement or post-effective amendment thereto or disclosure is otherwise required by law, (y) such information becomes generally available to the public other than as a result of a disclosure by such counsel or any other person entitled to receive such information pursuant to this paragraph (p) in violation of this proviso or (z) such information is approved for release by the Company in writing. (q) In the case of any Shelf Registration, the Company, if requested by any Holder of Securities covered thereby, shall cause (i) its counsel to deliver an opinion and updates thereof relating to the Securities in customary form addressed to such Holders and the managing underwriters, if any, thereof and dated, in the case of the initial opinion, the effective date of such Shelf Registration Statement (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its "significant subsidiaries" (as defined in Rule 1-02(w) of Regulation S-X); the qualification of the Company and its significant subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(o) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the applicable Securities; the absence of material legal or governmental proceedings involving the Company and its significant subsidiaries; the absence of governmental approvals required to be obtained in connection with the Shelf Registration Statement, the offering and sale of the applicable Securities, or any agreement of the type referred to in Section 3(o) hereof; the compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and as of the effective date of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from any documents incorporated by reference therein, if applicable, of an untrue statement of a material fact or the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading (in the case of any such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act); (ii) its officers to execute and deliver all customary documents and certificates and updates thereof requested by any underwriters of the applicable Securities; and (iii) its independent public accountants and the independent public accountants with respect to any other entity, if any, for which financial information is provided in the Shelf Registration Statement to provide to the selling Holders of the applicable Securities and any underwriter therefor a comfort letter in customary form and covering matters of the type customarily covered in comfort letters in connection with underwritten offerings, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. (r) In the case of the Registered Exchange Offer, if requested by any Initial Purchaser or any known Participating Broker-Dealer, the Company shall cause (i) its counsel to deliver to such Initial Purchaser or such Participating Broker-Dealer a signed opinion in the form set forth in Section 6(c)-(e) of the Purchase Agreement with such changes as are customary in connection with the preparation of a Registration Statement and (ii) its independent public accountants and the independent public accountants with respect to any other entity, if any, for which financial information is provided in the Registration Statement to deliver to such Initial Purchaser or such Participating Broker-Dealer a comfort letter, in customary form, meeting the requirements as to the substance thereof as set forth in Section 6(a) of the Purchase Agreement, with appropriate date changes. (s) If a Registered Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Initial Securities by Holders to the Company (or to such other Person as directed by the Company) in exchange for the Exchange Securities or the Private Exchange Securities, as the 9 case may be, the Company shall mark, or caused to be marked, on the Initial Securities so exchanged that such Initial Securities are being canceled in exchange for the Exchange Securities or the Private Exchange Securities, as the case may be; in no event shall the Initial Securities be marked as paid or otherwise satisfied. (t) The Company will use its reasonable best efforts to cause the Securities covered by any Registration Statement to continue to be rated by the rating agencies that initially rated the Securities during the period that any such Registration Statement is required hereunder to remain effective (it being acknowledged, however, that the foregoing shall not be deemed to require the Company to maintain the rating of such Securities at the rating initially given to the Securities). (u) In the event that any broker-dealer registered under the Exchange Act shall underwrite any Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "RULES") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a Holder of such Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company will assist such broker-dealer in complying with the requirements of such Rules, including, without limitation, by (i) if such Rules, including Rule 2720, shall so require, engaging a "qualified independent underwriter" (as defined in Rule 2720) to participate in the preparation of the Registration Statement relating to such Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Securities, (ii) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof and (iii) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules. (v) The Company shall use its reasonable best efforts to take all other steps necessary to effect the registration of the Securities covered by a Registration Statement contemplated hereby. (w) Notwithstanding any other provision hereof, the Company may postpone or suspend the filing or the effectiveness of a Registration Statement (or any amendments or supplements thereto) if (i) such action is required by applicable law or (ii) such action is taken by the Company in good faith and for valid business reasons (not including the avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, other pending corporate developments, public filings with the Commission or other similar events, so long as the Company promptly thereafter complies with the requirements of Section 3(j) hereof, if applicable. Notwithstanding the occurrence of any event referred to in the immediately preceding sentence (each such occurrence, a "SUSPENSION"), no such Suspension shall suspend, postpone or in any other manner affect the running of the time period after which a Registration Default shall be deemed to occur and, if the filing or effectiveness of any such Registration Statement is postponed or suspended as a result of a Suspension, a Registration Default shall nonetheless exist if all other requirements required for the occurrence of a Registration Default shall then be satisfied, and the provisions of Section 6 hereof requiring the accrual and payment of Additional Interest, as set forth in such Section, on the Securities shall be payable. 4. Registration Expenses. (a) All expenses incident to the Company's performance of and compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement is ever filed or becomes effective, including without limitation; (i) all registration and filing fees and expenses; 10 (ii) all fees and expenses of compliance with federal securities and state "blue sky" or securities laws; (iii) all expenses of printing (including printing certificates for the Securities to be issued in the Registered Exchange Offer and the Private Exchange and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company; and (v) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement, the Company will reimburse the Initial Purchasers and the Holders of Transfer Restricted Securities who are tendering Initial Securities in the Registered Exchange Offer and/or selling or reselling Securities pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of the Special Counsel. 5. Indemnification. (a) The Company agrees to indemnify and hold harmless each Holder of the Securities, any Participating Broker-Dealer and each person, if any, who controls such Holder or such Participating Broker-Dealer within the meaning of the Securities Act or the Exchange Act (each Holder, any Participating Broker-Dealer and such controlling persons are referred to collectively as the "INDEMNIFIED PARTIES") from and against any losses, claims, damages or liabilities, joint or several, or any actions in respect thereof (including, but not limited to, any losses, claims, damages, liabilities or actions relating to purchases and sales of the Securities) to which each Indemnified Party may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of, or are based upon, the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse, as incurred, the Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action in respect thereof; provided, however, that (i) the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein and (ii) with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus relating to a Shelf Registration Statement, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Holder or Participating Broker-Dealer from 11 whom the person asserting any such losses, claims, damages or liabilities purchased the Securities concerned, to the extent that a prospectus relating to such Securities was required to be delivered by such Holder or Participating Broker-Dealer under the Securities Act in connection with such purchase and any such loss, claim, damage or liability of such Holder or Participating Broker-Dealer results from the fact that there was not sent or given to such person, at or prior to the written confirmation of the sale of such Securities to such person, a copy of the final prospectus if the Company had previously furnished copies thereof to such Holder or Participating Broker-Dealer; provided further, however, that this indemnity agreement will be in addition to any liability which the Company may otherwise have to such Indemnified Party. The Company shall also indemnify underwriters, their officers and directors and each person who controls such underwriters within the meaning of the Securities Act or the Exchange Act to the same extent as provided above with respect to the indemnification of the Holders of the Securities if requested by such Holders. (b) Each Holder of the Securities, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act from and against any losses, claims, damages or liabilities or any actions in respect thereof, to which the Company or any such controlling person may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement or prospectus or in any amendment or supplement thereto or in any preliminary prospectus relating to a Shelf Registration, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or omission or alleged untrue statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to the Company by or on behalf of such Holder specifically for inclusion therein; and, subject to the limitation set forth immediately preceding this clause, shall reimburse, as incurred, the Company for any legal or other expenses reasonably incurred by the Company or any such controlling person in connection with investigating or defending any loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability which such Holder may otherwise have to the Company or any of its controlling persons. (c) Promptly after receipt by an indemnified party under this Section 5 of notice of the commencement of any action or proceeding (including a governmental investigation), such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 5, notify the indemnifying party of the commencement thereof; provided, however, that the omission so to notify the indemnifying party (i) shall not relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof the indemnifying party will not be liable to such indemnified party under this Section 5 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof; provided, however, that the indemnified party shall have the right to employ counsel to represent the indemnified party and their respective controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the indemnified party against the indemnifying party under this Section 5 if the employment of such counsel shall have been authorized in writing by the indemnifying party in 12 connection with the defense of such action, if in the written opinion of counsel to either the indemnifying party or the indemnified party, representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts of interest between them or the indemnifying party shall have failed to employ counsel within a reasonable period of time, and in that event the fees and expenses of one firm of separate counsel (in addition to the fees and expenses of one firm of local counsel in each applicable jurisdiction) shall be paid by the indemnifying party. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified party under subsections (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in subsection (a) or (b) above in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or such Holder or such other indemnified party, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding any other provision of this Section 5(d), the Holders of the Securities shall not be required to contribute any amount in excess of the amount by which the net proceeds received by such Holders from the sale of the Securities pursuant to a Registration Statement exceeds the amount of damages which such Holders have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls such indemnified party within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as such indemnified party and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act shall have the same rights to contribution as the Company. (e) The agreements contained in this Section 5 shall survive the sale of the Securities pursuant to a Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of any indemnified party. 6. Additional Interest Under Certain Circumstances. (a) Additional interest (the "ADDITIONAL INTEREST") with respect to each Transfer Restricted Security shall be assessed as follows if either of the following events occur (each such event in clauses (i) and (ii) below being herein called an "REGISTRATION DEFAULT"): 13 (i) any Registration Statement required by this Agreement is not declared effective by the Commission on or prior to the applicable Effectiveness Deadline; or (ii) on and after the applicable Effectiveness Deadline (plus an additional 30 days in respect of the Exchange Offer Registration Statement), any Registration Statement required by this Agreement has been declared effective by the Commission but (A) such Registration Statement thereafter ceases to be effective or (B) such Registration Statement or the related prospectus ceases to be usable in connection with resales of Transfer Restricted Securities during the periods specified herein because (1) any event occurs as a result of which the related prospectus forming part of such Registration Statement would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, (2) it shall be necessary to amend such Registration Statement or supplement the related prospectus to comply with the Securities Act or the Exchange Act or the respective rules thereunder or (3) of a Suspension by the Company in accordance with Section 3(w) hereof. Each of the foregoing will constitute a Registration Default whatever the reason for any such event and whether it is voluntary or involuntary or is beyond the control of the Company or pursuant to operation of law or as a result of any action or inaction by the Commission. Additional Interest shall accrue on each Transfer Restricted Security over and above the interest set forth in the title of such Transfer Restricted Security from and including the date on which any such Registration Default shall occur to but excluding the date on which all such Registration Defaults have ceased to be continuing, at a rate of 0.50% per annum (the "ADDITIONAL INTEREST RATE"). (b) A Registration Default referred to in Section 6(a)(ii) hereof shall be deemed not to have occurred and be continuing in relation to a Shelf Registration Statement or the related prospectus if (i) such Registration Default has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related prospectus or (y) other material events with respect to the Company that would need to be described in such Shelf Registration Statement or the related prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement such Shelf Registration Statement and related prospectus to describe such events; provided, however, that in any case if such Registration Default occurs for a continuous period in excess of 30 days, Additional Interest shall be payable in accordance with the above paragraph from the date of such Registration Default until such Registration Default ceases. (c) Notwithstanding the foregoing, the Company shall not be required to pay the Additional Interest required pursuant to paragraph (a) above to a Holder of Transfer Restricted Securities if the applicable Registration Default arises by reason of the failure of such Holder to provide such information as (i) the Company may reasonably request, with reasonable prior written notice, for use in the Shelf Registration Statement or any prospectus included therein to the extent the Company reasonably determines that such information is required to be included therein by applicable law, (ii) the NASD or the Commission may request in connection with such Shelf Registration Statement or (iii) is required to comply with the agreements of such Holder contained in Section 3(a) to the extent compliance thereof is necessary for the Shelf Registration Statement to be declared effective. 14 (d) Any amounts of Additional Interest due pursuant to Section 6(a) will be payable in cash on the regular interest payment dates with respect to the Securities. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest Rate by the principal amount of the Securities and further multiplied by a fraction, the numerator of which is the number of days such Additional Interest Rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. (e) "TRANSFER RESTRICTED SECURITIES" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) following the exchange by a broker-dealer in the Registered Exchange Offer of an Initial Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. 7. Rules 144 and 144A. The Company agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to make available, upon request of any Holder, to such Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the Exchange Act, to make all filings required thereby in a timely manner in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144. 8. Underwritten Registrations. If any of the Transfer Restricted Securities covered by any Shelf Registration are to be sold in an underwritten offering, subject to the proviso in Section 3(o) hereof, the investment banker or investment bankers and manager or managers that will administer the offering ("MANAGING UNDERWRITERS") will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities to be included in such offering and will be reasonably acceptable to the Company. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Section 1 and 2 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 1 and 2 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 15 (b) No Inconsistent Agreements. The Company will not on or after the date of this Agreement enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company hereby represents that the rights granted to the Holders hereunder do not conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, except by the Company and the written consent of the Holders of a majority in principal amount of the Securities affected by such amendment, modification, supplement, waiver or consents; provided, however, that, with respect to any matter that directly or indirectly adversely affects the rights of any Holder of Transfer Restricted Securities occurring within the period in which any Registration Statement is effective for such Holder, the Company shall obtain the written consent of each such Holder against which such amendment, modification, supplement, waiver, consent or departure is to be effective. Notwithstanding the foregoing (except of the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of any Holder of Securities whose Securities are being sold or exchanged pursuant to a Registration Statement and that does not directly or indirectly adversely affect the rights of any other Holder of Securities may be given by Holders of at least a majority in aggregate principal amount of the Securities being sold or exchanged by such holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Without the consent of the Holder of each Security, however, no modification may change the provisions relating to the payment of Additional Interest. (d) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, first-class mail, facsimile transmission, or air courier which guarantees overnight delivery: (1) if to a Holder of the Securities, at the most current address given by such Holder to the Company. (2) if to the Initial Purchasers; Credit Suisse First Boston Corporation Eleven Madison Avenue New York, NY 10010-3629 Fax No.: (212) 325-8278 Attention: Transactions Advisory Group with a copy to: Latham & Watkins 885 Third Avenue, Suite 1000 New York, NY 10022-4802 Fax No.: (212) 751-4864 Attention: Jonathan R. Rod (3) if to the Company, at its address as follows: 16 MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, IA 50303 Fax No.: 402-345-9318 Attention: General Counsel with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Fax No.: 212-728-8111 Attention: Peter J. Hanlon All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three business days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged by recipient's facsimile machine operator, if sent by facsimile transmission; and on the day delivered, if sent by overnight air courier guaranteeing next day delivery. (e) Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect their rights or the rights of Holders hereunder. (f) Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. (j) Severability. If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Securities Held by the Company. Whenever the consent or approval of Holders of a specified percentage of principal amount of Securities is required hereunder, Securities held by the Company or its affiliates (other than subsequent Holders of Securities if such subsequent Holders are deemed to be affiliates solely by reason of their holdings of such Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 17 If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the several Initial Purchasers and the Company in accordance with its terms. Very truly yours, MIDAMERICAN ENERGY HOLDINGS COMPANY by /s/ Douglas L. Anderson ---------------------------------- Name: Douglas L. Anderson Title: Senior Vice President, General Counsel and Secretary The foregoing Registration Rights Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION BANC ONE CAPITAL MARKETS, INC. BNY CAPITAL MARKETS, INC. J.P. MORGAN SECURITIES INC. BNP PARIBAS SECURITIES CORP. COMMERZ BANK CAPITAL MARKETS CORP. ING FINANCIAL MARKETS LLC MIZUHO INTERNATIONAL PLC TD SECURITIES (USA) INC. THE ROYAL BANK OF SCOTLAND PLC U.S. BANCORP PIPER JAFFRAY INC. By: CREDIT SUISSE FIRST BOSTON CORPORATION by /s/ Jonathan Bram ------------------------------------ Name: Jonathan Bram Title: Managing Director (Registration Rights Agreement) ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 120 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 19 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Initial Securities, where such Initial Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." 20 ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Initial Securities where such Initial Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 120 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 200 , all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus.(1) The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 120 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any brokers or dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - ---------- (1) In addition, the legend required by Item 502(e) of Regulation S-K will appear on the inside front cover page of the Exchange Offer prospectus below the Table of Contents. 21 ANNEX D [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------------------- Address: ------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Initial Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 22 SCHEDULE A Additional Initial Purchasers: Banc One Capital Markets, Inc. BNY Capital Markets, Inc. J.P. Morgan Securities Inc. BNP Paribas Securities Corp. Commerzebank Capital Markets Corp. ING Financial Markets LLC Mizuho International plc TD Securities (USA) Inc. The Royal Bank of Scotland plc U.S. Bancorp Piper Jaffray Inc. 23 EX-4.14 6 file005.txt AMENDED AND RESTATED DECLARATION OF TRUST AMENDED AND RESTATED DECLARATION OF TRUST OF MIDAMERICAN CAPITAL TRUST III AUGUST 16, 2002 TABLE OF CONTENTS
PAGE ---- ARTICLE I. INTERPRETATION AND DEFINITIONS............................................................1 Section 1.1. Definitions..........................................................................1 ARTICLE II. TRUST INDENTURE ACT......................................................................7 Section 2.1. Trust Indenture Act; Application....................................................7 Section 2.2. Lists of Holders of Trust Securities.................................................7 Section 2.3. Reports by the Property Trustee......................................................7 Section 2.4. Periodic Reports to Property Trustee.................................................8 Section 2.5. Evidence of Compliance with Conditions Precedent.....................................8 Section 2.6. Events of Default; Waiver............................................................8 Section 2.7. Event of Default; Notice.............................................................9 ARTICLE III. ORGANIZATION...........................................................................10 Section 3.1. Name ...............................................................................10 Section 3.2. Office .............................................................................10 Section 3.3. Purpose.............................................................................10 Section 3.4. Authority...........................................................................10 Section 3.5. Title to Property of the Trust......................................................11 Section 3.6. Powers and Duties of the Regular Trustees...........................................11 Section 3.7. Prohibition of Actions by the Trust and the Trustees................................13 Section 3.8. Powers and Duties of the Property Trustee...........................................13 Section 3.9. Certain Duties and Responsibilities of the Property Trustee.........................15 Section 3.10. Certain Rights of Property Trustee.................................................17 Section 3.11. Delaware Trustee...................................................................18 Section 3.12. Execution of Documents.............................................................19 Section 3.13. Not Responsible for Recitals or Issuance of Trust Securities.......................19 Section 3.14. Duration of Trust..................................................................19 Section 3.15. Mergers............................................................................19 ARTICLE IV. SPONSOR ................................................................................20 Section 4.1. Sponsor's Purchase of Common Securities.............................................20 ARTICLE V. TRUSTEES ................................................................................21 Section 5.1. Number of Trustees..................................................................21 Section 5.2. Delaware Trustee; Eligibility......................................................21 Section 5.3. Property Trustee; Eligibility......................................................21 Section 5.4. Qualifications of Regular Trustees Generally........................................22 Section 5.5. Initial Trustees....................................................................22 Section 5.6. Appointment, Removal and Resignation of trustees....................................23 Section 5.7. Vacancies among Trustees............................................................24 Section 5.8. Effect of Vacancies.................................................................24 Section 5.9. Meetings............................................................................25 Section 5.10. Delegation of Power................................................................25 ARTICLE VI. DISTRIBUTIONS...........................................................................25 Section 6.1. Distributions.......................................................................25 ARTICLE VII. ISSUANCE OF TRUST SECURITIES...........................................................26 Section 7.1. General Provisions regarding Trust Securities.......................................26 ARTICLE VIII. DISSOLUTION AND TERMINATION...........................................................27 Section 8.1. Dissolution and Termination of Trust................................................27 ARTICLE IX. TRANSFER OF INTEREST....................................................................28 Section 9.1. Transfer of Trust Securities........................................................28 Section 9.2. Transfer of Certificates............................................................28 Section 9.3. Deemed Trust Security Holders.......................................................28 Section 9.4. Mutilated, Destroyed, Lost or Stolen Certificates...................................29 ARTICLE X. LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS...............29 Section 10.1. Liability..........................................................................29 Section 10.2. Exculpation........................................................................30 Section 10.3. Fiduciary Duty.....................................................................30 Section 10.4. Indemnification....................................................................31 Section 10.5. Outside Businesses.................................................................31 ARTICLE XI. ACCOUNTING..............................................................................32 Section 11.1. Fiscal Year........................................................................32 Section 11.2. Certain Accounting Matters.........................................................32 Section 11.3. Banking............................................................................33 Section 11.4. Withholding........................................................................33 ARTICLE XII. AMENDMENTS AND MEETINGS................................................................33 Section 12.1. Amendments.........................................................................33 Section 12.2. Meetings of the Holders of Trust Securities; Action by Written Consent.............35 ARTICLE XIII. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE...............36 Section 13.1. Representations and Warranties of Property Trustee.................................36 Section 13.2. Representations and Warranties of Delaware Trustee.................................37 ARTICLE XIV. MISCELLANEOUS..........................................................................37 Section 14.1. Notices............................................................................37 Section 14.2. Governing Law......................................................................38 Section 14.3. Intention of the Parties...........................................................39 Section 14.4. Headings...........................................................................39 Section 14.5. Successors and Assigns.............................................................39 Section 14.6. Partial Enforceability.............................................................39 Section 14.7. Counterparts.......................................................................40
-ii- Certificate of Trust Trust Agreement Exhibit A Terms of Preferred and Common Securities Annex I Preferred Security (with Assignment) Annex II Common Security (with Assignment) Exhibit B Preferred Securities Guarantee Exhibit C Common Securities Guarantee -iii- AMENDED AND RESTATED DECLARATION OF TRUST AMENDED AND RESTATED DECLARATION OF TRUST (this "DECLARATION") of MidAmerican Capital Trust III (the "TRUST") dated as of August 16, 2002 among (a) MidAmerican Energy Holdings Company, an Iowa corporation, as trust sponsor (the "SPONSOR"), (b) The Bank of New York, a New York corporation, as property trustee (the "PROPERTY TRUSTEE"), (c) The Bank of New York (Delaware), as Delaware trustee (the "DELAWARE TRUSTEE"), (d) Gregory E. Abel, an individual whose address is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50309, Patrick J. Goodman, an individual whose address is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50309 and Douglas L. Anderson, an individual whose address is c/o MidAmerican Energy Holdings Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131 (each, a "REGULAR TRUSTEE" and, together with the Property Trustee and the Delaware Trustee, the "TRUSTEES") and (e) the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, certain of the Trustees and the Sponsor established the Trust under the Business Trust Act (as hereinafter defined) pursuant to a Trust Agreement dated as of August 1, 2002, (the "ORIGINAL DECLARATION") and a Certificate of Trust filed with the Secretary of State of the State of Delaware on August 1, 2002, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in Subordinated Debentures (as hereinafter defined); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I. INTERPRETATION AND DEFINITIONS SECTION 1.1. DEFINITIONS (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Exhibits are to Articles and Sections of, and Exhibits to, this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Sponsor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer, or other officer or agent of the Sponsor duly authorized by the board of directors of the Sponsor to act in respect of matters relating to this Declaration. "BUSINESS DAY" means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or required by law to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 ET SEQ., as it may be amended from time to time. "CERTIFICATE" means a Common Security Certificate or a Preferred Security Certificate. "CLOSING DATE" means each date upon which the Trust issues Trust Securities hereunder. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as the same may be amended from time to time, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning specified in Section 7.1. "COMMON SECURITIES GUARANTEE" means the guarantee agreement of the Sponsor dated as of August 16, 2002 in respect of the Common Securities in the form of Exhibit C. "COMMON SECURITIES PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of August 16, 2002 in respect of the Common Securities. -2- "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex II to Exhibit A. "CORPORATE TRUST OFFICE" means the principal office of the Property Trustee at which at any particular time its corporate trust business shall be administered which office at the date of execution of this Declaration is located at The Bank of New York, 101 Barclay Street, Floor 8 West, New York, New York 10286, Attention: Corporate Trust Administration. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Trust Securities. "DEBENTURE PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of August 16, 2002 in respect of the Subordinated Debentures. "DELAWARE TRUSTEE" has the meaning set forth in the preamble hereof and any successor trustee meeting the eligibility requirements set forth in Section 5.2. "DISTRIBUTION" means a distribution payable to Holders of Trust Securities in accordance with Section 6.1. "EVENT OF DEFAULT" in respect of the Trust Securities, means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Subordinated Debentures. "GUARANTEE TRUSTEE" means The Bank of New York, as trustee under the Preferred Securities Guarantee, until a successor is appointed thereunder and thereafter means such successor trustee. "HOLDER" means a Person in whose name a Certificate representing a Trust Security is registered on the books and records of the Trust, such Person being a beneficial owner within the meaning of the Business Trust Act, provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Sponsor, as guarantor of the Trust Securities, or any Affiliate of the Sponsor (other than Berkshire Hathaway Inc. or any other Permitted Holder). "INDEMNIFIED PERSON" means (a) any Trustee or the Property Trustee; (b) any Affiliate of any Trustee or the Property Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or the Property Trustee; or (d) any employee or agent of the Trust or its Affiliates. "INDENTURE" means the Indenture dated as of August 16, 2002 among the Sponsor and the Indenture Trustee as modified, supplemented or amended from time to time. "INDENTURE TRUSTEE" means The Bank of New York, as trustee under the Indenture, until a successor is appointed thereunder, and thereafter means such successor trustee. -3- "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as the same may be amended from time to time, or any successor legislation. "LEGAL ACTION" has the meaning set forth in Section 3.6(e). "MAJORITY IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "MATURITY DATE" has the meaning set forth in Section 2.02 of the Indenture. "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that such officer signing the Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "opinion of counsel" means a written opinion of counsel who may be an employee of the Sponsor. "PAYING AGENT" has the meaning specified in Section 3.8(h). "PAYMENT AMOUNT" has the meaning specified in Section 6.1. "PERMITTED HOLDERS" means (i) Berkshire Hathaway Inc. and any of its subsidiaries which are directly or indirectly 50% or more owned by it and which are consolidated with it for financial reporting purposes or (ii) any Person following any Event of Default specified in Section 4.01 (1), (2), or (3) of the Indenture that results in an acceleration of the -4- Subordinated Debentures or any Event of Default specified in Section 4.01 (4), (5) or (6) of the Indenture. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED SECURITIES GUARANTEE" means the guarantee agreement between the Sponsor and the Guarantee Trustee dated as of August 16, 2002, in respect of the Preferred Securities in the form of Exhibit B. "PREFERRED SECURITIES" has the meaning specified in Section 7.1. "PREFERRED SECURITY CERTIFICATE" means a certificate representing a Preferred Security substantially in the form of Annex I to Exhibit A. "PROPERTY TRUSTEE" has the meaning set forth in the preamble hereof or any successor trustee meeting the eligibility requirements set forth in Section 5.3. "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.8(c). "QUORUM" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "REGULAR TRUSTEE" has the meaning set forth in the preamble hereof, or any successor in interest in such capacity, or any successor trustee appointed as herein provided. "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any vice-president, any assistant vice-president, any assistant treasurer or any other officer in the Corporate Trust Office of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Declaration and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "RULE 3A-5" means Rule 3a-5 under the Investment Company Act. "SECURITIES ACT" means the Securities Act of 1933, as the same may be amended from time to time, or any successor legislation. "66-2/3% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and by the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred -5- Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 66-2/3% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "SPONSOR" has the meaning set forth in the preamble hereof or any successor entity in a merger, consolidation or amalgamation. "SUBORDINATED DEBENTURES" means up to $979,381,450.00 aggregate principal amount of 11% Junior Subordinated Deferrable Interest Debentures, Series A, to be issued by the Sponsor under the Indenture and to be held by the Property Trustee for the benefit of the Trust. "SUBSCRIPTION AGREEMENT" means that certain subscription agreement dated August 16, 2002 between the Trust and Berkshire Hathaway Inc. (including any of its assignees thereunder). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.15(b). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.15(b). "10% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities or by the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 10% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" has the meaning set forth in the preamble hereof, so long as such person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. -6- ARTICLE II. TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required, if any, to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee that is a Trustee for purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. (e) The Regular Trustee executing the certificate under Section 3.6(h) shall be deemed the principal executive officer and chief financial officer of the Trust for purposes of the Trust Indenture Act. SECTION 2.2. LISTS OF HOLDERS OF TRUST SECURITIES (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Trust Securities ("LIST OF HOLDERS") as of such record date, provided that none of the Sponsor or the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with the obligations of an indenture trustee under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY THE PROPERTY TRUSTEE Within 60 days after December 31 of each year, the Property Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust -7- Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. PERIODIC REPORTS TO PROPERTY TRUSTEE Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 (if any) of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Sponsor's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Sponsor and the Regular Trustee pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officer's Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default with respect to the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of all of the Holders of the Preferred Securities. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. -8- (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration may only be waived by the vote of all of the Holders of Common Securities; provided that, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Trust Securities. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. SECTION 2.7. EVENT OF DEFAULT; NOTICE (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Securities, notices of all defaults with respect to the Trust Securities known to the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of or interest on any of the Subordinated Debentures, the Property Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Property Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Trust Securities. -9- (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 4.01(l) and 4.01(2) of the Indenture; or (ii) any default as to which a Responsible Officer of the Property Trustee charged with the administration of this Declaration shall have obtained written or actual notice. ARTICLE III. ORGANIZATION SECTION 3.1. NAME The Trust is named "MidAmerican Capital Trust III", as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Trust Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.2. OFFICE The address of the principal office of the Trust is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50303. On ten Business Days written notice to the Holders of Trust Securities, the Regular Trustees may designate another principal office. SECTION 3.3. PURPOSE The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Subordinated Debentures and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. All provisions of this Declaration shall be interpreted in a manner consistent with such purposes. SECTION 3.4. AUTHORITY Subject to the limitations provided in this Declaration, including the provisions of Sections 3.11 and 5.2, and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Regular Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Regular Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Except as expressly provided in this Declaration to the contrary, any action to be taken by the Regular Trustees under this -10- Declaration may be taken by a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. SECTION 3.5. TITLE TO PROPERTY OF THE TRUST Except as provided in Section 3.8 with respect to the Subordinated Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6. POWERS AND DUTIES OF THE REGULAR TRUSTEES The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities in accordance with this Declaration. The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000, and, provided further, that there shall be no interests in the Trust other than the Trust Securities; (b) to acquire each series of Subordinated Debentures with the proceeds of the sale of a series of Trust Securities; provided, however, that the Regular Trustees shall cause legal title to the Subordinated Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the Trust Securities; (c) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Trust Securities as to such actions and applicable record dates; (d) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Trust Securities; (e) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION"), unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power to bring such Legal Action; (f) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (g) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act (if any); -11- (h) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by a Regular Trustee; (i) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (j) to act as, or appoint another Person to act as, registrar and transfer agent for the Trust Securities; (k) to give prompt written notice to the Holders of the Trust Securities and the Property Trustee of any notice received from the Sponsor of its election (i) to defer payments of interest on the Subordinated Debentures by extending the interest payment period under the Indenture or (ii) to extend the scheduled maturity date on the Subordinated Debentures pursuant to the Indenture; (l) to execute all documents or instruments (including without limitation, the Debenture Purchase Agreement, the Common Securities Purchase Agreement and, to the extent not previously executed by the Sponsor on behalf of the Trust pursuant to the Original Declaration, the Subscription Agreement), perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (m) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Trust Securities or to enable the Trust to effect the purposes for which the Trust was created; (n) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (iii) cooperating with the Sponsor to ensure that the Subordinated Debentures will be treated as indebtedness of the Sponsor for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders or vary the terms of the Preferred Securities; and (o) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust. -12- The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. SECTION 3.7. PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES (a) The Trust shall not, and the Trustees and the Property Trustee shall not, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees and the Property Trustee shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Subordinated Debentures, but shall distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Declaration and of the Trust Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Subordinated Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Trust Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Trust Securities; or (vii) other than as provided in this Declaration or as set forth in Exhibit A hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Indenture Trustee with respect to the Subordinated Debentures, (B) waive any past default that is waivable under Section 4.13 of the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Subordinated Debentures shall be due and payable or (D) consent to any amendment, modification, waiver or termination of the Indenture or the Subordinated Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. SECTION 3.8. POWERS AND DUTIES OF THE PROPERTY TRUSTEE (a) The legal title to the Subordinated Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Trust Securities. The right, title and interest of the Property Trustee to the Subordinated Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in -13- accordance with Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Subordinated Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Subordinated Debentures to the Regular Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "PROPERTY TRUSTEE ACCOUNT") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Trust Securities and, upon the receipt of payments of funds made in respect of the Subordinated Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make Distributions to the Holders of the Trust Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with the Property Trustee or with a banking institution the rating on whose long term unsecured indebtedness is at least equal to the rating assigned to the Preferred Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Trust Securities to the extent the Subordinated Debentures are redeemed or mature; and (iii) upon receipt of notice of distribution issued by the Regular Trustees in accordance with the terms of the Trust Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Subordinated Debentures to Holders of Trust Securities upon the occurrence of certain special events (as may be defined in the terms of the Trust Securities) arising from a change in law or a change in legal interpretation or other specified circumstances pursuant to the terms of the Trust Securities. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Trust Securities. (e) The Property Trustee shall take any Legal Action that arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act. (f) The Property Trustee shall not resign as a trustee unless either: (i) the Trust has been completely liquidated and the proceeds of such liquidation have been distributed to the Holders of Trust Securities pursuant to the terms of the Trust Securities; or -14- (ii) a successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.6. (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Subordinated Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Trust Securities, enforce its rights as holder of the Subordinated Debentures subject to the rights of the Holders pursuant to the terms of such Trust Securities. (h) The Property Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Trust Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. The Property Trustee may remove any Paying Agent at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee. The Property Trustee will be the initial Paying Agent. (i) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.6. The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3 and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9. CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE (a) The Property Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and -15- (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Declaration (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein); (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Trust Securities at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Subordinated Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Subordinated Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this -16- Declaration, nor shall the Property Trustee be liable for the default or misconduct of the Regular Trustees or the Sponsor. SECTION 3.10. CERTAIN RIGHTS OF PROPERTY TRUSTEE (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by a Direction or an Officer's Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) shall be entitled, in the absence of bad faith on its part, to request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) (or any re-recording, refiling or registration thereof); (v) the Property Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, acceptable to the Property Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee provided that, nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, Officer's Certificate, statement, instrument, -17- opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit at the sole cost of the Sponsor and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Trust Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration. No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or, authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11. DELAWARE TRUSTEE Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the -18- Business Trust Act. The Delaware Trustee shall be entitled to the benefit of all of the immunities and indemnities that the Property Trustee is entitled to under this Declaration. SECTION 3.12. EXECUTION OF DOCUMENTS Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act, a majority of or, if there are only two, both of the Regular Trustees are authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.6. SECTION 3.13. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF TRUST SECURITIES The recitals contained in this Declaration and the Trust Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Trust Securities. SECTION 3.14. DURATION OF TRUST The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall exist until September 1, 2032. SECTION 3.15. MERGERS (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c). (b) The Trust may, with the consent of a majority of the Regular Trustees and without the consent of the Holders of the Trust Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "SUCCESSOR ENTITY") either: (A) expressly assumes all of the obligations of the Trust under the Trust Securities; or (B) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and maturity; (ii) the Sponsor expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the Holder of the Subordinated Debentures; -19- (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange, the Nasdaq Stock Market's National Market or other organization on which the Preferred Securities are then listed; (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; (vi) such Successor Entity has a purpose identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; and (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall, except with the consent of Holders of 100% in liquidation amount of the Trust Securities, not consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity not to be classified for United States federal income tax purposes as a grantor trust. ARTICLE IV. SPONSOR SECTION 4.1. SPONSOR'S PURCHASE OF COMMON SECURITIES On each Closing Date, the Sponsor will purchase all the Common Securities issued by the Trust on such Closing Date. The aggregate amount of Common Securities held by the Sponsor hereunder shall at all times equal 3% of the capital of the Trust. -20- ARTICLE V. TRUSTEES SECTION 5.1. NUMBER OF TRUSTEES The number of Trustees shall initially be five (5), and: (a) at any time before the issuance of any Trust Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Trust Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities, provided that in any case, the number of Trustees shall be at least four (4) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee pursuant to Section 5.2, in which case the number of Trustees shall be at least three (3). SECTION 5.2. DELAWARE TRUSTEE; ELIGIBILITY If required by the Business Trust Act, one Trustee shall be: (a) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. Except as otherwise provided, the Delaware Trustee's sole duty shall be to, upon the request of the other Trustees or the Sponsor, execute any documents and maintain custody of any records required to form, maintain the existence of, or dissolve, the Trust under the Business Trust Act. SECTION 5.3. PROPERTY TRUSTEE; ELIGIBILITY (a) There shall at all times be one Trustee which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, state, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the -21- requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. SECTION 5.4. QUALIFICATIONS OF REGULAR TRUSTEES GENERALLY Each Regular Trustee shall be a natural person who is at least 21 years of age and shall be an employee or officer of the Sponsor or otherwise be affiliated with the Sponsor. SECTION 5.5. INITIAL TRUSTEES The initial Regular Trustees shall be: Gregory E. Abel c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Patrick J. Goodman c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Douglas L. Anderson c/o MidAmerican Energy Holdings Company 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 -22- The initial Delaware Trustee shall be: The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 The initial Property Trustee shall be: The Bank of New York 101 Barclay Street Corporate Trust Administration Floor 8 West New York, New York 10286 SECTION 5.6. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES (a) Subject to Section 5.6(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any securities, by written instrument executed by the Sponsor; (ii) after the issuance of any Trust Securities, except as provided in clause (iii) hereof, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (iii) after the issuance of any Trust Securities, if an Event of Default has occurred and is continuing, with respect only to the Property Trustee or the Delaware Trustee, by vote of the Holders of a Majority in liquidation amount of the Preferred Securities voting as a class at a meeting of the Holders of the Preferred Securities. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.6(a) until a successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.3 has been appointed and has accepted such appointment by written instrument executed by such successor Property Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Section 5.2 has been appointed and has accepted such appointment by written instrument executed by such successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by any instrument in writing signed by the -23- Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Property Trustee shall be effective: (A) until a successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Trust Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a successor Delaware Trustee or successor Property Trustee, as the case may be, as the Property Trustee or the Delaware Trustee if the resigning Property Trustee or Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6. (e) If no successor Property Trustee or successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation, the resigning Property Trustee or Delaware Trustee, as applicable, may petition any court of competent jurisdiction for appointment of a successor Property Trustee or successor Delaware Trustee at the expense of the Sponsor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Property Trustee or successor Delaware Trustee, as the case may be. SECTION 5.7. VACANCIES AMONG TRUSTEES If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy and copies of any such resolution shall be distributed promptly to the remaining Trustees. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8. EFFECT OF VACANCIES The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular -24- Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.9. MEETINGS Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.10. DELEGATION OF POWER (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any governmental filing; and (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE VI. DISTRIBUTIONS SECTION 6.1. DISTRIBUTIONS Distributions shall be made and Holders shall receive Distributions in accordance with the applicable terms of Exhibit A hereto and the applicable terms of the relevant Holder's Trust Securities. Distributions shall be made on the Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Sponsor makes a payment of interest (including Deferred Interest (as defined in the Indenture)), or principal on a series of Subordinated Debentures (a "DEBENTURE Series") held by the Property Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a -25- "DISTRIBUTION") of the Payment Amount to Holders of the series of Trust Securities issued to purchase such Debenture Series. ARTICLE VII. ISSUANCE OF TRUST SECURITIES SECTION 7.1. GENERAL PROVISIONS REGARDING TRUST SECURITIES (a) The Regular Trustees shall on behalf of the Trust issue one or more series of preferred securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "PREFERRED SECURITIES") and one or more series of common securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "COMMON SECURITIES"). The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. (b) The Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees) shall sign the Certificates on behalf of the Trust. Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Trust Securities shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Trust Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of this Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks or identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation usage. (c) The consideration shall be received by the Property Trustee for the issuance of the Trust Securities, which consideration shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) The Holders shall not have any right or title in the assets of the Trust other than an undivided beneficial interest in such assets conferred by their Trust Securities, and they shall have no right to call for any partition or division of any property, profits or rights of the Trust except as otherwise provided herein. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Trust Securities, when issued and delivered against payment of purchase price therefor, shall be deemed to be validly issued, fully paid and non-assessable by the Trust. -26- (e) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. ARTICLE VIII. DISSOLUTION AND TERMINATION SECTION 8.1. DISSOLUTION AND TERMINATION OF TRUST (a) The Trust shall dissolve on the earlier of September 1, 2032 or: (i) upon (x) the filing of a bankruptcy petition pursuant to 11 U.S.C. Sections 101 et. seq. or similar petition arising under the laws of any other jurisdiction by the Holder of the Common Securities or the Sponsor or (y) the insolvency of the Holder of the Common Securities or the Sponsor; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Holder of the Common Securities or the Sponsor; the revocation of the Holder of the Common Securities or the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities or the Sponsor or the Trust; (iv) when all of the Trust Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Trust Securities; and (v) upon delivery of written direction to the Property Trustee by the Sponsor at any time (which direction is wholly optional and within the discretion of the Sponsor) to dissolve the Trust and distribute the Subordinated Debentures to the Holders of the Trust Securities in accordance with Section 3 of Exhibit A. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and the winding up and liquidation of the Trust, the Regular Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 3.9 and Article X shall survive the termination of the Trust. -27- ARTICLE IX. TRANSFER OF INTEREST SECTION 9.1. TRANSFER OF TRUST SECURITIES (a) Trust Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Trust Securities. Any transfer or purported transfer of any Trust Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Preferred Securities shall be transferable only to Permitted Holders. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such transfer is subject to the conditions precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; and (ii) the Trust would be an Investment Company or the transferee would become an Investment Company. SECTION 9.2. TRANSFER OF CERTIFICATES The Regular Trustees shall provide for the registration of transfers of Certificates, which will be effected without charge, but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing and accompanied by an Officer's Certificate executed by an executive officer of the transferor certifying that the transferee is a Permitted Holder. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration and the documents incorporated by reference herein. SECTION 9.3. DEEMED TRUST SECURITY HOLDERS The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Trust Securities represented by such Certificate for purposes of receiving Distributions and for all -28- other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Trust Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall have received evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.4, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Trust Certificates, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X. LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS SECTION 10.1. LIABILITY (a) Except as expressly set forth in this Declaration, the Preferred Securities Guarantee, the Common Securities Guarantee and the terms of the Trust Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Trust Securities which shall be made solely from assets of the Trust; and (ii) required to pay to the Trust or to any Holder of Trust Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act: (i) the Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Trust Securities) to the extent not satisfied out of the Trust's assets; and (ii) the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. -29- SECTION 10.2. EXCULPATION (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Trust Securities might properly be paid. SECTION 10.3. FIDUCIARY DUTY (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act, if any), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between an Indemnified Person and any Covered Person; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Trust Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by this Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. -30- (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4. INDEMNIFICATION (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.4(a). The indemnification shall survive the termination of this Declaration or the earlier removal or resignation of any of the Trustees or the Property Trustee. SECTION 10.5. OUTSIDE BUSINESSES Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others -31- any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XI. ACCOUNTING SECTION 11.1. FISCAL YEAR The fiscal year ("FISCAL YEAR") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2. CERTAIN ACCOUNTING MATTERS (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be prepared and delivered to each of the Holders of Trust Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Trust Securities any United States federal income tax information statement required by the Code, containing such information with regard to the Trust Securities held by each Holder as is required by the Code and the Treasury Regulations, and any comparable statements required to be provided under the law of any other taxing jurisdiction. Notwithstanding any right under the Code or other law to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States federal income tax return Form 1041 (or any successor form) or such other form required by United States federal income tax law, and any other tax returns or reports required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. -32- SECTION 11.3. BANKING The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Subordinated Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Trustee Account. SECTION 11.4. WITHHOLDING The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made to any Holder, the Trust may reduce subsequent Distributions to such Holder by the amount of such withholding. ARTICLE XII. AMENDMENTS AND MEETINGS SECTION 12.1. AMENDMENTS (a) Except as otherwise provided in this Declaration or by any applicable terms of the Trust Securities, this Declaration may only be amended by a written instrument approved and executed by the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees); provided, however, that: (i) in the case of any proposed amendment, the Property Trustee shall have first received an Officer's Certificate from the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (ii) in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: -33- (A) an Officer's Certificate from the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (iii) no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result of such amendment would be to: (A) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust and each Holder of the Trust Securities not to be treated as owning an undivided beneficial interest in the Subordinated Debentures, as evidenced by an Opinion of Counsel to the effect that such amendment shall not result in the foregoing; (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (iv) at such time after the Trust has issued any Trust Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of the Trust Securities may be effected only with such additional requirements as may be set forth in the terms of such Trust Securities; (v) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Trust Securities; (vi) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and (vii) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (b) Notwithstanding Section 12.1(a)(iii), this Declaration may be amended without the consent of the Holders of the Trust Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; and -34- (iv) conform to any change in Rule 3a-5 or other exemption from the requirement to register as an Investment Company under the Investment Company Act or written change in the interpretation or application thereof by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders. (c) Notwithstanding any other provision of this Declaration, neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Declaration which affects its own rights, duties or immunities under this Declaration: SECTION 12.2. MEETINGS OF THE HOLDERS OF TRUST SECURITIES; ACTION BY WRITTEN CONSENT (a) Meetings of the Holders of any class of Trust Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Trust Securities) to consider and act on any matter on which Holders of such class of Trust Securities are entitled to act under the terms of this Declaration or the terms of the Trust Securities. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Trust Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Trust Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Trust Securities calling a meeting shall specify in writing the Certificates held by the Holders of Trust Securities exercising the right to call a meeting and only those Trust Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Trust Securities, the following provisions shall apply to meetings of Holders of Trust Securities: (i) notice of any such meeting shall be given to all the Holders of Trust Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Trust Securities is permitted or required under this Declaration such vote, consent or approval may be given at a meeting of the Holders of Trust Securities. Any action that may be taken at a meeting of the Holders of Trust Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Trust Securities owning not less than the minimum amount of Trust Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Trust Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Trust Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to a Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Trust Security may authorize any Person to act for it by proxy on all matters in which a Holder of Trust Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid -35- after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Trust Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Trust Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Trust Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Trust Securities, or the Trust Indenture Act otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Trust Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Trust Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE The Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of its acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the State of New York, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration and with its principal place of business in New York, New York. (b) The execution, delivery and performance by the Property Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Property Trustee. This Declaration has been duly executed and delivered by the Property Trustee, and, assuming due authorization, execution and delivery hereof by the other parties hereto, it constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration by the Property Trustee do not conflict with or constitute a breach of the charter or by-laws of the Property Trustee. -36- (d) The Property Trustee, pursuant to this Declaration, shall hold legal title and a valid ownership interest in the Subordinated Debentures in accordance with the provisions hereof. SECTION 13.2. REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE The Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Delaware Trustee represents and warrants to the Trust and to the Sponsor at the time of its acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is either a natural person who is at least 21 years of age and a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. (b) The execution, delivery and performance by the Delaware Trustee of this Declaration and the Certificate of Trust have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and, under Delaware law assuming due authorization, execution and delivery hereof by the other parties hereto, constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration and the Certificate of Trust by the Delaware Trustee do not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee. ARTICLE XIV. MISCELLANEOUS SECTION 14.1. NOTICES All notices, instructions, requests and demands provided for in this Declaration shall be in writing, duly signed by the party giving same, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Trust Securities): MidAmerican Capital Trust III c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 -37- (b) if given to the Property Trustee, at the mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York 101 Barclay Street, Floor 8 West New York, New York 10286 Attention: Corporate Trust Administration Telecopy number: (212) 815-5707 (c) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.2. GOVERNING LAW THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF DELAWARE; PROVIDED HOWEVER, THAT THERE SHALL NOT BE APPLICABLE TO THE PARTIES HEREUNDER OR THIS DECLARATION ANY PROVISION OF THE LAWS (STATUTORY OR COMMON) OF THE STATE OF -38- DELAWARE PERTAINING TO TRUSTS THAT RELATE TO OR REGULATE, IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE FILING WITH ANY COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR SCHEDULES OF TRUSTEE FEES AND CHARGES, (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF THE TRUST, (C) THE NECESSITY FOR OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION, HOLDING OR DISPOSITION OF REAL OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS PAYABLE TO TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (E) THE ALLOCATION OF RECEIPTS AND EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS OR LIMITATIONS ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST INVESTMENTS OR REQUIREMENTS RELATING TO TITLING, STORAGE OR OTHER MANNER OF HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT OF FIDUCIARY OR OTHER STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON THE ACTS OR POWERS OF TRUSTEES THAT ARE INCONSISTENT WITH THE LIMITATIONS OR LIABILITIES OR AUTHORITIES AND POWERS OF THE TRUSTEES HEREUNDER AS SET FORTH OR REFERENCED IN THIS DECLARATION. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE TRUST. SECTION 14.3. INTENTION OF THE PARTIES It is the intention of the parties hereto that the Trust not be characterized for United States federal income tax purposes as an association taxable as a corporation or a partnership but rather that the Trust be characterized as a grantor trust or otherwise in a manner such that each Holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4. HEADINGS Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5. SUCCESSORS AND ASSIGNS Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6. PARTIAL ENFORCEABILITY If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. -39- SECTION 14.7. COUNTERPARTS This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and the Property Trustee to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. -40- IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written. GREGORY E. ABEL, THE BANK OF NEW YORK (DELAWARE), as Regular Trustee as Delaware Trustee /s/ Gregory E. Abel By: /s/ William T. Lewis - ------------------------------ -------------------------------- Name: William T. Lewis, SVP Title: PATRICK J. GOODMAN, MIDAMERICAN ENERGY HOLDINGS COMPANY, as Sponsor as Regular Trustee By: /s/ Douglas L. Anderson /s/ Patrick J. Goodman -------------------------------- - ------------------------------ Name: Douglas L. Anderson Title: Senior Vice President DOUGLAS L. ANDERSON, THE BANK OF NEW YORK, as Regular Trustee as Property Trustee /s/ Douglas L. Anderson By: /s/ Robert A. Massimillo - ------------------------------ -------------------------------- Name: Robert A. Massimillo Title: Vice President -41- CERTIFICATE OF TRUST OF MIDAMERICAN CAPITAL TRUST III THIS Certificate of Trust of MIDAMERICAN CAPITAL TRUST III (the "TRUST") is being duly executed and filed by The Bank of New York (Delaware), as Delaware Trustee, and Gregory E. Abel, Patrick J. Goodman and Douglas L. Anderson, as Regular Trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C.ss.ss. 3801, et seq.). 1. NAME. The name of the business trust formed hereby is MidAmerican Capital Trust III. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is The Bank of New York (Delaware), 23 White Clay Center, Route 273, Newark, Delaware 19711. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon filing with the Secretary of State. 4. This Certificate of Trust may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned, being all of the trustees of the Trust, have executed this Certificate of Trust. GREGORY E. ABEL, THE BANK OF NEW YORK (DELAWARE), as Regular Trustee as Delaware Trustee By: - ------------------------------ -------------------------------- Name: Title: PATRICK J. GOODMAN, as Regular Trustee - ------------------------------ DOUGLAS L. ANDERSON, as Regular Trustee - ------------------------------ TRUST AGREEMENT This TRUST AGREEMENT, dated as of August 1, 2002 (this "TRUST AGREEMENT"), between (i) MidAmerican Energy Holdings Company, an Iowa corporation, as Sponsor (the "SPONSOR"), and (ii) The Bank Of New York (Delaware), a Delaware banking corporation, as Delaware Trustee (the "DELAWARE TRUSTEE"), and Gregory E. Abel, Patrick J. Goodman and Douglas L. Anderson, as Regular Trustees, (the "REGULAR TRUSTEES" and, collectively with the Delaware Trustee, the "TRUSTEES"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "TRUST") shall be known as "MidAmerican Capital Trust III" in which name the Trustees, or the Sponsor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount from the Sponsor, which amount shall constitute the initial trust estate. The Trustees hereby declare that they will hold the trust estate for the Sponsor. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 DEL. C. Section 3801, ET SEQ. (the "BUSINESS TRUST ACT"), and that this document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in accordance with the provisions of the Business Trust Act. The Trust is hereby established by the Sponsor and the Trustees for the purposes of (i) issuing preferred securities ("PREFERRED SECURITIES") representing undivided beneficial interests in the assets of the Trust in exchange for cash and investing the proceeds thereof in debt securities of the Sponsor, (ii) issuing and selling common securities ("COMMON SECURITIES" and, together with the Preferred Securities, "TRUST SECURITIES") representing undivided beneficial interests in the assets of the Trust to the Sponsor in exchange for cash and investing the proceeds thereof in additional debt securities of the Sponsor and (iii) engaging in such other activities as are necessary, convenient or incidental thereto. 3. Concurrently with the first issuance of any Trust Securities by the Trust, the Sponsor and the Trustees will enter into an amended and restated Trust Agreement, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of the Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery of any licenses, consents or approvals required by applicable law or otherwise. 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as sponsor of the Trust, as applicable, (a) to negotiate the terms of, and execute on behalf of the Trust, such subscription or purchase agreements with one or more subscribers or purchasers relating to the Trust Securities as the Sponsor, on behalf of the Trust, may deem necessary or desirable and (b) to execute on behalf of the Trust any and all documents, papers and instruments as may be desirable in connection with any of the foregoing. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of Trustees initially shall be four (4) and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty (30) days' prior notice to the Sponsor. 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). [SIGNATURE PAGE FOLLOWS] -2- IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY, as Sponsor By: ------------------------------------- Name: Title: THE BANK OF NEW YORK (DELAWARE), as Trustee By: ------------------------------------- Name: Title: GREGORY E. ABEL, as Regular Trustee ----------------------------------------- PATRICK J. GOODMAN, as Regular Trustee ----------------------------------------- DOUGLAS L. ANDERSON, as Regular Trustee ----------------------------------------- -3- EXHIBIT A TERMS OF 11% TRUST ISSUED PREFERRED SECURITIES 11% TRUST ISSUED COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of August 16, 2002 (as amended from time to time, the "DECLARATION"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration). The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000. 1. DESIGNATION AND NUMBER. (a) PREFERRED SECURITIES. Up to 38,000,000 Preferred Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Nine Hundred Fifty Million Dollars ($950,000,000) and a liquidation amount with respect to the assets of the Trust of $25 per Preferred Security, are hereby designated for the purposes of identification only as "11% Trust Issued Preferred Securities" (the "PREFERRED SECURITIES"). The Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. (b) COMMON SECURITIES. Up to 11,175,258 Common Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Twenty Nine Million Three Hundred Eighty One Thousand Four Hundred Fifty Dollars ($29,381,450) and a liquidation amount with respect to the assets of the Trust of $25 per Common Security, are hereby designated for the purposes of identification only as "11% Trust Issued Common Securities" (the "COMMON SECURITIES"). The Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex II, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. (a) Distributions payable on each Trust Security will be fixed at a rate per annum of 11% (the "COUPON Rate") of the stated liquidation amount of $25 per Trust Security, such rate being the rate of interest payable on the Subordinated Debentures to be held by the Property Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). The term "DISTRIBUTIONS" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed for any full semi-annual Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full semi-annual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (b) Distributions on each series of Trust Securities will be cumulative, will accumulate from the date of original issuance of the Trust Securities of such series (the "SERIES ISSUE DATE"), and will be payable semi-annually in arrears, on February 28 and August 31 of each year, commencing on the first such date following the date one month following the Series Issue Date, except as otherwise described below. The Sponsor has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time and for varying lengths of time on the Subordinated Debentures for a period not exceeding 10 consecutive semi-annual periods (each, an "EXTENSION PERIOD") and during such Extension Period, Distributions will also be deferred. Despite such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law) at an annual rate of thirteen percent (13%) per annum compounded semi-annually during any such Extension Period. Prior to the termination of any such Extension Period, the Sponsor may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semi-annual periods. Payments of accumulated Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Sponsor may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Trust Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. Distributions payable on any Trust Securities that are not punctually paid on any Distribution payment date, as a result of the Sponsor having failed to make a payment under the Subordinated Debentures, will cease to be payable to the Person in whose name such Trust Securities are registered on the relevant record date, and such Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Trust Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Trust Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Trust Securities on the date of the dissolution will be entitled to receive out of the assets of the Trust available for distribution to Holders of Trust Securities after satisfaction of liabilities to creditors of the Trust, if any (including, without limitation, by paying or making reasonable A-2 provisions to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act), an amount equal to the aggregate of the stated liquidation amount of $25 per Trust Security plus accumulated and unpaid Distributions thereon (including interest thereon) to the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"), unless, in connection with such dissolution, after satisfaction of liabilities to creditors of the Trust (including, without limitation, by paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act) Subordinated Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Trust Securities and of like tenor shall be distributed on a Pro Rata basis to the Holders of the Trust Securities in exchange for such Trust Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Trust Securities shall be paid on a Pro Rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such dissolution Pro Rata with the holders of the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities with regard to such distributions. On and from the date fixed by the Regular Trustees for any distribution of Subordinated Debentures: (i) the Trust Securities will no longer be deemed to be outstanding, (ii) the Depositary, as the Holder of the Preferred Securities, will receive a registered global certificate representing the Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Trust Securities not held by the Depositary or its nominee (or any successor depositary or its nominee), will be deemed to represent beneficial interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Trust Securities until such certificates are presented to the Sponsor or its agent for transfer or reissue. 4. REDEMPTION; REDEMPTION/DISTRIBUTION PROCEDURES. (a) Upon the repayment of a series of Subordinated Debentures (a "DEBENTURE SERIES"), whether at the Maturity Date or upon redemption thereof, in whole or in part, the proceeds from such repayment or redemption shall be simultaneously applied to redeem the series of Trust Securities used to purchase such Debenture Series, having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at a redemption price of $25 per Trust Security plus an amount equal to accumulated and unpaid Distributions thereon at the date of the redemption, payable in cash (the "REDEMPTION PRICE"). Applicable Holders will be given not less than 30 nor more than 60 days notice of such redemption. (b) If fewer than all the outstanding Trust Securities in a series are to be so redeemed, the applicable Preferred Securities and the applicable Common Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be as described in Section 4(d)(ii) below. A-3 (c) The Trust may not redeem fewer than all the outstanding Trust Securities unless all accumulated and unpaid Distributions have been paid on all Trust Securities for all semi-annual Distribution periods terminating on or before the date of redemption. (d) (i) Notice of any redemption of a series of Trust Securities, or notice of distribution of Subordinated Debentures in exchange for the Trust Securities (a "REDEMPTION/DISTRIBUTION NOTICE"), will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Trust Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Subordinated Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(d)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Trust Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Trust Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Trust Securities are to be redeemed, the Trust Securities to be redeemed shall be redeemed Pro Rata. (iii) If Trust Securities are to be redeemed and the Regular Trustees on behalf of the Trust give a Redemption/Distribution Notice, which notice may only be issued if the Subordinated Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then with respect to Preferred Securities and Common Securities, provided that the Sponsor has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, then the Property Trustee will pay the relevant Redemption Price to the Holders of such Trust Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date upon surrender of their Certificates evidencing such Preferred Securities and such Common Securities. If a Redemption/Distribution Notice shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accumulate on the Trust Securities so called for redemption and all rights of Holders of such Trust Securities so called for redemption will cease, except the right of the Holders of such Trust Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Trust Securities that have been so called for redemption. If any date fixed for redemption of Trust Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Trust Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the Preferred Securities Guarantee or the Common Securities Guarantee, as the case may be, Distributions on such Trust Securities A-4 will continue to accumulate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purpose of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holder. (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), provided the acquirer is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - PREFERRED SECURITIES. (a) Except as provided under Sections 5(b) and 6 and as otherwise required by law, the Preferred Securities Guarantee and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Preferred Securities, voting as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 4.13 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent under the Indenture would require the consent or act of all of the holders of Subordinated Debentures affected thereby, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Preferred Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Preferred Securities under this paragraph unless the Property Trustee has obtained an opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration or the Subordinated Debentures, any Holder of Preferred Securities may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration or the Subordinated Debentures without first instituting a legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly A-5 institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Preferred Securities in connection with such direct action. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which the written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor (other than Berkshire Hathaway Inc. or any other Permitted Holder) shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 6. VOTING RIGHTS - COMMON SECURITIES. (a) Except as provided under Sections 6(b) and 6(c), and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration, only after an Event of Default with respect to the Preferred Securities has been cured, waived or otherwise eliminated and subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 4.13 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, A-6 provided, however, that, where a consent or action under the Indenture would require the consent or act of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Common Securities. Pursuant to this Section 6(c), the Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Property Trustee has obtained, at the expense of the Holders of the Common Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration and the Subordinated Debentures, any Holder of Common Securities may after written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration and the Subordinated Debentures, without first instituting a legal proceeding against the Property Trustee or any other person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Common Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Common Securities of such holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Common Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Common Securities in connection with such direct action. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. (a) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the A-7 Declaration or otherwise, or (ii) the involuntary or voluntary liquidation, dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Trust Securities as a class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least 66-2/3% in liquidation amount of the Trust Securities, voting together as a single class; provided that a reduction of the aggregate liquidation amount or the Distribution rate, a change in the payment dates or maturities of the Preferred Securities or a reduction in the percentage in liquidation amount of outstanding Preferred Securities, the consent of the Holders of which is required for an amendment to the Declaration shall not be permitted without the consent of each Holder of the Preferred Securities. In the event any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 66-2/3% in liquidation amount of such class of Trust Securities. (b) In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, the Preferred Securities Guarantee and the Common Securities Guarantee is required under the Indenture with respect to any amendment, modification, waiver or termination of the Indenture, the Subordinated Debentures, the Preferred Securities Guarantee or the Common Securities Guarantee, the Property Trustee shall request the direction of the Holders of the Trust Securities with respect to such amendment, modification, waiver or termination and shall vote with respect to such amendment, modification, waiver or termination as directed by a Majority in liquidation amount of the Trust Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent at the direction of all of the Holders of the Trust Securities; provided, further, that the Property Trustee shall not take any action in accordance with the directions of the Holders of the Trust Securities under this Section 6(b) unless the Property Trustee has obtained, at the expense of the Holders of the Trust Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 8. PRO RATA. A reference to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of applicable Trust Securities according to the aggregate liquidation amount of such Trust Securities held by the relevant Holder in relation to the aggregate liquidation amount of all applicable Trust Securities outstanding unless, in relation to a payment, an Event of Default under the Indenture has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the applicable Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Preferred Securities outstanding, and only after satisfaction of all amounts owed to the applicable Holders of the Preferred Securities, to each applicable Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Common Securities outstanding. A-8 9. RANKING. The Preferred Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default occurs and is continuing under the Indenture in respect of the Subordinated Debentures held by the Property Trustee, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Preferred Securities. 10. ACCEPTANCE OF TRUST SECURITIES GUARANTEE AND INDENTURE. Each Holder of Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. NO PREEMPTIVE RIGHTS. The Holders of the Trust Securities shall have no preemptive rights to subscribe for any additional securities. 12. MISCELLANEOUS. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee or and the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. A-9 ANNEX I Certificate Number Number of Preferred Securities Certificate Evidencing Preferred Securities of MIDAMERICAN CAPITAL TRUST III Series __ Preferred Securities (liquidation amount $25 per Preferred Security) MIDAMERICAN CAPITAL TRUST III, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that _____________________ (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Issued Preferred Securities Series __ (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of August 16, 2002, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Preferred Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. The Preferred Securities are transferable only to Permitted Holders (as such term is defined in the Declaration). By acceptance, the Holder agrees to treat for United States federal income tax purposes, the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. A-10 IN WITNESS WHEREOF, the Trust has executed this certificate this __ day of _____ ____. _____________________, as Trustee _____________________________________________________ _____________________, as Trustee _____________________________________________________ A-11 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ____________________________________ Signature: _______________________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) A-12 ANNEX II Certificate Number Number of Common Securities Certificate Evidencing Common Securities of MIDAMERICAN CAPITAL TRUST III Series __ Common Securities (liquidation amount $25 per Common Security) MIDAMERICAN CAPITAL TRUST III, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ___________________ (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Common Securities, Series __ (liquidation amount $25 per Common Security) (the "Common Securities"). Subject to the limitations set forth in Article 9 of the Declaration, the Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of August 16, 2002, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Trust will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Sponsor is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat for United States federal income tax purposes the Subordinated Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. A-13 IN WITNESS WHEREOF, the Trust has executed this certificate this __ day of _____ ____. _____________________, as Trustee ___________________________________________ _____________________, as Trustee ___________________________________________ A-14 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert assignee's social security or tax identification number) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________________________ Signature: ___________________________ (Sign exactly as your name appears on the other side of this Common Security Certificate) A-15 EXHIBIT B PREFERRED SECURITIES GUARANTEE AGREEMENT MIDAMERICAN CAPITAL TRUST III DATED AS OF AUGUST 16, 2002 PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of August 16, 2002, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), and The Bank of New York, a New York corporation, as trustee (the "PREFERRED GUARANTEE TRUSTEE"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of MidAmerican Capital Trust III, a Delaware statutory business trust (the "TRUST"). RECITALS WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of August 16, 2002, among the trustees of the Trust named therein, the Guarantor as sponsor and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust will be issuing from time to time up to $950,000,000 aggregate stated liquidation amount of Preferred Securities designated the 11% Trust Issued Preferred Securities (the "PREFERRED SECURITIES"); and WHEREAS, as incentive for the Holders (as hereinafter defined) to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "COMMON SECURITIES GUARANTEE AGREEMENT") with substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Common Securities (as defined herein) except that if an Event of Default (as defined in the Indenture (as defined herein)), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Guarantee Agreement. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.01 DEFINITIONS AND INTERPRETATION. In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; B-1 (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Guarantor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer or any other Officer, or agent of the Guarantor duly authorized by the board of directors of the Guarantor to act in such matters relating to the Declaration. "COVERED PERSON" means any Holder or beneficial owner of Preferred Securities. "DIRECTION" by a Person means a written direction signed: (a) if the Person is a natural person by that Person; or (b) in any other case, in the name of such Person by one or more Authorized Officers of that Person. "EVENT OF DEFAULT" means a default by the Guarantor on any of its payment or other material obligations under this Guarantee Agreement. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE"), to the extent the Trust shall have funds available therefor with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution of the Trust (other than in connection with the distribution of Subordinated Debentures to the Holders or the redemption of all the Preferred Securities upon the redemption or Maturity Date (as defined in the Indenture) of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment to the extent the Trust shall have B-2 funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" means any holder, as registered on the books and records of the Trust of any Preferred Securities; provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor (other than Berkshire Hathaway Inc. or any other Permitted Holder). "INDEMNIFIED PERSON" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives or agents of the Preferred Guarantee Trustee. "INDENTURE" means the Indenture dated as of August 16, 2002, among the Guarantor and The Bank of New York, as trustee, as modified, amended or supplemented from time to time. "MAJORITY IN LIQUIDATION AMOUNT OF THE TRUST SECURITIES" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred Securities, voting separately as a class, of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all Preferred Securities. "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that such officer signing the Officer's Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "OPINION OF COUNSEL" means a written opinion of counsel for the Preferred Guarantee Trustee or the Guarantor, who may be an employee of or counsel to the Preferred Guaranty Trustee or the Guarantor, and who shall be reasonably acceptable to the Preferred Guarantee Trustee. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated B-3 association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED GUARANTEE TRUSTEE" means The Bank of New York, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Preferred Guarantee Trustee. "RESPONSIBLE OFFICER" means, when used with respect to the Preferred Guarantee Trustee, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer or any other officer in the Corporate Trust Office customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for administration of this Guarantee Agreement and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "SUBORDINATED DEBENTURES" means up to $979,381,450.00 aggregate principal amount of the Guarantor's 11% Junior Subordinated Deferrable Interest Debentures, Series A, held by the Property Trustee of the Trust. "SUCCESSOR PREFERRED GUARANTEE TRUSTEE" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.01. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. ARTICLE II TRUST INDENTURE ACT SECTION 2.01 TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act, if any, that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; and (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. SECTION 2.02 LISTS OF HOLDERS OF TRUST SECURITIES. (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("LIST OF HOLDERS") as of such date, (i) within 14 days after each record date for B-4 payment of distributions, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.03 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. Within 60 days after December 31 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.05 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Guarantor pursuant to Section 314(c)(1) shall be given in the form of an Officer's Certificate. SECTION 2.06 EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.07 EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Preferred Guarantee Trustee, unless such defaults have been B-5 cured before the giving of such notice, provided, that, the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless a Responsible Officer of the Preferred Guarantee Trustee shall have received written notice as provided in Section 9.03, or a Responsible Officer shall have obtained actual notice, of such Event of Default. SECTION 2.08 CONFLICTING INTERESTS. The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWER, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.01 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE. (a) This Guarantee Agreement shall be held by the Preferred Guarantee Trustee for the benefit of the Holders, and the Preferred Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.05(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. B-6 (d) No provision of this Guarantee Agreement shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.02 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.01: B-7 (i) The Preferred Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by a Direction or an Officer's Certificate. (iii) Whenever, in the administration of this Guarantee Agreement, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any re-recording, refiling or registration thereof). (v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. (vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity acceptable to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.02(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vii) The Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, B-8 and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Guarantee Agreement the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.03 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee Agreement. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.01 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee that shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars B-9 ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.01(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02 (c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.02 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEES. (a) Subject to Section 4.02(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the Preferred Guarantee Trustee being removed. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee at the expense of the Guarantor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. B-10 ARTICLE V GUARANTEE SECTION 5.01 GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.02 SUBORDINATION. If an event of default under the Indenture has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders to receive Guarantee Payments. SECTION 5.03 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.04 OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sums payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders B-11 pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.04 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.05 RIGHTS OF HOLDERS. (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement. (b) Notwithstanding anything contained herein, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.06 GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 5.07 SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however , that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in B-12 violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.08 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.04 hereof. ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01 LIMITATION OF TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default or an event of default under the Declaration, then the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Guarantor (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Guarantor and (b) payments under this Guarantee Agreement. SECTION 6.02 RANKING. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than the Common Securities Guarantee Agreement or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.01 TERMINATION. This Guarantee Agreement shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) the distribution of the Subordinated Debentures to the Holders of all Preferred Securities or (iii) full payment of the amounts payable in accordance with the B-13 Declaration upon liquidation of the Trust. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. Notwithstanding anything contained herein to the contrary, the obligations of the Guarantor set forth in Article VIII hereof shall survive termination of this Guarantee Agreement or the earlier resignation or removal of the Preferred Guarantee Trustee. ARTICLE VIII INDEMNIFICATION SECTION 8.01 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02 INDEMNIFICATION. (a) To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person in connection with this Guarantee Agreement including without limitation by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses(including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such B-14 claim, demand, action, suit or proceeding upon receipt by the Guarantor of any undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.02(a). ARTICLE IX MISCELLANEOUS SECTION 9.01 SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.02 AMENDMENTS. Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all the outstanding Preferred Securities (as defined in the Declaration). The provisions of Section 12.2 of the Declaration with respect to meetings or actions by written consent of Holders of the Trust Securities apply to the giving of such approval. The Preferred Guarantee Trustee may, but shall have no obligation to, execute and deliver any amendment to this Guarantee Agreement which affects the Preferred Guarantee Trustee's rights, duties or immunities hereunder or otherwise. SECTION 9.03 NOTICES. All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The Bank of New York 101 Barclay Street, Floor 8 West New York, New York 10286 Attention: Corporate Trustee Department Telecopy Number: (212) 815-5707 (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): B-15 MidAmerican Energy Holdings Company 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (c) If given to any Holder of Preferred Securities, at the address set forth in the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04 BENEFIT. This Guarantee Agreement is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.01(a), is not separately transferable from the Preferred Securities. SECTION 9.05 GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. B-16 IN WITNESS WHEREOF, the parties hereto have caused this Guarantee Agreement to be executed by their respective officers thereunto duly authorized, as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ----------------------------------- Name: Title: THE BANK OF NEW YORK, as Preferred Guarantee Trustee By: ----------------------------------- Name: Title: B-17 EXHIBIT C COMMON SECURITIES GUARANTEE AGREEMENT MIDAMERICAN CAPITAL TRUST III DATED AS OF AUGUST 16, 2002 COMMON SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of August 16, 2002, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined in the Declaration referred to below) of MidAmerican Capital Trust III, a Delaware business trust (the "ISSUER"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of August 16, 2002, among the Trustees of the Issuer named therein, the Guarantor as sponsor and the holders from time to time of securities representing undivided beneficial interests in the assets of the Issuer, the Issuer will be issuing from time to time up to $29,381,450 aggregate stated liquidation amount of the Issuer's Common Securities designated the 11% Trust Issued Common Securities (the "COMMON SECURITIES"), representing beneficial interests in the assets of the Issuer; WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement on substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Preferred Securities (the "PREFERRED SECURITIES GUARANTEE") except that if an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 DEFINITIONS. In this Guarantee Agreement, unless the context otherwise requires, the terms set forth below shall have the following meanings. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) Terms defined in the Declaration as at the date of execution of this Guarantee Agreement have the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement; (c) A term defined anywhere in this Guarantee Agreement has the same meaning throughout; (d) All references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (e) All references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; and (f) A reference to the singular includes the plural and vice versa. "GUARANTEE PAYMENTS" shall mean the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by the Issuer: (i) any accumulated and unpaid Distributions which are required to be paid on such Common Securities to the extent the Issuer shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE") to the extent the Issuer shall have funds available therefor, with respect to any Common Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution of the Issuer (other than in connection with the distribution of Subordinated Debentures to the Holders on the redemption of all the Common Securities upon the redemption or Maturity Date of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Common Securities to the date of payment, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" shall mean any holder, as registered on the books and records of the Issuer, of any Common Securities. ARTICLE II GUARANTEE SECTION 2.1 GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. C-2 SECTION 2.2 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of non-payment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.3 SUBORDINATION. If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. SECTION 2.4 OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in the Common Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or C-3 (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 2.5 RIGHTS OF HOLDERS. The Guarantor expressly acknowledges that any Holder of Common Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer or any other Person. SECTION 2.6 GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 2.7 SUBROGATION OF PAYMENT. The Guarantor shall be subrogated to all (if any) rights of the Holders of Common Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 2.8 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.4 hereof. ARTICLE III LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 3.1 LIMITATION OF TRANSACTIONS. So long as any Common Securities remain outstanding, if (A) the Guarantor shall be in default with respect to its Guarantee Payments or other obligations hereunder, or (B) there shall have occurred any Event of Default, then the Guarantor shall not (i) declare or pay any dividends C-4 or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Guarantor (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Guarantor and (b) payments under this Guarantee Agreement). SECTION 3.2 RANKING. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than any obligation in respect of the Preferred Securities Guarantee or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments. ARTICLE IV TERMINATION SECTION 4.1 TERMINATION. This Guarantee Agreement shall terminate upon full payment of the Redemption Price of all Common Securities, upon the distribution of the Subordinated Debentures to the Holders of all of the Common Securities or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Common Securities must restore payment of any sums paid under the Common Securities or under this Guarantee Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1 SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. C-5 SECTION 5.2 AMENDMENTS. Except with respect to any changes which do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount of all the outstanding Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of holders of the Trust Securities apply to the giving of such approval. SECTION 5.3 NOTICES. All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Issuer, in care of the Regular Trustees at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice of to the Holders of the Common Securities): MidAmerican Capital Trust III c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 (b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Common Securities): MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (c) if given to any Holder of Common Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 5.4 BENEFICIARIES. This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Common Securities. C-6 SECTION 5.5 GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. C-7 THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ------------------------------------------ Name: Title: C-8 EX-4.15 7 file006.txt AMENDED AND RESTATED DECLARATION OF TRUST Exhibit 4.15 AMENDED AND RESTATED DECLARATION OF TRUST OF MIDAMERICAN CAPITAL TRUST II MARCH 12, 2002 TABLE OF CONTENTS
PAGE ---- ARTICLE I. INTERPRETATION AND DEFINITIONS..............................................................1 SECTION 1.1. Definitions.................................................................................1 ARTICLE II. TRUST INDENTURE ACT.........................................................................7 SECTION 2.1. Trust Indenture Act; Application...........................................................7 SECTION 2.2. Lists of Holders of Trust Securities........................................................7 SECTION 2.3. Reports by the Property Trustee.............................................................7 SECTION 2.4. Periodic Reports to Property Trustee........................................................8 SECTION 2.5. Evidence of Compliance with Conditions Precedent............................................8 SECTION 2.6. Events of Default; Waiver...................................................................8 SECTION 2.7. Event of Default; Notice....................................................................9 ARTICLE III. ORGANIZATION...............................................................................10 SECTION 3.1. Name.......................................................................................10 SECTION 3.2. Office.....................................................................................10 SECTION 3.3. Purpose....................................................................................10 SECTION 3.4. Authority..................................................................................10 SECTION 3.5. Title to Property of the Trust.............................................................11 SECTION 3.6. Powers and Duties of the Regular Trustees..................................................11 SECTION 3.7. Prohibition of Actions by the Trust and the Trustees.......................................13 SECTION 3.8. Powers and Duties of the Property Trustee..................................................13 SECTION 3.9. Certain Duties and Responsibilities of the Property Trustee................................15 SECTION 3.10. Certain Rights of Property Trustee.........................................................17 SECTION 3.11. Delaware Trustee...........................................................................18 SECTION 3.12. Execution of Documents.....................................................................19 SECTION 3.13. Not Responsible for Recitals or Issuance of Trust Securities...............................19 SECTION 3.14. Duration of Trust..........................................................................19 SECTION 3.15. Mergers....................................................................................19 ARTICLE IV. SPONSOR....................................................................................20 SECTION 4.1. Sponsor's Purchase of Common Securities....................................................20 SECTION 4.2. Intentionally Left Blank...................................................................20 ARTICLE V. TRUSTEES...................................................................................21 SECTION 5.1. Number of Trustees.........................................................................21 SECTION 5.2. Delaware Trustee; Eligibility.............................................................21 SECTION 5.3. Property Trustee; Eligibility.............................................................21 SECTION 5.4. Qualifications of Regular Trustees Generally...............................................22 SECTION 5.5. Initial Trustees...........................................................................22 SECTION 5.6. Appointment, Removal and Resignation of trustees...........................................23 SECTION 5.7. Vacancies among Trustees...................................................................24 SECTION 5.8. Effect of Vacancies........................................................................24 SECTION 5.9. Meetings...................................................................................24 SECTION 5.10. Delegation of Power........................................................................25 ARTICLE VI. DISTRIBUTIONS..............................................................................25 SECTION 6.1. Distributions..............................................................................25 ARTICLE VII. ISSUANCE OF TRUST SECURITIES...............................................................26 SECTION 7.1. General Provisions regarding Trust Securities..............................................26 ARTICLE VIII. DISSOLUTION AND TERMINATION................................................................27 SECTION 8.1. Dissolution and Termination of Trust.......................................................27 ARTICLE IX. TRANSFER OF INTEREST.......................................................................27 SECTION 9.1. Transfer of Trust Securities...............................................................27 SECTION 9.2. Transfer of Certificates...................................................................28 SECTION 9.3. Deemed Trust Security Holders..............................................................28 SECTION 9.4. Mutilated, Destroyed, Lost or Stolen Certificates..........................................28 ARTICLE X. LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS.................29 SECTION 10.1. Liability..................................................................................29 SECTION 10.2. Exculpation................................................................................29 SECTION 10.3. Fiduciary Duty.............................................................................30 SECTION 10.4. Indemnification............................................................................31 SECTION 10.5. Outside Businesses.........................................................................31 ARTICLE XI. ACCOUNTING.................................................................................32 SECTION 11.1. Fiscal Year................................................................................32 SECTION 11.2. Certain Accounting Matters.................................................................32 SECTION 11.3. Banking....................................................................................32 SECTION 11.4. Withholding................................................................................33 ARTICLE XII. AMENDMENTS AND MEETINGS....................................................................33 SECTION 12.1. Amendments.................................................................................33 SECTION 12.2. Meetings of the Holders of Trust Securities; Action by Written Consent.....................35 ARTICLE XIII. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE....................36 SECTION 13.1. Representations and Warranties of Property Trustee.........................................36 SECTION 13.2. Representations and Warranties of Delaware Trustee.........................................36 ARTICLE XIV. MISCELLANEOUS..............................................................................37 SECTION 14.1. Notices....................................................................................37 SECTION 14.2. Governing Law..............................................................................38 SECTION 14.3. Intention of the Parties...................................................................39 SECTION 14.4. Headings...................................................................................39 SECTION 14.5. Successors and Assigns.....................................................................39 SECTION 14.6. Partial Enforceability.....................................................................39 ii SECTION 14.7. Counterparts...............................................................................39
Certificate of Trust Trust Agreement Exhibit A Terms of Preferred and Common Securities Annex I Preferred Security (with Assignment) Annex II Common Security (with Assignment) Exhibit B Preferred Securities Guarantee Exhibit C Common Securities Guarantee -iii- AMENDED AND RESTATED DECLARATION OF TRUST AMENDED AND RESTATED DECLARATION OF TRUST (this "DECLARATION") of MidAmerican Capital Trust II (the "TRUST") dated as of March 12, 2002 among (a) MidAmerican Energy Holdings Company, an Iowa corporation, as trust sponsor (the "SPONSOR"), (b) The Bank of New York, a New York corporation, as property trustee (the "PROPERTY TRUSTEE"), (c) The Bank of New York (Delaware), as Delaware trustee (the "DELAWARE TRUSTEE"), (d) Gregory E. Abel, an individual whose address is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50309 and David L. Sokol, an individual whose address is c/o MidAmerican Energy Holdings Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131 (each, a "REGULAR TRUSTEE" and, together with the Property Trustee and the Delaware Trustee, the "TRUSTEES") and (e) the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, certain of the Trustees and the Sponsor established the Trust under the Business Trust Act (as hereinafter defined) pursuant to a Trust Agreement dated as of March 4, 2002, (the "ORIGINAL DECLARATION") and a Certificate of Trust filed with the Secretary of State of the State of Delaware on March 4, 2002, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in Subordinated Debentures (as hereinafter defined); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I. INTERPRETATION AND DEFINITIONS SECTION 1.1. DEFINITIONS (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Exhibits are to Articles and Sections of, and Exhibits to, this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Sponsor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer, or other officer or agent of the Sponsor duly authorized by the board of directors of the Sponsor to act in respect of matters relating to this Declaration. "BUSINESS DAY" means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or required by law to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 ET SEQ., as it may be amended from time to time. "CERTIFICATE" means a Common Security Certificate or a Preferred Security Certificate. "CLOSING DATE" means each date upon which the Trust issues Trust Securities hereunder. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as the same may be amended from time to time, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning specified in Section 7.1. "COMMON SECURITIES GUARANTEE" means the guarantee agreement of the Sponsor dated as of March 12, 2002 in respect of the Common Securities in the form of Exhibit C. "COMMON SECURITIES PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of March 12, 2002 in respect of the Common Securities. -2- "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex II to Exhibit A. "CORPORATE TRUST OFFICE" means the principal office of the Property Trustee at which at any particular time its corporate trust business shall be administered which office at the date of execution of this Declaration is located at The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Administration. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Trust Securities. "DEBENTURE PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of March 12, 2002 in respect of the Subordinate Debentures. "DELAWARE TRUSTEE" has the meaning set forth in the preamble hereof and any successor trustee meeting the eligibility requirements set forth in Section 5.2. "DISTRIBUTION" means a distribution payable to Holders of Trust Securities in accordance with Section 6.1. "EVENT OF DEFAULT" in respect of the Trust Securities, means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Subordinated Debentures. "GUARANTEE TRUSTEE" means The Bank of New York, as trustee under the Preferred Securities Guarantee, until a successor is appointed thereunder and thereafter means such successor trustee. "HOLDER" means a Person in whose name a Certificate representing a Trust Security is registered on the books and records of the Trust, such Person being a beneficial owner within the meaning of the Business Trust Act, provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Sponsor, as guarantor of the Trust Securities, or any Affiliate of the Sponsor (other than Berkshire Hathaway Inc. or any other Permitted Holder). "INDEMNIFIED PERSON" means (a) any Trustee or the Property Trustee; (b) any Affiliate of any Trustee or the Property Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or the Property Trustee; or (d) any employee or agent of the Trust or its Affiliates. "INDENTURE" means the Indenture dated as of March 12, 2002 among the Sponsor and the Indenture Trustee as modified, supplemented or amended from time to time. "INDENTURE TRUSTEE" means The Bank of New York, as trustee under the Indenture, until a successor is appointed thereunder, and thereafter means such successor trustee. -3- "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as the same may be amended from time to time, or any successor legislation. "LEGAL ACTION" has the meaning set forth in Section 3.6(e). "MAJORITY IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "MATURITY DATE" has the meaning set forth in Section 2.02 of the Indenture. "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that such officer signing the Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "opinion of counsel" means a written opinion of counsel who may be an employee of the Sponsor. "PAYING AGENT" has the meaning specified in Section 3.8(h). "PAYMENT AMOUNT" has the meaning specified in Section 6.1. "PERMITTED HOLDERS" means (i) Berkshire Hathaway Inc. and any of its subsidiaries which are directly or indirectly 50% or more owned by it and which are consolidated with it for financial reporting purposes or (ii) any Person following any Event of Default specified in Section 4.01 (1), (2), or (3) of the Indenture that results in an acceleration of the -4- Subordinated Debentures or any Event of Default specified in Section 4.01 (4), (5) or (6) of the Indenture. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED SECURITIES GUARANTEE" means the guarantee agreement between the Sponsor and the Guarantee Trustee dated as of March 12, 2002, in respect of the Preferred Securities in the form of Exhibit B. "PREFERRED SECURITIES" has the meaning specified in Section 7.1. "PREFERRED SECURITY CERTIFICATE" means a certificate representing a Preferred Security substantially in the form of Annex I to Exhibit A. "PROPERTY TRUSTEE" has the meaning set forth in the preamble hereof or any successor trustee meeting the eligibility requirements set forth in Section 5.3. "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.8(c). "QUORUM" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "REGULAR TRUSTEE" has the meaning set forth in the preamble hereof, or any successor in interest in such capacity, or any successor trustee appointed as herein provided. "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any vice-president, any assistant vice-president, any assistant treasurer or any other officer in the Corporate Trust Office of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Declaration and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "RULE 3A-5" means Rule 3a-5 under the Investment Company Act. "SECURITIES ACT" means the Securities Act of 1933, as the same may be amended from time to time, or any successor legislation. "66-2/3% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and by the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred -5- Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 66-2/3% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "SPONSOR" has the meaning set forth in the preamble hereof or any successor entity in a merger, consolidation or amalgamation. "SUBORDINATED DEBENTURES" means up to $332,989,700.00 aggregate principal amount of 11% Junior Subordinated Deferrable Interest Debentures to be issued by the Sponsor under the Indenture and to be held by the Property Trustee for the benefit of the Trust. "SUBSCRIPTION AGREEMENT" means that certain subscription agreement between the Trust and Berkshire Hathaway Inc. (including any of its assignees thereunder). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.15(b). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.15(b). "10% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities or by the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 10% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" has the meaning set forth in the preamble hereof, so long as such person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. -6- ARTICLE II. TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required, if any, to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee that is a Trustee for purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. (e) The Regular Trustee executing the certificate under Section 3.6(h) shall be deemed the principal executive officer and chief financial officer of the Trust for purposes of the Trust Indenture Act. SECTION 2.2. LISTS OF HOLDERS OF TRUST SECURITIES (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Trust Securities ("LIST OF HOLDERS") as of such record date, provided that none of the Sponsor or the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with the obligations of an indenture trustee under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY THE PROPERTY TRUSTEE Within 60 days after December 31 of each year, the Property Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust -7- Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. PERIODIC REPORTS TO PROPERTY TRUSTEE Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 (if any) of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Sponsor and the Regular Trustee pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officer's Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default with respect to the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of all of the Holders of the Preferred Securities. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. -8- (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration may only be waived by the vote of all of the Holders of Common Securities; provided that, each Holder of Common Securities will be deemed to have waived any such Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Trust Securities. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. SECTION 2.7. EVENT OF DEFAULT; NOTICE (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Securities, notices of all defaults with respect to the Trust Securities known to the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of or interest on any of the Subordinated Debentures, the Property Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Property Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Trust Securities. -9- (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 4.01(l) and 4.01(2) of the Indenture; or (ii) any default as to which a Responsible Officer of the Property Trustee charged with the administration of this Declaration shall have obtained written or actual notice. ARTICLE III ORGANIZATION SECTION 3.1. NAME The Trust is named "MidAmerican Capital Trust II", as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Trust Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.2. OFFICE The address of the principal office of the Trust is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50303. On ten Business Days written notice to the Holders of Trust Securities, the Regular Trustees may designate another principal office. SECTION 3.3. PURPOSE The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Subordinated Debentures and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. All provisions of this Declaration shall be interpreted in a manner consistent with such purposes. SECTION 3.4. AUTHORITY Subject to the limitations provided in this Declaration, including the provisions of Sections 3.11 and 5.2, and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Regular Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Regular Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. -10- SECTION 3.5. TITLE TO PROPERTY OF THE TRUST Except as provided in Section 3.8 with respect to the Subordinated Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6. POWERS AND DUTIES OF THE REGULAR TRUSTEES The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities in accordance with this Declaration. The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000, and, provided further, that there shall be no interests in the Trust other than the Trust Securities; (b) to acquire each series of Subordinated Debentures with the proceeds of the sale of a series of Trust Securities; provided, however, that the Regular Trustees shall cause legal title to the Subordinated Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the Trust Securities; (c) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Trust Securities as to such actions and applicable record dates; (d) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Trust Securities; (e) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION"), unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power to bring such Legal Action; (f) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (g) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act (if any); (h) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by a Regular Trustee; -11- (i) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (j) to act as, or appoint another Person to act as, registrar and transfer agent for the Trust Securities; (k) to give prompt written notice to the Holders of the Trust Securities and the Property Trustee of any notice received from the Sponsor of its election (i) to defer payments of interest on the Subordinated Debentures by extending the interest payment period under the Indenture or (ii) to extend the scheduled maturity date on the Subordinated Debentures pursuant to the Indenture; (l) to execute all documents or instruments (including without limitation, the Debenture Purchase Agreement, the Common Securities Purchase Agreement and, to the extent not previously executed by the Sponsor on behalf of the Trust pursuant to the Original Declaration, the Subscription Agreement), perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (m) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Trust Securities or to enable the Trust to effect the purposes for which the Trust was created; (n) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and (iii) cooperating with the Sponsor to ensure that the Subordinated Debentures will be treated as indebtedness of the Sponsor for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders or vary the terms of the Preferred Securities; and (o) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. -12- Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. SECTION 3.7. PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES (a) The Trust shall not, and the Trustees and the Property Trustee shall not, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees and the Property Trustee shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Subordinated Debentures, but shall distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Declaration and of the Trust Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Subordinated Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Trust Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Trust Securities; or (vii) other than as provided in this Declaration or as set forth in Exhibit A hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Indenture Trustee with respect to the Subordinated Debentures, (B) waive any past default that is waivable under Section 4.13 of the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Subordinated Debentures shall be due and payable or (D) consent to any amendment, modification, waiver or termination of the Indenture or the Subordinated Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. SECTION 3.8. POWERS AND DUTIES OF THE PROPERTY TRUSTEE (a) The legal title to the Subordinated Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Trust Securities. The right, title and interest of the Property Trustee to the Subordinated Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Subordinated Debentures have been executed and delivered. -13- (b) The Property Trustee shall not transfer its right, title and interest in the Subordinated Debentures to the Regular Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "PROPERTY TRUSTEE ACCOUNT") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Trust Securities and, upon the receipt of payments of funds made in respect of the Subordinated Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make Distributions to the Holders of the Trust Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with the Property Trustee or with a banking institution the rating on whose long term unsecured indebtedness is at least equal to the rating assigned to the Preferred Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Trust Securities to the extent the Subordinated Debentures are redeemed or mature; and (iii) upon receipt of notice of distribution issued by the Regular Trustees in accordance with the terms of the Trust Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Subordinated Debentures to Holders of Trust Securities upon the occurrence of certain special events (as may be defined in the terms of the Trust Securities) arising from a change in law or a change in legal interpretation or other specified circumstances pursuant to the terms of the Trust Securities. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Trust Securities. (e) The Property Trustee shall take any Legal Action that arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act. (f) The Property Trustee shall not resign as a trustee unless either: (i) the Trust has been completely liquidated and the proceeds of such liquidation have been distributed to the Holders of Trust Securities pursuant to the terms of the Trust Securities; or (ii) a successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.6. (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Subordinated Debentures under the Indenture and, if an -14- Event of Default occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Trust Securities, enforce its rights as holder of the Subordinated Debentures subject to the rights of the Holders pursuant to the terms of such Trust Securities. (h) The Property Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Trust Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. The Property Trustee may remove any Paying Agent at any time and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Property Trustee. The Property Trustee will be the initial Paying Agent. (i) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.6. The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3 and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9. CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE (a) The Property Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; but in -15- the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Declaration (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein); (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Trust Securities at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Subordinated Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Subordinated Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for the default or misconduct of the Regular Trustees or the Sponsor. -16- SECTION 3.10. CERTAIN RIGHTS OF PROPERTY TRUSTEE (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by a Direction or an Officer's Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) shall be entitled, in the absence of bad faith on its part, to request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) (or any re-recording, refiling or registration thereof); (v) the Property Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, acceptable to the Property Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee provided that, nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see -17- fit at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Trust Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration. No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or, authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11. DELAWARE TRUSTEE Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. The Delaware Trustee shall be entitled to the benefit of all of the immunities and indemnities that the Property Trustee is entitled to under this Declaration. -18- SECTION 3.12. EXECUTION OF DOCUMENTS Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act, a majority of or, if there are only two, both of the Regular Trustees are authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.6. SECTION 3.13. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF TRUST SECURITIES The recitals contained in this Declaration and the Trust Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Trust Securities. SECTION 3.14. DURATION OF TRUST The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall exist until April 1, 2032. SECTION 3.15. MERGERS (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c). (b) The Trust may, with the consent of a majority of the Regular Trustees and without the consent of the Holders of the Trust Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "SUCCESSOR ENTITY") either: (A) expressly assumes all of the obligations of the Trust under the Trust Securities; or (B) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "SUCCESSOR SECURITIES") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and maturity; (ii) the Sponsor expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the Holder of the Subordinated Debentures; (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities -19- exchange, the Nasdaq Stock Market's National Market or other organization on which the Preferred Securities are then listed; (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; (vi) such Successor Entity has a purpose identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; and (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall, except with the consent of Holders of 100% in liquidation amount of the Trust Securities, not consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity not to be classified for United States federal income tax purposes as a grantor trust. ARTICLE IV SPONSOR SECTION 4.1. SPONSOR'S PURCHASE OF COMMON SECURITIES On each Closing Date, the Sponsor will purchase all the Common Securities issued by the Trust on such Closing Date. The aggregate amount of Common Securities held by the Sponsor hereunder shall at all times equal 3% of the capital of the Trust. SECTION 4.2. INTENTIONALLY LEFT BLANK -20- ARTICLE V TRUSTEES SECTION 5.1. NUMBER OF TRUSTEES The number of Trustees shall initially be four (4), and: (a) at any time before the issuance of any Trust Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Trust Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities, provided that in any case, the number of Trustees shall be at least four (4) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee pursuant to Section 5.2, in which case the number of Trustees shall be at least three (3). SECTION 5.2. DELAWARE TRUSTEE; ELIGIBILITY If required by the Business Trust Act, one Trustee shall be: (a) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. Except as otherwise provided, the Delaware Trustee's sole duty shall be to, upon the request of the other Trustees or the Sponsor, execute any documents and maintain custody of any records required to form, maintain the existence of, or dissolve, the Trust under the Business Trust Act. SECTION 5.3. PROPERTY TRUSTEE; ELIGIBILITY (a) There shall at all times be one Trustee which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, state, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the -21- requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. SECTION 5.4. QUALIFICATIONS OF REGULAR TRUSTEES GENERALLY Each Regular Trustee shall be a natural person who is at least 21 years of age and shall be an employee or officer of the Sponsor or otherwise be affiliated with the Sponsor. SECTION 5.5. INITIAL TRUSTEES The initial Regular Trustees shall be: Gregory E. Abel c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 David L. Sokol c/o MidAmerican Energy Holdings Company 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 The initial Delaware Trustee shall be: The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 -22- The initial Property Trustee shall be: The Bank of New York 101 Barclay Street Corporate Trust Administration Floor 21 West New York, New York 10286 SECTION 5.6. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES (a) Subject to Section 5.6(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any securities, by written instrument executed by the Sponsor; (ii) after the issuance of any Trust Securities, except as provided in clause (iii) hereof, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (iii) after the issuance of any Trust Securities, if an Event of Default has occurred and is continuing, with respect only to the Property Trustee or the Delaware Trustee, by vote of the Holders of a Majority in liquidation amount of the Preferred Securities voting as a class at a meeting of the Holders of the Preferred Securities. (b) (i)The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.6(a) until a successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.3 has been appointed and has accepted such appointment by written instrument executed by such successor Property Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Section 5.2 has been appointed and has accepted such appointment by written instrument executed by such successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by any instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Property Trustee shall be effective: -23- (A) until a successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Trust Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a successor Delaware Trustee or successor Property Trustee, as the case may be, as the Property Trustee or the Delaware Trustee if the resigning Property Trustee or Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6. (e) If no successor Property Trustee or successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation, the resigning Property Trustee or Delaware Trustee, as applicable, may petition any court of competent jurisdiction for appointment of a successor Property Trustee or successor Delaware Trustee at the expense of the Sponsor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Property Trustee or successor Delaware Trustee, as the case may be. SECTION 5.7. VACANCIES AMONG TRUSTEES If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy and copies of any such resolution shall be distributed promptly to the remaining Trustees. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8. EFFECT OF VACANCIES The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.9. MEETINGS Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed -24- by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.10. DELEGATION OF POWER (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any governmental filing; and (b) the Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE VI DISTRIBUTIONS SECTION 6.1. DISTRIBUTIONS Distributions shall be made and Holders shall receive Distributions in accordance with the applicable terms of Exhibit A hereto and the applicable terms of the relevant Holder's Trust Securities. Distributions shall be made on the Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Sponsor makes a payment of interest (including Deferred Interest (as defined in the Indenture)), or principal on a series of Subordinated Debentures (a "DEBENTURE SERIES") held by the Property Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "DISTRIBUTION") of the Payment Amount to Holders of the series of Trust Securities issued to purchase such Debenture Series. -25- ARTICLE VII ISSUANCE OF TRUST SECURITIES SECTION 7.1. GENERAL PROVISIONS REGARDING TRUST SECURITIES (a) The Regular Trustees shall on behalf of the Trust issue one or more series of preferred securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "PREFERRED SECURITIES") and one or more series of common securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "COMMON SECURITIES"). The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. (b) The Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees) shall sign the Certificates on behalf of the Trust. Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Trust Securities shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Trust Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of this Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks or identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation usage. (c) The consideration shall be received by the Property Trustee for the issuance of the Trust Securities, which consideration shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) The Holders shall not have any right or title in the assets of the Trust other than an undivided beneficial interest in such assets conferred by their Trust Securities, and they shall have no right to call for any partition or division of any property, profits or rights of the Trust except as otherwise provided herein. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Trust Securities, when issued and delivered against payment of purchase price therefor, shall be deemed to be validly issued, fully paid and non-assessable by the Trust. (e) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. -26- ARTICLE VIII DISSOLUTION AND TERMINATION SECTION 8.1. DISSOLUTION AND TERMINATION OF TRUST (a) The Trust shall dissolve on the earlier of April 1, 2032 or: (i) upon (x) the filing of a bankruptcy petition pursuant to 11 U.S.C. Sections 101 ET. SEQ. or similar petition arising under the laws of any other jurisdiction by the Holder of the Common Securities or the Sponsor or (y) the insolvency of the Holder of the Common Securities or the Sponsor; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Holder of the Common Securities or the Sponsor; the revocation of the Holder of the Common Securities or the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities or the Sponsor or the Trust; (iv) when all of the Trust Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Trust Securities; and (v) upon delivery of written direction to the Property Trustee by the Sponsor at any time (which direction is wholly optional and within the discretion of the Sponsor) to dissolve the Trust and distribute the Subordinated Debentures to the Holders of the Trust Securities in accordance with Section 3 of Exhibit A. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and the winding up and liquidation of the Trust, the Regular Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 3.9 and Article X shall survive the termination of the Trust. ARTICLE IX TRANSFER OF INTEREST SECTION 9.1. TRANSFER OF TRUST SECURITIES (a) Trust Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Trust Securities. Any transfer or purported transfer of any Trust Security not made in accordance with this Declaration shall be null and void. -27- (b) Subject to this Article IX, Preferred Securities shall be transferable only to Permitted Holders. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such transfer is subject to the conditions precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; and (ii) the Trust would be an Investment Company or the transferee would become an Investment Company. SECTION 9.2. TRANSFER OF CERTIFICATES The Regular Trustees shall provide for the registration of transfers of Certificates, which will be effected without charge, but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing and accompanied by an Officer's Certificate executed by an executive officer of the transferor certifying that the transferee is a Permitted Holder. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration and the documents incorporated by reference herein. SECTION 9.3. DEEMED TRUST SECURITY HOLDERS The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Trust Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Trust Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall have received evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of -28- notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.4, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Trust Certificates, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS SECTION 10.1. LIABILITY (a) Except as expressly set forth in this Declaration, the Preferred Securities Guarantee, the Common Securities Guarantee and the terms of the Trust Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Trust Securities which shall be made solely from assets of the Trust; and (ii) required to pay to the Trust or to any Holder of Trust Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act: (i) the Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Trust Securities) to the extent not satisfied out of the Trust's assets; and (ii) the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2. EXCULPATION (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. -29- (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Trust Securities might properly be paid. SECTION 10.3. FIDUCIARY DUTY (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act, if any), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between an Indemnified Person and any Covered Person; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Trust Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by this Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. -30- SECTION 10.4. INDEMNIFICATION (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.4(a). The indemnification shall survive the termination of this Declaration or the earlier removal or resignation of any of the Trustees or the Property Trustee. SECTION 10.5. OUTSIDE BUSINESSES Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. -31- ARTICLE XI ACCOUNTING SECTION 11.1. FISCAL YEAR The fiscal year ("FISCAL YEAR") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2. CERTAIN ACCOUNTING MATTERS (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be prepared and delivered to each of the Holders of Trust Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Trust Securities any United States federal income tax information statement required by the Code, containing such information with regard to the Trust Securities held by each Holder as is required by the Code and the Treasury Regulations, and any comparable statements required to be provided under the law of any other taxing jurisdiction. Notwithstanding any right under the Code or other law to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States federal income tax return Form 1041 (or any successor form) or such other form required by United States federal income tax law, and any other tax returns or reports required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3. BANKING The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Subordinated Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Trustee Account. -32- SECTION 11.4. WITHHOLDING The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made to any Holder, the Trust may reduce subsequent Distributions to such Holder by the amount of such withholding. ARTICLE XII AMENDMENTS AND MEETINGS SECTION 12.1. AMENDMENTS (a) Except as otherwise provided in this Declaration or by any applicable terms of the Trust Securities, this Declaration may only be amended by a written instrument approved and executed by the Regular Trustees (or, if there are more than two Regular Trustees a majority of the Regular Trustees); provided, however, that: (i) in the case of any proposed amendment, the Property Trustee shall have first received an Officer's Certificate from each of the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (ii) in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officer's Certificate from each of the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (iii) no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result of such amendment would be to: -33- (A) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust and each Holder of the Trust Securities not to be treated as owning an undivided beneficial interest in the Subordinated Debentures, as evidenced by an Opinion of Counsel to the effect that such amendment shall not result in the foregoing; (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (iv) at such time after the Trust has issued any Trust Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of the Trust Securities may be effected only with such additional requirements as may be set forth in the terms of such Trust Securities; (v) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Trust Securities; (vi) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and (vii) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (b) Notwithstanding Section 12.1(a)(iii), this Declaration may be amended without the consent of the Holders of the Trust Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; and (iv) conform to any change in Rule 3a-5 or other exemption from the requirement to register as an Investment Company under the Investment Company Act or written change in the interpretation or application thereof by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders. (c) Notwithstanding any other provision of this Declaration, neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Declaration which affects its own rights, duties or immunities under this Declaration: -34- SECTION 12.2. MEETINGS OF THE HOLDERS OF TRUST SECURITIES; ACTION BY WRITTEN CONSENT (a) Meetings of the Holders of any class of Trust Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Trust Securities) to consider and act on any matter on which Holders of such class of Trust Securities are entitled to act under the terms of this Declaration or the terms of the Trust Securities. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Trust Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Trust Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Trust Securities calling a meeting shall specify in writing the Certificates held by the Holders of Trust Securities exercising the right to call a meeting and only those Trust Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Trust Securities, the following provisions shall apply to meetings of Holders of Trust Securities: (i) notice of any such meeting shall be given to all the Holders of Trust Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Trust Securities is permitted or required under this Declaration such vote, consent or approval may be given at a meeting of the Holders of Trust Securities. Any action that may be taken at a meeting of the Holders of Trust Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Trust Securities owning not less than the minimum amount of Trust Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Trust Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Trust Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to a Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Trust Security may authorize any Person to act for it by proxy on all matters in which a Holder of Trust Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Trust Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Trust Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Trust Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and -35- (iv) unless the Business Trust Act, this Declaration, the terms of the Trust Securities, or the Trust Indenture Act otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Trust Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Trust Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE SECTION 13.1. REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE The Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of its acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the State of New York, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration and with its principal place of business in New York, New York. (b) The execution, delivery and performance by the Property Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Property Trustee. This Declaration has been duly executed and delivered by the Property Trustee, and, assuming due authorization, execution and delivery hereof by the other parties hereto, it constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration by the Property Trustee do not conflict with or constitute a breach of the charter or by-laws of the Property Trustee. (d) The Property Trustee, pursuant to this Declaration, shall hold legal title and a valid ownership interest in the Subordinated Debentures in accordance with the provisions hereof. SECTION 13.2. REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE The Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Delaware Trustee represents and warrants to the Trust and to the Sponsor at the time of its acceptance of its appointment as Delaware Trustee that: -36- (a) The Delaware Trustee is either a natural person who is at least 21 years of age and a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. (b) The execution, delivery and performance by the Delaware Trustee of this Declaration and the Certificate of Trust have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and, under Delaware law assuming due authorization, execution and delivery hereof by the other parties hereto, constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration and the Certificate of Trust by the Delaware Trustee do not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee. ARTICLE XIV MISCELLANEOUS SECTION 14.1. NOTICES All notices, instructions, requests and demands provided for in this Declaration shall be in writing, duly signed by the party giving same, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Trust Securities): MidAmerican Capital Trust II c/o MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 (b) if given to the Property Trustee, at the mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Administration Telecopy number: (212) 815-5915 -37- (c) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.2. GOVERNING LAW THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF DELAWARE; PROVIDED HOWEVER, THAT THERE SHALL NOT BE APPLICABLE TO THE PARTIES HEREUNDER OR THIS DECLARATION ANY PROVISION OF THE LAWS (STATUTORY OR COMMON) OF THE STATE OF DELAWARE PERTAINING TO TRUSTS THAT RELATE TO OR REGULATE, IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE FILING WITH ANY COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR SCHEDULES OF TRUSTEE FEES AND CHARGES, (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF THE TRUST, (C) THE NECESSITY FOR OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION, HOLDING OR DISPOSITION OF REAL OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS PAYABLE TO TRUSTEES, -38- OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (E) THE ALLOCATION OF RECEIPTS AND EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS OR LIMITATIONS ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST INVESTMENTS OR REQUIREMENTS RELATING TO TITLING, STORAGE OR OTHER MANNER OF HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT OF FIDUCIARY OR OTHER STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON THE ACTS OR POWERS OF TRUSTEES THAT ARE INCONSISTENT WITH THE LIMITATIONS OR LIABILITIES OR AUTHORITIES AND POWERS OF THE TRUSTEES HEREUNDER AS SET FORTH OR REFERENCED IN THIS DECLARATION. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE TRUST. SECTION 14.3. INTENTION OF THE PARTIES It is the intention of the parties hereto that the Trust not be characterized for United States federal income tax purposes as an association taxable as a corporation or a partnership but rather that the Trust be characterized as a grantor trust or otherwise in a manner such that each Holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4. HEADINGS Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5. SUCCESSORS AND ASSIGNS Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6. PARTIAL ENFORCEABILITY If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7. COUNTERPARTS This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and the Property Trustee to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. -39- IN WITNESS WHEREOF, the undersigned have caused these presents to be executed as of the day and year first above written. GREGORY E. ABEL, as Regular Trustee /s/ Gregory E. Abel -------------------------------------------- DAVID L. SOKOL, as Regular Trustee /s/ David L. Sokol -------------------------------------------- THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ Patrick Burns ----------------------------------- Name: Patrick Burns Title: Senior Vice President MIDAMERICAN ENERGY HOLDINGS COMPANY, as Sponsor By: /s/ Douglas L. Anderson ----------------------------------- Name: Douglas L. Anderson Title: Senior Vice President THE BANK OF NEW YORK, as Property Trustee By: /s/ Robert A. Massimillo ----------------------------------- Name: Robert A. Massimillo Title: Vice President -40- CERTIFICATE OF TRUST OF MIDAMERICAN CAPITAL TRUST II THIS Certificate of Trust of MIDAMERICAN CAPITAL TRUST II (the "TRUST") is being duly executed and filed by The Bank of New York (Delaware), as Delaware Trustee, and Gregory E. Abel and David L. Sokol, as Regular Trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. (ss. ss.) 3801, et seq.). 1. NAME. The name of the business trust formed hereby is MidAmerican Capital Trust II. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is The Bank of New York (Delaware), 23 White Clay Center, Route 273, Newark, Delaware 19711. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective upon filing with the Secretary of State. 4. This Certificate of Trust may be executed in one or more counterparts. IN WITNESS WHEREOF, the undersigned, being all of the trustees of the Trust, have executed this Certificate of Trust. THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ Patrick Burns ----------------------------------- Name: Patrick Burns Title: Senior Vice President GREGORY E. ABEL, as Regular Trustee /s/ Gregory E. Abel ----------------------------------- DAVID L. SOKOL, as Regular Trustee /s/ David L. Sokol ----------------------------------- TRUST AGREEMENT This TRUST AGREEMENT, dated as of March 4, 2002 (this "TRUST AGREEMENT"), between (i) MidAmerican Energy Holdings Company, an Iowa corporation, as Sponsor (the "SPONSOR"), and (ii) The Bank Of New York (Delaware), a Delaware banking corporation, as Delaware Trustee (the "DELAWARE TRUSTEE"), and Gregory E. Abel and David L. Sokol, as Regular Trustees, (the "REGULAR TRUSTEES" and, collectively with the Delaware Trustee, the "TRUSTEES"). The Sponsor and the Trustees hereby agree as follows: 1. The trust created hereby (the "TRUST") shall be known as "MidAmerican Capital Trust II" in which name the Trustees, or the Sponsor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Sponsor hereby assigns, transfers conveys and sets over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of such amount from the Sponsor, which amount shall constitute the initial trust estate. The Trustees hereby declare that they will hold the trust estate for the Sponsor. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 DEL. C. Section 3801, ET SEQ. (the "BUSINESS TRUST ACT"), and that this document constitute the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in accordance with the provisions of the Business Trust Act. The Trust is hereby established by the Sponsor and the Trustees for the purposes of (i) issuing preferred securities ("PREFERRED SECURITIES") representing undivided beneficial interests in the assets of the Trust in exchange for cash and investing the proceeds thereof in debt securities of the Sponsor, (ii) issuing and selling common securities ("COMMON SECURITIES" and, together with the Preferred Securities, "TRUST SECURITIES") representing undivided beneficial interests in the assets of the Trust to the Sponsor in exchange for cash and investing the proceeds thereof in additional debt securities of the Sponsor and (iii) engaging in such other activities as are necessary, convenient or incidental thereto. 3. Concurrently with the first issuance of any Trust Securities by the Trust, the Sponsor and the Trustees will enter into an amended and restated Trust Agreement, satisfactory to each such party, to provide for the contemplated operation of the Trust created hereby and the issuance of the Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery of any licenses, consents or approvals required by applicable law or otherwise. 4. The Sponsor and the Trustees hereby authorize and direct the Sponsor, as sponsor of the Trust, as applicable, (a) to negotiate the terms of, and execute on behalf of the Trust, such subscription or purchase agreements with one or more subscribers or purchasers relating to the Trust Securities as the Sponsor, on behalf of the Trust, may deem necessary or desirable and (b) to execute on behalf of the Trust any and all documents, papers and instruments as may be desirable in connection with any of the foregoing. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of Trustees initially shall be three (3) and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Sponsor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Sponsor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon thirty (30) days' prior notice to the Sponsor. 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). [SIGNATURE PAGE FOLLOWS] -2- IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY, as Sponsor By: /s/ Douglas L. Anderson ----------------------------------- Name: Douglas L. Anderson Title: Senior Vice President THE BANK OF NEW YORK (DELAWARE), as Trustee By: /s/ Patrick Burns ----------------------------------- Name: Patrick Burns Title: Senior Vice President GREGORY E. ABEL, as Regular Trustee /s/ Gregory E. Abel ----------------------------------- DAVID L. SOKOL, as Regular Trustee /s/ David L. Sokol ----------------------------------- -3- EXHIBIT A TERMS OF 11% TRUST ISSUED PREFERRED SECURITIES 11% TRUST ISSUED COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of March 12, 2002 (as amended from time to time, the "DECLARATION"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration). The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000. 1. DESIGNATION AND NUMBER. (a) PREFERRED SECURITIES. Up to 12,920,000 Preferred Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Three Hundred Twenty Three Million Dollars ($323,000,000) and a liquidation amount with respect to the assets of the Trust of $25 per Preferred Security, are hereby designated for the purposes of identification only as "11% Trust Issued Preferred Securities" (the "PREFERRED SECURITIES"). The Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. (b) COMMON SECURITIES. Up to 399,588 Common Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Nine Million Nine Hundred Eighty Nine Thousand Seven Hundred Dollars ($9,989,700) and a liquidation amount with respect to the assets of the Trust of $25 per Common Security, are hereby designated for the purposes of identification only as "11% Trust Issued Common Securities" (the "COMMON SECURITIES"). The Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex II, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. (a) Distributions payable on each Trust Security will be fixed at a rate per annum of 11% (the "COUPON RATE") of the stated liquidation amount of $25 per Trust Security, such rate being the rate of interest payable on the Subordinated Debentures to be held by the Property Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). The term "DISTRIBUTIONS" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed for any full semi-annual Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full semi-annual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (b) Distributions on each series of Trust Securities will be cumulative, will accumulate from the date of original issuance of the Trust Securities of such series (the "SERIES ISSUE DATE"), and will be payable semi-annually in arrears, on June 15 and December 15 of each year, commencing on the first such date following the Series Issue Date, except as otherwise described below. The Sponsor has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time and for varying lengths of time on the Subordinated Debentures for a period not exceeding 10 consecutive semi-annual periods (each, an "EXTENSION PERIOD") and during such Extension Period, Distributions will also be deferred. Despite such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law) at an annual rate of thirteen percent (13%) per annum compounded semi-annually during any such Extension Period. Prior to the termination of any such Extension Period, the Sponsor may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semi-annual periods. Payments of accumulated Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Sponsor may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Trust Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. Distributions payable on any Trust Securities that are not punctually paid on any Distribution payment date, as a result of the Sponsor having failed to make a payment under the Subordinated Debentures, will cease to be payable to the Person in whose name such Trust Securities are registered on the relevant record date, and such Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Trust Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Trust Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Trust Securities on the date of the dissolution will be entitled to receive out of the assets of the Trust available for distribution to Holders of Trust Securities after satisfaction of liabilities to creditors of the Trust, if any (including, without limitation, by paying or making reasonable provisions to pay all claims and obligations of the Trust in accordance with Section 3808(e) of A-2 the Business Trust Act), an amount equal to the aggregate of the stated liquidation amount of $25 per Trust Security plus accumulated and unpaid Distributions thereon (including interest thereon) to the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"), unless, in connection with such dissolution, after satisfaction of liabilities to creditors of the Trust (including, without limitation, by paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act) Subordinated Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Trust Securities and of like tenor shall be distributed on a Pro Rata basis to the Holders of the Trust Securities in exchange for such Trust Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Trust Securities shall be paid on a Pro Rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such dissolution Pro Rata with the holders of the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities with regard to such distributions. On and from the date fixed by the Regular Trustees for any distribution of Subordinated Debentures: (i) the Trust Securities will no longer be deemed to be outstanding, (ii) the Depositary, as the Holder of the Preferred Securities, will receive a registered global certificate representing the Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Trust Securities not held by the Depositary or its nominee (or any successor depositary or its nominee), will be deemed to represent beneficial interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Trust Securities until such certificates are presented to the Sponsor or its agent for transfer or reissue. 4. REDEMPTION; REDEMPTION/DISTRIBUTION PROCEDURES. (a) Upon the repayment of a series of Subordinated Debentures (a "DEBENTURE SERIES"), whether at the Maturity Date or upon redemption thereof, in whole or in part, the proceeds from such repayment or redemption shall be simultaneously applied to redeem the series of Trust Securities used to purchase such Debenture Series, having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at a redemption price of $25 per Trust Security plus an amount equal to accumulated and unpaid Distributions thereon at the date of the redemption, payable in cash (the "REDEMPTION PRICE"). Applicable Holders will be given not less than 30 nor more than 60 days notice of such redemption. (b) If fewer than all the outstanding Trust Securities in a series are to be so redeemed, the applicable Preferred Securities and the applicable Common Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be as described in Section 4(d)(ii) below. A-3 (c) The Trust may not redeem fewer than all the outstanding Trust Securities unless all accumulated and unpaid Distributions have been paid on all Trust Securities for all semi-annual Distribution periods terminating on or before the date of redemption. (d) (i) Notice of any redemption of a series of Trust Securities, or notice of distribution of Subordinated Debentures in exchange for the Trust Securities (a "REDEMPTION/DISTRIBUTION NOTICE"), will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Trust Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Subordinated Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(d)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Trust Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Trust Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Trust Securities are to be redeemed, the Trust Securities to be redeemed shall be redeemed Pro Rata. (iii) If Trust Securities are to be redeemed and the Regular Trustees on behalf of the Trust give a Redemption/Distribution Notice, which notice may only be issued if the Subordinated Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then with respect to Preferred Securities and Common Securities, provided that the Sponsor has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, then the Property Trustee will pay the relevant Redemption Price to the Holders of such Trust Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date upon surrender of their Certificates evidencing such Preferred Securities and such Common Securities. If a Redemption/Distribution Notice shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accumulate on the Trust Securities so called for redemption and all rights of Holders of such Trust Securities so called for redemption will cease, except the right of the Holders of such Trust Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Trust Securities that have been so called for redemption. If any date fixed for redemption of Trust Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If payment of the Redemption Price in respect of any Trust Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the Preferred Securities Guarantee or the Common Securities Guarantee, as the case may be, Distributions on such Trust Securities A-4 will continue to accumulate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purpose of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holder. (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), provided the acquirer is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - PREFERRED SECURITIES. (a) Except as provided under Sections 5(b) and 6 and as otherwise required by law, the Preferred Securities Guarantee and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Preferred Securities, voting as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 4.13 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent under the Indenture would require the consent or act of all of the holders of Subordinated Debentures affected thereby, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Preferred Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Preferred Securities under this paragraph unless the Property Trustee has obtained an opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration or the Subordinated Debentures, any Holder of Preferred Securities may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration or the Subordinated Debentures without first instituting a legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly A-5 institute a proceeding for enforcement of payment to such Holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Preferred Securities in connection with such direct action. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which the written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 6. VOTING RIGHTS - COMMON SECURITIES. (a) Except as provided under Sections 6(b) and 6(c), and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration, only after an Event of Default with respect to the Preferred Securities has been cured, waived or otherwise eliminated and subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 4.13 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require the consent A-6 or act of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Common Securities. Pursuant to this Section 6(c), the Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Property Trustee has obtained, at the expense of the Holders of the Common Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration and the Subordinated Debentures, any Holder of Common Securities may after written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration and the Subordinated Debentures, without first instituting a legal proceeding against the Property Trustee or any other person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Common Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Common Securities of such holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Common Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Common Securities in connection with such direct action. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. (a) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the involuntary or voluntary liquidation, dissolution, winding-up A-7 or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Trust Securities as a class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least 66-2/3% in liquidation amount of the Trust Securities, voting together as a single class; provided that a reduction of the aggregate liquidation amount or the Distribution rate, a change in the payment dates or maturities of the Preferred Securities or a reduction in the percentage in liquidation amount of outstanding Preferred Securities, the consent of the Holders of which is required for an amendment to the Declaration shall not be permitted without the consent of each Holder of the Preferred Securities. In the event any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 66-2/3% in liquidation amount of such class of Trust Securities. (b) In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, the Preferred Securities Guarantee and the Common Securities Guarantee is required under the Indenture with respect to any amendment, modification, waiver or termination of the Indenture, the Subordinated Debentures, the Preferred Securities Guarantee or the Common Securities Guarantee, the Property Trustee shall request the direction of the Holders of the Trust Securities with respect to such amendment, modification, waiver or termination and shall vote with respect to such amendment, modification, waiver or termination as directed by a Majority in liquidation amount of the Trust Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent at the direction of all of the Holders of the Trust Securities; provided, further, that the Property Trustee shall not take any action in accordance with the directions of the Holders of the Trust Securities under this Section 6(b) unless the Property Trustee has obtained, at the expense of the Holders of the Trust Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 8. PRO RATA. A reference to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of applicable Trust Securities according to the aggregate liquidation amount of such Trust Securities held by the relevant Holder in relation to the aggregate liquidation amount of all applicable Trust Securities outstanding unless, in relation to a payment, an Event of Default under the Indenture has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the applicable Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Preferred Securities outstanding, and only after satisfaction of all amounts owed to the applicable Holders of the Preferred Securities, to each applicable Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Common Securities outstanding. A-8 9. RANKING. The Preferred Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default occurs and is continuing under the Indenture in respect of the Subordinated Debentures held by the Property Trustee, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Preferred Securities. 10. ACCEPTANCE OF TRUST SECURITIES GUARANTEE AND INDENTURE. Each Holder of Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. NO PREEMPTIVE RIGHTS. The Holders of the Trust Securities shall have no preemptive rights to subscribe for any additional securities. 12. MISCELLANEOUS. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee or and the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. A-9 ANNEX I Certificate Number Number of Preferred Securities Certificate Evidencing Preferred Securities of MIDAMERICAN CAPITAL TRUST II Series __ Preferred Securities (liquidation amount $25 per Preferred Security) MIDAMERICAN CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that _____________________ (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Issued Preferred Securities Series __ (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of March 12, 2002, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Preferred Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. The Preferred Securities are transferable only to Permitted Holders (as such term is defined in the Declaration). By acceptance, the Holder agrees to treat for United States federal income tax purposes, the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. A-10 IN WITNESS WHEREOF, the Trust has executed this certificate this __ day of _____ ____. Gregory E. Abel, as Trustee - ---------------------------------------------- David L. Sokol, as Trustee - ---------------------------------------------- A-11 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:-------------------------------------- Signature:--------------------------------- (Sign exactly as your name appears on the other side of this Preferred Security Certificate) A-12 ANNEX II Certificate Number Number of Common Securities Certificate Evidencing Common Securities of MIDAMERICAN CAPITAL TRUST II Series __ Common Securities (liquidation amount $25 per Common Security) MIDAMERICAN CAPITAL TRUST II, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ___________________ (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Common Securities, Series __ (liquidation amount $25 per Common Security) (the "Common Securities"). Subject to the limitations set forth in Article 9 of the Declaration, the Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of March 12, 2002, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Trust will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Sponsor is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat for United States federal income tax purposes the Subordinated Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. A-13 IN WITNESS WHEREOF, the Trust has executed this certificate this __ day of _____ ____. Gregory E. Abel, as Trustee - ---------------------------------------------- David L. Sokol, as Trustee - ---------------------------------------------- A-14 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date:--------------------------------- Signature:---------------------------- (Sign exactly as your name appears on the other side of this Common Security Certificate) A-15 EXHIBIT B PREFERRED SECURITIES GUARANTEE AGREEMENT MIDAMERICAN CAPITAL TRUST II DATED AS OF MARCH 12, 2002 PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of March 12, 2002, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), and The Bank of New York, a New York corporation, as trustee (the "PREFERRED GUARANTEE TRUSTEE"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of MidAmerican Capital Trust II, a Delaware statutory business trust (the "TRUST"). RECITALS WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of March 12, 2002, among the trustees of the Trust named therein, the Guarantor as sponsor and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust will be issuing from time to time up to $323,000,000 aggregate stated liquidation amount of Preferred Securities designated the 11% Trust Issued Preferred Securities (the "PREFERRED SECURITIES"); and WHEREAS, as incentive for the Holders (as hereinafter defined) to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "COMMON SECURITIES GUARANTEE AGREEMENT") with substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Common Securities (as defined herein) except that if an Event of Default (as defined in the Indenture (as defined herein)), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Guarantee Agreement. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.01 DEFINITIONS AND INTERPRETATION. In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; B-1 (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Guarantor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer or any other Officer, or agent of the Guarantor duly authorized by the board of directors of the Guarantor to act in such matters relating to the Declaration. "COVERED PERSON" means any Holder or beneficial owner of Preferred Securities. "DIRECTION" by a Person means a written direction signed: (a) if the Person is a natural person by that Person; or (b) in any other case, in the name of such Person by one or more Authorized Officers of that Person. "EVENT OF DEFAULT" means a default by the Guarantor on any of its payment or other material obligations under this Guarantee Agreement. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE"), to the extent the Trust shall have funds available therefor with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution of the Trust (other than in connection with the distribution of Subordinated Debentures to the Holders or the redemption of all the Preferred Securities upon the redemption or Maturity Date (as defined in the Indenture) of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment to the extent the Trust shall have B-2 funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" means any holder, as registered on the books and records of the Trust of any Preferred Securities; provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "INDEMNIFIED PERSON" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives or agents of the Preferred Guarantee Trustee. "INDENTURE" means the Indenture dated as of March 12, 2002, among the Guarantor and The Bank of New York, as trustee, as modified, amended or supplemented from time to time. "MAJORITY IN LIQUIDATION AMOUNT OF THE TRUST SECURITIES" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred Securities, voting separately as a class, of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all Preferred Securities. "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that such officer signing the Officer's Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "OPINION OF COUNSEL" means a written opinion of counsel for the Preferred Guarantee Trustee or the Guarantor, who may be an employee of or counsel to the Preferred Guaranty Trustee or the Guarantor, and who shall be reasonably acceptable to the Preferred Guarantee Trustee. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. B-3 "PREFERRED GUARANTEE TRUSTEE" means The Bank of New York, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Preferred Guarantee Trustee. "RESPONSIBLE OFFICER" means, when used with respect to the Preferred Guarantee Trustee, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer or any other officer in the Corporate Trust Office customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for administration of this Guarantee Agreement and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "SUBORDINATED DEBENTURES" means up to $332,989,700.00 aggregate principal amount of the Guarantor's 11% Junior Subordinated Deferrable Interest Debentures held by the Property Trustee of the Trust. "SUCCESSOR PREFERRED GUARANTEE TRUSTEE" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.01. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. ARTICLE II TRUST INDENTURE ACT SECTION 2.01 TRUST INDENTURE ACT; APPLICATION. (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act, if any, that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; and (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. SECTION 2.02 LISTS OF HOLDERS OF TRUST SECURITIES. (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("LIST OF HOLDERS") as of such date, (i) within 14 days after each record date for payment of distributions, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee provided that the Guarantor shall not be B-4 obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.03 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. Within 60 days after December 31 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.05 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Guarantor pursuant to Section 314(c)(1) shall be given in the form of an Officer's Certificate. SECTION 2.06 EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.07 EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Preferred Guarantee B-5 Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless a Responsible Officer of the Preferred Guarantee Trustee shall have received written notice as provided in Section 9.03, or a Responsible Officer shall have obtained actual notice, of such Event of Default. SECTION 2.08 CONFLICTING INTERESTS. The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWER, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.01 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE. (a) This Guarantee Agreement shall be held by the Preferred Guarantee Trustee for the benefit of the Holders, and the Preferred Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.05(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee Agreement shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: B-6 (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.02 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.01: (i) The Preferred Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. B-7 (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by a Direction or an Officer's Certificate. (iii) Whenever, in the administration of this Guarantee Agreement, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any re-recording, refiling or registration thereof). (v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. (vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity acceptable to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.02(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vii) The Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its B-8 compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Guarantee Agreement the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.03 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee Agreement. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.01 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee that shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. B-9 (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.01(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02 (c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.02 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEES. (a) Subject to Section 4.02(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the Preferred Guarantee Trustee being removed. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee at the expense of the Guarantor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. ARTICLE V GUARANTEE SECTION 5.01 GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. B-10 SECTION 5.02 SUBORDINATION. If an event of default under the Indenture has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders to receive Guarantee Payments. SECTION 5.03 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.04 OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sums payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or B-11 (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.04 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.05 RIGHTS OF HOLDERS. (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement. (b) Notwithstanding anything contained herein, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.06 GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 5.07 SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however , that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.08 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.04 hereof. B-12 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.01 LIMITATION OF TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default or an event of default under the Declaration, then the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Company (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Company and (b) payments under this Guarantee Agreement. SECTION 6.02 RANKING. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than the Common Securities Guarantee Agreement or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.01 TERMINATION. This Guarantee Agreement shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) the distribution of the Subordinated Debentures to the Holders of all Preferred Securities or (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. Notwithstanding anything contained herein to the contrary, the obligations of the Guarantor set forth in Article VIII hereof shall survive termination of this Guarantee Agreement or the earlier resignation or removal of the Preferred Guarantee Trustee. B-13 ARTICLE VIII INDEMNIFICATION SECTION 8.01 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02 INDEMNIFICATION. (a) To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person in connection with this Guarantee Agreement including without limitation by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses(including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of any undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.02(a). B-14 ARTICLE IX MISCELLANEOUS SECTION 9.01 SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.02 AMENDMENTS. Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all the outstanding Preferred Securities (as defined in the Declaration). The provisions of Section 12.2 of the Declaration with respect to meetings or actions by written consent of Holders of the Trust Securities apply to the giving of such approval. The Preferred Guarantee Trustee may, but shall have no obligation to, execute and deliver any amendment to this Guarantee Agreement which affects the Preferred Guarantee Trustee's rights, duties or immunities hereunder or otherwise. SECTION 9.03 NOTICES. All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trustee Department Telecopy Number: (212) 815-5915 (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): MidAmerican Energy Holdings Company 302 South 36th Street, Suite 400 B-15 Omaha, Nebraska 68131 Attention: General Counsel (c) If given to any Holder of Preferred Securities, at the address set forth in the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04 BENEFIT. This Guarantee Agreement is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.01(a), is not separately transferable from the Preferred Securities. SECTION 9.05 GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. B-16 IN WITNESS WHEREOF, the parties hereto have caused this Guarantee Agreement to be executed by their respective officers thereunto duly authorized, as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ Douglas L. Anderson ---------------------------------- Name: Douglas L. Anderson Title: Senior Vice President THE BANK OF NEW YORK, as Preferred Guarantee Trustee By: /s/ Robert A. Massimillo ---------------------------------- Name: Robert A. Massimillo Title: Vice President B-17 EXHIBIT C COMMON SECURITIES GUARANTEE AGREEMENT MIDAMERICAN CAPITAL TRUST II DATED AS OF MARCH 12, 2002 COMMON SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of March 12, 2002, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined in the Declaration referred to below) of MidAmerican Capital Trust II, a Delaware business trust (the "ISSUER"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of March 12, 2002, among the Trustees of the Issuer named therein, the Guarantor as sponsor and the holders from time to time of securities representing undivided beneficial interests in the assets of the Issuer, the Issuer will be issuing from time to time up to $9,989,700 aggregate stated liquidation amount of the Issuer's Common Securities designated the 11% Trust Issued Common Securities (the "COMMON SECURITIES"), representing beneficial interests in the assets of the Issuer; WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement on substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Preferred Securities (the "PREFERRED SECURITIES GUARANTEE") except that if an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1 DEFINITIONS. In this Guarantee Agreement, unless the context otherwise requires, the terms set forth below shall have the following meanings. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) Terms defined in the Declaration as at the date of execution of this Guarantee Agreement have the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement; (c) A term defined anywhere in this Guarantee Agreement has the same meaning throughout; (d) All references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (e) All references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; and (f) A reference to the singular includes the plural and vice versa. "GUARANTEE PAYMENTS" shall mean the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by the Issuer: (i) any accumulated and unpaid Distributions which are required to be paid on such Common Securities to the extent the Issuer shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE") to the extent the Issuer shall have funds available therefor, with respect to any Common Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution of the Issuer (other than in connection with the distribution of Subordinated Debentures to the Holders on the redemption of all the Common Securities upon the redemption or Maturity Date of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Common Securities to the date of payment, and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" shall mean any holder, as registered on the books and records of the Issuer, of any Common Securities. ARTICLE II GUARANTEE SECTION 2.1 GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. -2- SECTION 2.2 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of non-payment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.3 SUBORDINATION. If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. SECTION 2.4 OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in the Common Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or -3- (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 2.5 RIGHTS OF HOLDERS. The Guarantor expressly acknowledges that any Holder of Common Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer or any other Person. SECTION 2.6 GUARANTEE OF PAYMENT. This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 2.7 SUBROGATION OF PAYMENT. The Guarantor shall be subrogated to all (if any) rights of the Holders of Common Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 2.8 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.4 hereof. ARTICLE III LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 3.1 LIMITATION OF TRANSACTIONS. So long as any Common Securities remain outstanding, if (A) the Guarantor shall be in default with respect to its Guarantee Payments or other obligations hereunder, or (B) there shall have occurred any Event of Default, then the Guarantor shall not (i) declare or pay any dividends -4- or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Company (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Company and (b) payments under this Guarantee Agreement). SECTION 3.2 RANKING. This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than any obligation in respect of the Preferred Securities Guarantee or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) PARI PASSU with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments. ARTICLE IV TERMINATION SECTION 4.1 TERMINATION. This Guarantee Agreement shall terminate upon full payment of the Redemption Price of all Common Securities, upon the distribution of the Subordinated Debentures to the Holders of all of the Common Securities or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Common Securities must restore payment of any sums paid under the Common Securities or under this Guarantee Agreement. ARTICLE V MISCELLANEOUS SECTION 5.1 SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. -5- SECTION 5.2 AMENDMENTS. Except with respect to any changes which do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount of all the outstanding Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of holders of the Trust Securities apply to the giving of such approval. SECTION 5.3 NOTICES. All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Issuer, in care of the Regular Trustees at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice of to the Holders of the Common Securities): MidAmerican Capital Trust II c/o MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Common Securities): MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Attention: General Counsel (c) if given to any Holder of Common Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 5.4 BENEFICIARIES. This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Common Securities. -6- SECTION 5.5 GOVERNING LAW. THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. -7- THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ Douglas L. Anderson ---------------------------------------- Name: Douglas L. Anderson Title: Senior Vice President -8- EX-4.16 8 file007.txt AMENDED AND RESTATED DECLARATION OF TRUST AMENDED AND RESTATED DECLARATION OF TRUST OF MIDAMERICAN CAPITAL TRUST I MARCH 14, 2000 i TABLE OF CONTENTS
Page ---- ARTICLE I INTERPRETATION AND DEFINITIONS..............................................................2 Section 1.1 DEFINITIONS.................................................................................2 ARTICLE II TRUST INDENTURE ACT.........................................................................8 Section 2.1 TRUST INDENTURE ACT; APPLICATION............................................................8 Section 2.2 LISTS OF HOLDERS OF TRUST SECURITIES........................................................8 Section 2.3 REPORTS BY THE PROPERTY TRUSTEE.............................................................9 Section 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE........................................................9 Section 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT............................................9 Section 2.6 EVENTS OF DEFAULT; WAIVER..................................................................10 Section 2.7 EVENT OF DEFAULT; NOTICE...................................................................11 ARTICLE III ORGANIZATION...............................................................................12 Section 3.1 NAME.......................................................................................12 Section 3.2 OFFICE.....................................................................................12 Section 3.3 PURPOSE....................................................................................12 Section 3.4 AUTHORITY..................................................................................12 Section 3.5 TITLE TO PROPERTY OF THE TRUST.............................................................13 Section 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES..................................................13 Section 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.......................................15 Section 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE..................................................16 Section 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE................................18 Section 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE.........................................................20 Section 3.11 DELAWARE TRUSTEE...........................................................................22 Section 3.12 EXECUTION OF DOCUMENTS.....................................................................22 Section 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF TRUST SECURITIES...............................22 Section 3.14 DURATION OF TRUST..........................................................................23 Section 3.15 MERGERS....................................................................................23 ARTICLE IV SPONSOR....................................................................................24 Section 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES....................................................24 Section 4.2 INTENTIONALLY LEFT BLANK...................................................................25 ARTICLE V TRUSTEES...................................................................................25 Section 5.1 NUMBER OF TRUSTEES.........................................................................25 Section 5.2 DELAWARE TRUSTEE; ELIGIBILITY..............................................................25 ii Section 5.3 PROPERTY TRUSTEE; ELIGIBILITY..............................................................25 Section 5.4 QUALIFICATIONS OF REGULAR TRUSTEES GENERALLY...............................................26 Section 5.5 INITIAL TRUSTEES...........................................................................26 Section 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES...........................................27 Section 5.7 VACANCIES AMONG TRUSTEES...................................................................29 Section 5.8 EFFECT OF VACANCIES........................................................................29 Section 5.9 MEETINGS...................................................................................29 Section 5.10 DELEGATION OF POWER........................................................................30 ARTICLE VI DISTRIBUTIONS..............................................................................30 Section 6.1 DISTRIBUTIONS..............................................................................30 ARTICLE VII ISSUANCE OF TRUST SECURITIES...............................................................31 Section 7.1 GENERAL PROVISIONS REGARDING TRUST SECURITIES..............................................31 ARTICLE VIII TERMINATION................................................................................32 Section 8.1 TERMINATION OF TRUST.......................................................................32 ARTICLE IX TRANSFER OF INTEREST.......................................................................33 Section 9.1 TRANSFER OF TRUST SECURITIES...............................................................33 Section 9.2 TRANSFER OF CERTIFICATES...................................................................33 Section 9.3 DEEMED TRUST SECURITY HOLDERS..............................................................34 Section 9.4 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES..........................................34 ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF TRUST SECURITIES, TRUSTEES OR OTHERS.................35 Section 10.1 LIABILITY..................................................................................35 Section 10.2 EXCULPATION................................................................................35 Section 10.3 FIDUCIARY DUTY.............................................................................36 Section 10.4 INDEMNIFICATION............................................................................37 Section 10.5 OUTSIDE BUSINESSES.........................................................................37 ARTICLE XI ACCOUNTING.................................................................................38 Section 11.1 FISCAL YEAR................................................................................38 Section 11.2 CERTAIN ACCOUNTING MATTERS.................................................................38 Section 11.3 BANKING....................................................................................39 Section 11.4 WITHHOLDING................................................................................39 ARTICLE XII AMENDMENTS AND MEETINGS....................................................................40 iii Section 12.1 AMENDMENTS.................................................................................40 Section 12.2 MEETINGS OF THE HOLDERS OF TRUST SECURITIES; ACTION BY WRITTEN CONSENT.....................42 ARTICLE XIII REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE....................43 Section 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE.........................................43 Section 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.........................................44 ARTICLE XIV MISCELLANEOUS..............................................................................45 Section 14.1 NOTICES....................................................................................45 Section 14.2 GOVERNING LAW..............................................................................46 Section 14.3 INTENTION OF THE PARTIES...................................................................47 Section 14.4 HEADINGS...................................................................................47 Section 14.5 SUCCESSORS AND ASSIGNS.....................................................................47 Section 14.6 PARTIAL ENFORCEABILITY.....................................................................47 Section 14.7 COUNTERPARTS...............................................................................47
iv AMENDED AND RESTATED DECLARATION OF TRUST AMENDED AND RESTATED DECLARATION OF TRUST (this "DECLARATION") of MidAmerican Capital Trust I (the "TRUST") dated as of March 14, 2000 among (a) MidAmerican Energy Holdings Company, an Iowa corporation, as trust sponsor (the "SPONSOR"), (b) The Bank of New York, a New York corporation, as property trustee (the "PROPERTY TRUSTEE"), (c) The Bank of New York (Delaware), as Delaware trustee (the "DELAWARE TRUSTEE"), (d) Gregory E. Abel, an individual whose address is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50309 and David L. Sokol, an individual whose address is c/o MidAmerican Energy Holdings Company, 302 South 36th Streeet, Suite 400, Omaha, Nebraska 68131 (each, a "REGULAR TRUSTEE" and, together with the Property Trustee and the Delaware Trustee, the "TRUSTEES") and (e) the holders, from time to time, of undivided beneficial interests in the assets of the Trust to be issued pursuant to this Declaration. WHEREAS, certain of the Trustees and the Sponsor established the Trust under the Business Trust Act (as hereinafter defined) pursuant to a Trust Agreement dated as of March 6, 2000, (the "ORIGINAL DECLARATION") and a Certificate of Trust filed with the Secretary of State of the State of Delaware on March __, 2000, for the sole purpose of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust and investing the proceeds thereof in Subordinated Debentures (as hereinafter defined); WHEREAS, as of the date hereof, no interests in the Trust have been issued; and WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a business trust under the Business Trust Act and that this Declaration constitute the governing instrument of such business trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I --------- INTERPRETATION AND DEFINITIONS ------------------------------ SECTION 1.1 DEFINITIONS (a) Capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "this Declaration" are to this Declaration as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles and Sections and Exhibits are to Articles and Sections of, and Exhibits to, this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Sponsor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer, or other officer or agent of the Sponsor duly authorized by the board of directors of the Sponsor to act in respect of matters relating to this Declaration. "BUSINESS DAY" means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or required by law to close. "BUSINESS TRUST ACT" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. Code Section 3801 ET SEQ., as it may be amended from time to time. "CERTIFICATE" means a Common Security Certificate or a Preferred Security Certificate. -2- "CLOSING DATE" means each date upon which the Trust issues Trust Securities hereunder. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as the same may be amended from time to time, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning specified in Section 7.1. "COMMON SECURITIES GUARANTEE" means the guarantee agreement of the Sponsor dated as of March 14, 2000 in respect of the Common Securities in the form of Exhibit C. "COMMON SECURITIES PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of March 14, 2000 in respect of the Common Securities. "COMMON SECURITY CERTIFICATE" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Annex II to Exhibit A. "CORPORATE TRUST OFFICE" means the principal office of the Property Trustee at which at any particular time its corporate trust business shall be administered which office at the date of execution of this Declaration is located at The Bank of New York, 101 Barclay Street, Floor 21 West, New York, New York 10286, Attention: Corporate Trust Trustee Administration. "COVERED PERSON" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Trust Securities. "DEBENTURE PURCHASE AGREEMENT" means the purchase agreement by and between the Sponsor and the Trust dated as of March 14, 2000 in respect of the Subordinate Debentures. "DELAWARE TRUSTEE" has the meaning set forth in the preamble hereof and any successor trustee meeting the eligibility requirements set forth in Section 5.2. -3- "DISTRIBUTION" means a distribution payable to Holders of Trust Securities in accordance with Section 6.1. "EVENT OF DEFAULT" in respect of the Trust Securities, means an Event of Default (as defined in the Indenture) has occurred and is continuing in respect of the Subordinated Debentures. "GUARANTEE TRUSTEE" means The Bank of New York, as trustee under the Preferred Securities Guarantee, until a successor is appointed thereunder and thereafter means such successor trustee. "HOLDER" means a Person in whose name a Certificate representing a Trust Security is registered on the books and records of the Trust, such Person being a beneficial owner within the meaning of the Business Trust Act, provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Sponsor, as guarantor of the Trust Securities, or any Affiliate of the Sponsor. "INDEMNIFIED PERSON" means (a) any Trustee or the Property Trustee; (b) any Affiliate of any Trustee or the Property Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Trustee or the Property Trustee; or (d) any employee or agent of the Trust or its Affiliates. "INDENTURE" means the Indenture dated as of March 14, 2000 among the Sponsor and the Indenture Trustee as modified, supplemented or amended from time to time. "INDENTURE TRUSTEE" means The Bank of New York, as trustee under the Indenture, until a successor is appointed thereunder, and thereafter means such successor trustee. "INVESTMENT COMPANY" means an investment company as defined in the Investment Company Act. "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as the same may be amended from time to time, or any successor legislation. "LEGAL ACTION" has the meaning set forth in Section 3.6(e). "MAJORITY IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of -4- outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing more than 50% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "MATURITY DATE" has the meaning set forth in Section 202 of the Indenture. "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that such officer signing the Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "opinion of counsel" means a written opinion of counsel who may be counsel of the Trustee, the Property Trustee, or the Sponsor, and who shall be reasonably acceptable to the Property Trustee. "PAYING AGENT" has the meaning specified in Section 3.8(h). "PAYMENT AMOUNT" has the meaning specified in Section 6.1. "PERMITTED HOLDERS" means (i) Berkshire Hathaway Inc. and any of its subsidiaries which are directly or indirectly 50% or more owned by it and which are consolidated with it for financial reporting purposes or (ii) any Person following any Event of Default specified in Section 401 (1), (2), or (3) of the Indenture that results in an acceleration of the Subordinated Debentures or any Event of Default specified in Section 401 (4), (5) or (6) of the Indenture. -5- "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED SECURITIES GUARANTEE" means the guarantee agreement between the Sponsor and the Guarantee Trustee dated as of March __, 2000, in respect of the Preferred Securities in the form of Exhibit B. "PREFERRED SECURITIES" has the meaning specified in Section 7.1. "PREFERRED SECURITY CERTIFICATE" means a certificate representing a Preferred Security substantially in the form of Annex I to Exhibit A. "PROPERTY TRUSTEE" has the meaning set forth in the preamble hereof or any successor trustee meeting the eligibility requirements set forth in Section 5.3. "PROPERTY TRUSTEE ACCOUNT" has the meaning set forth in Section 3.8(c). "QUORUM" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "REGULAR TRUSTEE" has the meaning set forth in the preamble hereof, or any successor in interest in such capacity, or any successor trustee appointed as herein provided. "RELATED PARTY" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "RESPONSIBLE OFFICER" means, with respect to the Property Trustee, any vice-president, any assistant vice-president, any assistant treasurer or any other officer in the Corporate Trust Office of the Property Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Declaration and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "RULE 3a-5" means Rule 3a-5 under the Investment Company Act. "SECURITIES ACT" means the Securities Act of 1933, as the same may be amended from time to time, or any successor legislation. -6- "66-2/3% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities and by the Trust Indenture Act, Holders of outstanding Preferred Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 66-2/3% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "SPONSOR" has the meaning set forth in the preamble hereof or any successor entity in a merger, consolidation or amalgamation. "SUBORDINATED DEBENTURES" means up to $800,000,000 aggregate principal amount of 11% Junior Subordinated Deferrable Interest Debentures to be issued by the Sponsor under the Indenture and to be held by the Property Trustee for the benefit of the Trust. "SUBSCRIPTION AGREEMENT" means that certain subscription agreement between the Trust and Berkshire Hathaway Inc. (including any of its assignees thereunder). "SUCCESSOR ENTITY" has the meaning set forth in Section 3.15(b). "SUCCESSOR SECURITIES" has the meaning set forth in Section 3.15(b). "10% IN LIQUIDATION AMOUNT" means, except as provided in the terms of the Trust Securities or by the Trust Indenture Act, Holders of outstanding Trust Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, representing at least 10% of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Trust Securities of the relevant class. "TREASURY REGULATIONS" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "TRUSTEE" or "TRUSTEES" has the meaning set forth in the preamble hereof, so long as such person shall continue in office in accordance with the terms hereof, and all other Persons who may from time to time be duly appointed, qualified and serving as Trustees in accordance with the provisions hereof, and references herein to a -7- Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. ARTICLE II ---------- TRUST INDENTURE ACT ------------------- SECTION 2.1 TRUST INDENTURE ACT; APPLICATION (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required, if any, to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee that is a Trustee for purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. (e) The Regular Trustee executing the certificate under Section 3.6(h) shall be deemed the principal executive officer and chief financial officer of the Trust for purposes of the Trust Indenture Act. SECTION 2.2 LISTS OF HOLDERS OF TRUST SECURITIES. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Property Trustee (i) within 14 days after each record date for payment of Distributions, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Holders of the Trust Securities ("List of Holders") as of such record date, provided that none of the Sponsor or the Regular Trustees on behalf of the Trust shall be obligated to provide such list of Holders at any time the List of Holders does not differ from the most recent List of Holders -8- given to the Property Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Property Trustee. The Property Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Property Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Property Trustee shall comply with the obligations of an indenture trustee under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. SECTION 2.3 REPORTS BY THE PROPERTY TRUSTEE. Within 60 days after December 31 of each year, the Property Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Property Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 PERIODIC REPORTS TO PROPERTY TRUSTEE. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 (if any) of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer's Certificates). SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Sponsor and the Regular Trustee pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officer's Certificate. -9- SECTION 2.6 EVENTS OF DEFAULT; WAIVER. (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default with respect to the Preferred Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived under the Indenture, the Event of Default under this Declaration may only be waived by the vote of all of the Holders of the Preferred Securities. Upon such waiver, any such default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other default or an Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Event of Default under the Indenture: (i) is not waivable under the Indenture, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration shall also not be waivable; or (ii) requires the consent or vote of all of the holders of the Subordinated Debentures to be waived, except where the Holders of the Common Securities are deemed to have waived such Event of Default under this Declaration as provided below in this Section 2.6(b), the Event of Default under this Declaration may only be waived by the vote of all of the Holders of Common Securities; provided that, each Holder of Common Securities will be deemed to have waived any such Event of -10- Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default have been so cured, waived or otherwise eliminated, the Property Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee in accordance with the terms of the Trust Securities. Subject to the foregoing provisions of this Section 2.6(b), upon such waiver, any such default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured for every purpose of this Declaration but no such waiver shall extend to any subsequent or other default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Event of Default under the Indenture by the Property Trustee at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. SECTION 2.7 EVENT OF DEFAULT; NOTICE. (a) The Property Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Securities, notices of all defaults with respect to the Trust Securities known to the Property Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Event of Default as defined in the Indenture, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of or interest on any of the Subordinated Debentures, the Property Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Property Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Trust Securities. (b) The Property Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 401(l) and 401(2) of the Indenture; or (ii) any default as to which a Responsible Officer of the Property Trustee charged with the administration of this Declaration shall have obtained written or actual notice. -11- ARTICLE III ----------- ORGANIZATION ------------ SECTION 3.1 NAME. The Trust is named "MidAmerican Capital Trust I", as such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Trust Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. SECTION 3.2 OFFICE. The address of the principal office of the Trust is c/o MidAmerican Energy Holdings Company, 666 Grand Avenue, Des Moines, Iowa 50303. On ten Business Days written notice to the Holders of Trust Securities, the Regular Trustees may designate another principal office. SECTION 3.3 PURPOSE. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Subordinated Debentures and (b) except as otherwise limited herein, to engage in only those other activities necessary, convenient or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. All provisions of this Declaration shall be interpreted in a manner consistent with such purposes. SECTION 3.4 AUTHORITY. Subject to the limitations provided in this Declaration, including the provisions of Sections 3.11 and 5.2, and to the specific duties of the Property Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Property Trustee in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Regular Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Regular Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. -12- SECTION 3.5 TITLE TO PROPERTY OF THE TRUST. Except as provided in Section 3.8 with respect to the Subordinated Debentures and the Property Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES. The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities in accordance with this Declaration. The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000, and, provided further, that there shall be no interests in the Trust other than the Trust Securities; (b) to acquire each series of Subordinated Debentures with the proceeds of the sale of a series of Trust Securities; provided, however, that the Regular Trustees shall cause legal title to the Subordinated Debentures to be held of record in the name of the Property Trustee for the benefit of the Holders of the Trust Securities; (c) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Trust Securities as to such actions and applicable record dates; (d) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Trust Securities; (e) to bring or defend, pay, collect, compromise, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("LEGAL ACTION"), unless pursuant to Section 3.8(e), the Property Trustee has the exclusive power to bring such Legal Action; (f) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; -13- (g) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act (if any); (h) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Property Trustee, which certificate may be executed by a Regular Trustee; (i) to incur expenses that are necessary or incidental to carry out any of the purposes of the Trust; (j) to act as, or appoint another Person to act as, registrar and transfer agent for the Trust Securities; (k) to give prompt written notice to the Holders of the Trust Securities and the Property Trustee of any notice received from the Sponsor of its election (i) to defer payments of interest on the Subordinated Debentures by extending the interest payment period under the Indenture or (ii) to extend the scheduled maturity date on the Subordinated Debentures pursuant to the Indenture; (l) to execute all documents or instruments (including without limitation, the Debenture Purchase Agreement, the Common Securities Purchase Agreement and, to the extent not previously executed by the Sponsor on behalf of the Trust pursuant to the Original Declaration, the Subscription Agreement), perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing; (m) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Trust Securities or to enable the Trust to effect the purposes for which the Trust was created; (n) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust to be classified for United States federal income tax purposes as a grantor trust; and -14- (iii) cooperating with the Sponsor to ensure that the Subordinated Debentures will be treated as indebtedness of the Sponsor for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders or vary the terms of the Preferred Securities; and (o) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Property Trustee set forth in Section 3.8. SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES (a) The Trust shall not, and the Trustees and the Property Trustee shall not, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees and the Property Trustee shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Subordinated Debentures, but shall distribute all such proceeds to Holders of Trust Securities pursuant to the terms of this Declaration and of the Trust Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Subordinated Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Trust Securities in any way whatsoever; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Trust Securities; or -15- (vii) other than as provided in this Declaration or as set forth in Exhibit A hereto, (A) direct the time, method and place of exercising any trust or power conferred upon the Indenture Trustee with respect to the Subordinated Debentures, (B) waive any past default that is waivable under Section 413 of the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Subordinated Debentures shall be due and payable or (D) consent to any amendment, modification, waiver or termination of the Indenture or the Subordinated Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. SECTION 3.8 POWERS AND DUTIES OF THE PROPERTY TRUSTEE. (a) The legal title to the Subordinated Debentures shall be owned by and held of record in the name of the Property Trustee in trust for the benefit of the Holders of the Trust Securities. The right, title and interest of the Property Trustee to the Subordinated Debentures shall vest automatically in each Person who may hereafter be appointed as Property Trustee in accordance with Section 5.6. Such vesting and cessation of title shall be effective whether or not conveyancing documents with regard to the Subordinated Debentures have been executed and delivered. (b) The Property Trustee shall not transfer its right, title and interest in the Subordinated Debentures to the Regular Trustees or to the Delaware Trustee (if the Property Trustee does not also act as Delaware Trustee). (c) The Property Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "PROPERTY TRUSTEE ACCOUNT") in the name of and under the exclusive control of the Property Trustee on behalf of the Holders of the Trust Securities and, upon the receipt of payments of funds made in respect of the Subordinated Debentures held by the Property Trustee, deposit such funds into the Property Trustee Account and make Distributions to the Holders of the Trust Securities from the Property Trustee Account in accordance with Section 6.1. Funds in the Property Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Property Trustee Account shall be an account that is maintained with the Property Trustee or with a banking institution the rating on whose long term unsecured indebtedness is at least equal to the rating assigned to the Preferred Securities by a -16- "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Trust Securities to the extent the Subordinated Debentures are redeemed or mature; and (iii) upon receipt of notice of distribution issued by the Regular Trustees in accordance with the terms of the Trust Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Subordinated Debentures to Holders of Trust Securities upon the occurrence of certain special events (as may be defined in the terms of the Trust Securities) arising from a change in law or a change in legal interpretation or other specified circumstances pursuant to the terms of the Trust Securities. (d) The Property Trustee shall take all actions and perform such duties as may be specifically required of the Property Trustee pursuant to the terms of the Trust Securities. (e) The Property Trustee shall take any Legal Action that arises out of or in connection with an Event of Default or the Property Trustee's duties and obligations under this Declaration or the Trust Indenture Act. (f) The Property Trustee shall not resign as a trustee unless either: (i) the Trust has been completely liquidated and the proceeds of such liquidation have been distributed to the Holders of Trust Securities pursuant to the terms of the Trust Securities; or (ii) a successor Property Trustee has been appointed and has accepted that appointment in accordance with Section 5.6. (g) The Property Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Subordinated Debentures under the Indenture and, if an Event of Default occurs and is continuing, the Property Trustee shall, for the benefit of Holders of the Trust Securities, enforce its rights as holder of the Subordinated Debentures subject to the rights of the Holders pursuant to the terms of such Trust Securities. (h) The Property Trustee may authorize one or more Persons (each, a "Paying Agent") to pay Distributions, redemption payments or liquidation payments on behalf of the Trust with respect to all Trust Securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. The Property Trustee may remove any Paying Agent at any time and a successor Paying Agent or -17- additional Paying Agents may be appointed at any time by the Property Trustee. The Property Trustee will be the initial Paying Agent. (i) Subject to this Section 3.8, the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Regular Trustees set forth in Section 3.6. The Property Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3 and the Property Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE PROPERTY TRUSTEE. (a) The Property Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Property Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Property Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Property Trustee shall be determined solely by the express provisions of this Declaration, and the Property Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Property Trustee; and (B) in the absence of bad faith on the part of the Property Trustee, the Property Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Property Trustee and conforming to the requirements of this Declaration; -18- but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Property Trustee, the Property Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Trust Securities at the time outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Declaration; (iv) no provision of this Declaration shall require the Property Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or adequate indemnity against such risk or liability is not reasonably assured to it; (v) the Property Trustee's sole duty with respect to the custody, safekeeping and physical preservation of the Subordinated Debentures and the Property Trustee Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Declaration and the Trust Indenture Act; (vi) the Property Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Subordinated Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; (vii) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Sponsor. Money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Property Trustee Account maintained -19- by the Property Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Property Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Property Trustee be liable for the default or misconduct of the Regular Trustees or the Sponsor. SECTION 3.10 CERTAIN RIGHTS OF PROPERTY TRUSTEE. (a) Subject to the provisions of Section 3.9: (i) the Property Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by a Direction or an Officer's Certificate; (iii) whenever in the administration of this Declaration, the Property Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) shall be entitled, in the absence of bad faith on its part, to request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) (or any re-recording, refiling or registration thereof); (v) the Property Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Property Trustee shall have the right at any time to seek -20- instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Property Trustee security and indemnity, acceptable to the Property Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Property Trustee provided that, nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Property Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Property Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Property Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Property Trustee or its agents hereunder shall bind the Trust and the Holders of the Trust Securities, and the signature of the Property Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Property Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Property Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Trust Securities as would be -21- entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions; and (xi) except as otherwise expressly provided by this Declaration, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration. No provision of this Declaration shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or, authority available to the Property Trustee shall be construed to be a duty. SECTION 3.11 DELAWARE TRUSTEE. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Property Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Business Trust Act. The Delaware Trustee shall be entitled to the benefit of all of the immunities and indemnities that the Property Trustee is entitled to under this Declaration. SECTION 3.12 EXECUTION OF DOCUMENTS. Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Business Trust Act, a majority of or, if there are only two, both of the Regular Trustees are authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.6. SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF TRUST SECURITIES. The recitals contained in this Declaration and the Trust Securities shall be taken as the statements of the Sponsor and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees -22- make no representations as to the validity or sufficiency of this Declaration or the Trust Securities. SECTION 3.14 DURATION OF TRUST. The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall exist until April 1, 2030. SECTION 3.15 MERGERS. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other body, except as described in Section 3.15(b) and (c). (b) The Trust may, with the consent of a majority of the Regular Trustees and without the consent of the Holders of the Trust Securities, the Delaware Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust organized as such under the laws of any State; provided that: (i) such successor entity (the "Successor Entity") either: (A) expressly assumes all of the obligations of the Trust under the Trust Securities; or (B) substitutes for the Preferred Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and maturity; (ii) the Sponsor expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Property Trustee as the Holder of the Subordinated Debentures; (iii) the Preferred Securities or any Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange, the Nasdaq Stock Market's National Market or other organization on which the Preferred Securities are then listed; (iv) such merger, consolidation, amalgamation or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization; -23- (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; (vi) such Successor Entity has a purpose identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation or replacement, the Sponsor has received an opinion of a nationally recognized independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Trust Securities (including any Successor Securities) in any material respect; and (B) following such merger, consolidation, amalgamation or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company; and (viii) the Sponsor guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall, except with the consent of Holders of 100% in liquidation amount of the Trust Securities, not consolidate, amalgamate, merge with or into, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or Successor Entity not to be classified for United States federal income tax purposes as a grantor trust. ARTICLE IV ---------- SPONSOR ------- SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES. On each Closing Date, the Sponsor will purchase all the Common Securities issued by the Trust on such Closing Date. The aggregate amount of Common Securities held by the Sponsor hereunder shall at all times equal 3% of the capital of the Trust. -24- SECTION 4.2 INTENTIONALLY LEFT BLANK. ARTICLE V --------- TRUSTEES -------- SECTION 5.1 NUMBER OF TRUSTEES. The number of Trustees shall initially be four (4), and: (a) at any time before the issuance of any Trust Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Trust Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities, provided that in any case, the number of Trustees shall be at least four (4) unless the Trustee that acts as the Property Trustee also acts as the Delaware Trustee pursuant to Section 5.2, in which case the number of Trustees shall be at least three (3). SECTION 5.2 DELAWARE TRUSTEE; ELIGIBILITY. If required by the Business Trust Act, one Trustee shall be: (a) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (b) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law, provided that, if the Property Trustee has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable law, then the Property Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. Except as otherwise provided, the Delaware Trustee's sole duty shall be to, upon the request of the other Trustees or the Sponsor, execute any documents and maintain custody of any records required to form, maintain the existence of, or dissolve, the Trust under the Business Trust Act. -25- SECTION 5.3 PROPERTY TRUSTEE; ELIGIBILITY. (a) There shall at all times be one Trustee which shall act as Property Trustee which shall: (i) not be an Affiliate of the Sponsor; (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, state, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Property Trustee shall cease to be eligible to so act under Section 5.3(a), the Property Trustee shall immediately resign in the manner and with the effect set forth in Section 5.6(c). (c) If the Property Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Property Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. SECTION 5.4 QUALIFICATIONS OF REGULAR TRUSTEES GENERALLY. Each Regular Trustee shall be a natural person who is at least 21 years of age and shall be an employee or officer of the Sponsor or otherwise be affiliated with the Sponsor. SECTION 5.5 INITIAL TRUSTEES. The initial Regular Trustees shall be: -26- Gregory E. Abel c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 David L. Sokol c/o MidAmerican Energy Holdings Company 302 South 36th Street, Suite 400 Omaha, Nebraska 68131 The initial Delaware Trustee shall be: The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 The initial Property Trustee shall be: The Bank of New York 101 Barclay Street Corporate Trust Trustee Administration Floor 21 West New York, New York 10286 SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES. (a) Subject to Section 5.6(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any securities, by written instrument executed by the Sponsor; (ii) after the issuance of any Trust Securities, except as provided in clause (iii) hereof, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities; and (iii) after the issuance of any Trust Securities, if an Event of Default has occurred and is continuing, with respect only to the Property Trustee or the Delaware Trustee, by vote of the Holders of a Majority in liquidation -27- amount of the Preferred Securities voting as a class at a meeting of the Holders of the Preferred Securities. (b) (i) The Trustee that acts as Property Trustee shall not be removed in accordance with Section 5.6(a) until a successor Property Trustee possessing the qualifications to act as Property Trustee under Section 5.3 has been appointed and has accepted such appointment by written instrument executed by such successor Property Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with Section 5.6(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Section 5.2 has been appointed and has accepted such appointment by written instrument executed by such successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by any instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Property Trustee shall be effective: (A) until a successor Property Trustee has been appointed and has accepted such appointment by instrument executed by such successor Property Trustee and delivered to the Trust, the Sponsor and the resigning Property Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Trust Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a successor Delaware Trustee or successor Property Trustee, as the case -28- may be, as the Property Trustee or the Delaware Trustee if the resigning Property Trustee or Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.6. (e) If no successor Property Trustee or successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument of resignation, the resigning Property Trustee or Delaware Trustee, as applicable, may petition any court of competent jurisdiction for appointment of a successor Property Trustee or successor Delaware Trustee at the expense of the Sponsor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a successor Property Trustee or successor Delaware Trustee, as the case may be. SECTION 5.7 VACANCIES AMONG TRUSTEES. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy and copies of any such resolution shall be distributed promptly to the remaining Trustees. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.6. SECTION 5.8 EFFECT OF VACANCIES. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.6, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. SECTION 5.9 MEETINGS. Meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustees or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of -29- the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by the unanimous written consent of the Regular Trustees. SECTION 5.10 DELEGATION OF POWER. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 3.6, including any governmental filing; and (b) the Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE VI ---------- DISTRIBUTIONS ------------- SECTION 6.1 DISTRIBUTIONS. Distributions shall be made and Holders shall receive Distributions in accordance with the applicable terms of Exhibit A hereto and the applicable terms of the relevant Holder's Trust Securities. Distributions shall be made on the Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Sponsor makes a payment of interest (including Deferred Interest (as defined in the Indenture)), or principal on a series of Subordinated Debentures (a "DEBENTURE SERIES") held by the Property Trustee (the amount of any such payment being a "PAYMENT AMOUNT"), the Property Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "DISTRIBUTION") of the Payment Amount to Holders of the series of Trust Securities issued to purchase such Debenture Series. -30- ARTICLE VII ----------- ISSUANCE OF TRUST SECURITIES ---------------------------- SECTION 7.1 GENERAL PROVISIONS REGARDING TRUST SECURITIES. (a) The Regular Trustees shall on behalf of the Trust issue one or more series of preferred securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "PREFERRED SECURITIES") and one or more series of common securities of a single class representing undivided beneficial interests in the assets of the Trust having such terms as are set forth in Exhibit A and incorporated herein by reference (the "COMMON SECURITIES"). The Trust shall have no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. (b) The Regular Trustees (or if there are more than two Regular Trustees by any two of the Regular Trustees) shall sign the Certificates on behalf of the Trust. Such signatures may be the manual or facsimile signatures of the present or any future Regular Trustee. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity of any Certificate. In case any Regular Trustee of the Trust who shall have signed any of the Trust Securities shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Trust Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of this Declaration any such person was not such a Regular Trustee. Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks or identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation usage. (c) The consideration shall be received by the Property Trustee for the issuance of the Trust Securities, which consideration shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (d) The Holders shall not have any right or title in the assets of the Trust other than an undivided beneficial interest in such assets conferred by their Trust -31- Securities, and they shall have no right to call for any partition or division of any property, profits or rights of the Trust except as otherwise provided herein. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Declaration. The Trust Securities, when issued and delivered against payment of purchase price therefor, shall be deemed to be validly issued, fully paid and non-assessable by the Trust. (e) Every Person, by virtue of having become a Holder in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. ARTICLE VIII ------------ DISSOLUTION AND TERMINATION --------------------------- SECTION 8.1 DISSOLUTION AND TERMINATION OF TRUST. (a) The Trust shall dissolve on the earlier of April 1, 2030 or: (i) upon (x) the filing of a bankruptcy petition pursuant to 11 U.S.C. Sections 101 ET. SEQ. or similar petition arising under the laws of any other jurisdiction by the Holder of the Common Securities or the Sponsor or (y) the insolvency of the Holder of the Common Securities or the Sponsor; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Holder of the Common Securities or the Sponsor; the revocation of the Holder of the Common Securities or the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Holder of the Common Securities or the Sponsor or the Trust; (iv) when all of the Trust Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Trust Securities; and (v) upon delivery of written direction to the Property Trustee by the Sponsor at any time (which direction is wholly optional and within the discretion of the Sponsor) to dissolve the Trust and distribute the Subordinated Debentures to the Holders of the Trust Securities in accordance with Section 3 of Exhibit A. -32- (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a) and the winding up and liquidation of the Trust, the Regular Trustees shall file a certificate of cancellation with the Secretary of State of the State of Delaware. (c) The provisions of Section 3.9 and Article X shall survive the termination of the Trust. ARTICLE IX ---------- TRANSFER OF INTEREST -------------------- SECTION 9.1 TRANSFER OF TRUST SECURITIES. (a) Trust Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Trust Securities. Any transfer or purported transfer of any Trust Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Preferred Securities shall be transferable only to Permitted Holders. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such transfer is subject to the conditions precedent that the transferor obtain the written opinion of nationally recognized independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would not be classified for United States federal income tax purposes as a grantor trust; and (ii) the Trust would be an Investment Company or the transferee would become an Investment Company. SECTION 9.2 TRANSFER OF CERTIFICATES. The Regular Trustees shall provide for the registration of transfers of Certificates, which will be effected without charge, but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other governmental charges that may be imposed in relation to it. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or -33- more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly authorized in writing and accompanied by an Officer's Certificate executed by an executive officer of the transferor certifying that the transferee is a Permitted Holder. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration and the documents incorporated by reference herein. SECTION 9.3 DEEMED TRUST SECURITY HOLDERS. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole holder of such Certificate and of the Trust Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Trust Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. SECTION 9.4 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall have received evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any two Regular Trustees on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like denomination. In connection with the issuance of any new Certificate under this Section 9.4, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Trust Certificates, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. -34- ARTICLE X --------- LIMITATION OF LIABILITY OF HOLDERS ---------------------------------- OF TRUST SECURITIES, TRUSTEES OR OTHERS --------------------------------------- SECTION 10.1 LIABILITY. (a) Except as expressly set forth in this Declaration, the Preferred Securities Guarantee, the Common Securities Guarantee and the terms of the Trust Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Trust Securities which shall be made solely from assets of the Trust; and (ii) required to pay to the Trust or to any Holder of Trust Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Business Trust Act: (i) the Holder of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Trust Securities) to the extent not satisfied out of the Trust's assets; and (ii) the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. SECTION 10.2 EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and -35- amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Trust Securities might properly be paid. SECTION 10.3 FIDUCIARY DUTY. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Property Trustee under the Trust Indenture Act, if any), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between an Indemnified Person and any Covered Person; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Trust Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by this Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall -36- have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. SECTION 10.4 INDEMNIFICATION. (a) To the fullest extent permitted by applicable law, the Sponsor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage, liability, tax, penalty, expense or claim of any kind or nature whatsoever incurred by such Indemnified Person by reason of the creation, operation or termination of the Trust or any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Declaration, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of gross negligence (or, in the case of the Property Trustee, negligence) or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Sponsor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 10.4(a). The indemnification shall survive the termination of this Declaration or the earlier removal or resignation of any of the Trustees or the Property Trustee. SECTION 10.5 OUTSIDE BUSINESSES. Any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Trust Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be obligated to present any particular investment or other opportunity to the Trust -37- even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the Property Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Property Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor or its Affiliates. ARTICLE XI ---------- ACCOUNTING ---------- SECTION 11.1 FISCAL YEAR. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. SECTION 11.2 CERTAIN ACCOUNTING MATTERS. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books of account, records and supporting documents, which shall reflect in reasonable detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting, in accordance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be prepared and delivered to each of the Holders of Trust Securities, within 90 days after the end of each Fiscal Year of the Trust, annual financial statements of the Trust, including a balance sheet of the Trust as of the end of such Fiscal Year, and the related statements of income or loss. (c) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Trust Securities any United States federal income tax information statement required by the Code, containing such information with regard to the Trust Securities held by each Holder as is required by the Code and the Treasury Regulations, and any comparable statements required to be provided under the law of any other taxing jurisdiction. Notwithstanding any right under the Code or other law to deliver any such statement at a later date, the Regular Trustees shall -38- endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (d) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority an annual United States federal income tax return Form 1041 (or any successor form) or such other form required by United States federal income tax law, and any other tax returns or reports required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. SECTION 11.3 BANKING. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Subordinated Debentures held by the Property Trustee shall be made directly to the Property Trustee Account and no other funds of the Trust shall be deposited in the Property Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Property Trustee shall designate the sole signatories for the Property Trustee Account. SECTION 11.4 WITHHOLDING. The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made to any Holder, the Trust may reduce subsequent Distributions to such Holder by the amount of such withholding. -39- ARTICLE XII ----------- AMENDMENTS AND MEETINGS ----------------------- SECTION 12.1 AMENDMENTS. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Trust Securities, this Declaration may only be amended by a written instrument approved and executed by the Regular Trustees (or, if there are more than two Regular Trustees a majority of the Regular Trustees); provided, however, that: (i) in the case of any proposed amendment, the Property t Trustee shall have first received an Officer's Certificate from each of the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (ii) in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Property Trustee, the Property Trustee shall have first received: (A) an Officer's Certificate from each of the Regular Trustees on behalf of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Trust Securities); (iii) no amendment shall be made, and any such purported amendment shall be void and ineffective, to the extent the result of such amendment would be to: (A) cause the Trust to fail to continue to be classified for purposes of United States federal income taxation as a grantor trust and each Holder of the Trust Securities not to be treated as owning an undivided beneficial interest in the Subordinated Debentures, as evidenced by an Opinion of Counsel to the effect that such amendment shall not result in the foregoing; -40- (B) reduce or otherwise adversely affect the powers of the Property Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act; (iv) at such time after the Trust has issued any Trust Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of the Trust Securities may be effected only with such additional requirements as may be set forth in the terms of such Trust Securities; (v) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Trust Securities; (vi) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities; and (vii) the rights of the holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (b) Notwithstanding Section 12.1(a)(iii), this Declaration may be amended without the consent of the Holders of the Trust Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this Declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; and (iv) conform to any change in Rule 3a-5 or other exemption from the requirement to register as an Investment Company under the Investment Company Act or written change in the interpretation or application thereof by any legislative body, court, government agency or regulatory authority which amendment does not have a material adverse effect on the rights, preferences or privileges of the Holders. (c) Notwithstanding any other provision of this Declaration, neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Declaration which affects its own rights, duties or immunities under this Declaration: -41- SECTION 12.2 MEETINGS OF THE HOLDERS OF TRUST SECURITIES; ACTION BY WRITTEN CONSENT. (a) Meetings of the Holders of any class of Trust Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Trust Securities) to consider and act on any matter on which Holders of such class of Trust Securities are entitled to act under the terms of this Declaration or the terms of the Trust Securities. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Trust Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Trust Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Trust Securities calling a meeting shall specify in writing the Certificates held by the Holders of Trust Securities exercising the right to call a meeting and only those Trust Securities specified shall be counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Trust Securities, the following provisions shall apply to meetings of Holders of Trust Securities: (i) notice of any such meeting shall be given to all the Holders of Trust Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Trust Securities is permitted or required under this Declaration such vote, consent or approval may be given at a meeting of the Holders of Trust Securities. Any action that may be taken at a meeting of the Holders of Trust Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Trust Securities owning not less than the minimum amount of Trust Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Trust Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Trust Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to a Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Trust Security may authorize any Person to act for it by proxy on all matters in which a Holder of Trust Securities is entitled to participate, including waiving notice of any meeting, or voting or -42- participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Trust Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Trust Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Trust Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless the Business Trust Act, this Declaration, the terms of the Trust Securities, or the Trust Indenture Act otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Trust Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Trust Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. ARTICLE XIII ------------ REPRESENTATIONS AND WARRANTIES OF --------------------------------- PROPERTY TRUSTEE AND DELAWARE TRUSTEE ------------------------------------- SECTION 13.1 REPRESENTATIONS AND WARRANTIES OF PROPERTY TRUSTEE. The Property Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Property Trustee represents and warrants to the Trust and the Sponsor at the time of its acceptance of its appointment as Property Trustee that: (a) The Property Trustee is a banking corporation with trust powers, duly organized, validly existing and in good standing under the laws of the State of New York, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, this Declaration and with its principal place of business in New York, New York. -43- (b) The execution, delivery and performance by the Property Trustee of this Declaration have been duly authorized by all necessary corporate action on the part of the Property Trustee. This Declaration has been duly executed and delivered by the Property Trustee, and, assuming due authorization, execution and delivery hereof by the other parties hereto, it constitutes a legal, valid and binding obligation of the Property Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration by the Property Trustee do not conflict with or constitute a breach of the charter or by-laws of the Property Trustee. (d) The Property Trustee, pursuant to this Declaration, shall hold legal title and a valid ownership interest in the Subordinated Debentures in accordance with the provisions hereof. SECTION 13.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE. The Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each successor Delaware Trustee represents and warrants to the Trust and to the Sponsor at the time of its acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is either a natural person who is at least 21 years of age and a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware. (b) The execution, delivery and performance by the Delaware Trustee of this Declaration and the Certificate of Trust have been duly authorized by all necessary corporate action on the part of the Delaware Trustee. This Declaration has been duly executed and delivered by the Delaware Trustee and, under Delaware law assuming due authorization, execution and delivery hereof by the other parties hereto, constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (whether considered in a proceeding in equity or at law). (c) The execution, delivery and performance of this Declaration and the Certificate of Trust by the Delaware Trustee do not conflict with or constitute a breach of the charter or by-laws of the Delaware Trustee. -44- ARTICLE XIV ----------- MISCELLANEOUS ------------- SECTION 14.1 NOTICES. All notices, instructions, requests and demands provided for in this Declaration shall be in writing, duly signed by the party giving same, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Trust Securities): MidAmerican Capital Trust I c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 (b) if given to the Property Trustee, at the mailing address set forth below (or such other address as the Property Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trust Trustee Administration Telecopy number: (212) 815-5915 (c) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as the Delaware Trustee may give notice of to the Holders of the Trust Securities): The Bank of New York (Delaware) 23 White Clay Center Route 273 Newark, Delaware 19711 Attention: Corporate Trust Department (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): -45- MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Attention: General Counsel (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 14.2 GOVERNING LAW. THIS DECLARATION AND THE RIGHTS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION THAT WOULD CALL FOR THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF DELAWARE; PROVIDE HOWEVER, THAT THERE SHALL NOT BE APPLICABLE TO THE PARTIES HEREUNDER OR THIS DECLARATION ANY PROVISION OF THE LAWS (STATUTORY OR COMMON) OF THE STATE OF DELAWARE PERTAINING TO TRUSTS THAT RELATE TO OR REGULATE, IN A MANNER INCONSISTENT WITH THE TERMS HEREOF (A) THE FILING WITH ANY COURT OR GOVERNMENTAL BODY OR AGENCY OF TRUSTEE ACCOUNTS OR SCHEDULES OF TRUSTEE FEES AND CHARGES, (B) AFFIRMATIVE REQUIREMENTS TO POST BONDS FOR TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF THE TRUST, (C) THE NECESSITY FOR OBTAINING COURT OR OTHER GOVERNMENTAL APPROVAL CONCERNING THE ACQUISITION, HOLDING OR DISPOSITION OF REAL OR PERSONAL PROPERTY, (D) FEES OR OTHER SUMS PAYABLE TO TRUSTEES, OFFICERS, AGENTS OR EMPLOYEES OF A TRUST, (E) THE ALLOCATION OF RECEIPTS AND EXPENDITURES TO INCOME OR PRINCIPAL, (F) RESTRICTIONS OR LIMITATIONS ON THE PERMISSIBLE NATURE, AMOUNT OR CONCENTRATION OF TRUST INVESTMENTS OR REQUIREMENTS RELATING TO TITLING, STORAGE OR OTHER MANNER OF HOLDING OR INVESTING TRUST ASSETS OR (G) THE ESTABLISHMENT OF FIDUCIARY OR OTHER STANDARDS OF RESPONSIBILITY OR LIMITATIONS ON THE -46- ACTS OR POWERS OF TRUSTEES THAT ARE INCONSISTENT WITH THE LIMITATIONS OR LIABILITIES OR AUTHORITIES AND POWERS OF THE TRUSTEES HEREUNDER AS SET FORTH OR REFERENCED IN THIS DECLARATION. SECTION 3540 OF TITLE 12 OF THE DELAWARE CODE SHALL NOT APPLY TO THE TRUST. SECTION 14.3 INTENTION OF THE PARTIES. It is the intention of the parties hereto that the Trust not be characterized for United States federal income tax purposes as an association taxable as a corporation or a partnership but rather that the Trust be characterized as a grantor trust or otherwise in a manner such that each Holder of Trust Securities will be treated as owning an undivided beneficial interest in the Subordinated Debentures. The provisions of this Declaration shall be interpreted to further this intention of the parties. SECTION 14.4 HEADINGS. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. SECTION 14.5 SUCCESSORS AND ASSIGNS. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. SECTION 14.6 PARTIAL ENFORCEABILITY. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. SECTION 14.7 COUNTERPARTS. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees and the Property Trustee to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and -47- they shall have the same force and effect as though all of the signers had signed a single signature page. -48- IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. GREGORY E. ABEL, as Regular Trustee /s/ Gregory E. Abel ---------------------------- DAVID L. SOKOL, as Regular Trustee /s/ David L. Sokol ---------------------------- THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: /s/ William T. Lewis ------------------------ Name: William T. Lewis Title: SVP MIDAMERICAN ENERGY HOLDINGS COMPANY, as Sponsor By: /s/ Steven A. McArthur ------------------------ Name: Steven A. McArthur Title: Senior Vice President and Secretary THE BANK OF NEW YORK, as Property Trustee By: /s/ Robert A. Massimillo ------------------------ Name: Robert A. Massimillo Title: Assistant Vice President EXHIBIT A TERMS OF 11% TRUST ISSUED PREFERRED SECURITIES ------------------------------------- 11% TRUST ISSUED COMMON SECURITIES ---------------------------------- Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust, dated as of March __, 2000 (as amended from time to time, the "DECLARATION"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration). The Trust may issue one or more series of Preferred Securities and one or more series of Common Securities, provided, however, that the original principal amount of each series (other than the final series) of Preferred Securities must be at least $50,000,000. 1. DESIGNATION AND NUMBER. ----------------------- (a) PREFERRED SECURITIES. Up to 32,000,000 Preferred Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Eight Hundred Million Dollars ($800,000,000) and a liquidation amount with respect to the assets of the Trust of $25 per Preferred Security, are hereby designated for the purposes of identification only as "11% Trust Issued Preferred Securities" (the "PREFERRED Securities"). The Certificates evidencing the Preferred Securities shall be substantially in the form attached hereto as Annex I, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. (b) COMMON SECURITIES. Up to 989,691 Common Securities of the Trust, in one or more series, with an aggregate liquidation amount with respect to the assets of the Trust of up to Twenty-Four Million Seven Hundred Forty Two Thousand Two Hundred Seventy Five Dollars ($24,742,275) and a liquidation amount with respect to the assets of the Trust of $25 per Common Security, are hereby designated for the purposes of identification only as "11% Trust Issued Common Securities" (the "Common Securities"). The Certificates evidencing the Common Securities shall be substantially in the form attached hereto as Annex II, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. DISTRIBUTIONS. -------------- (a) Distributions payable on each Trust Security will be fixed at a rate per annum of 11% (the "COUPON RATE") of the stated liquidation amount of $25 per Trust Security, such rate being the rate of interest payable on the Subordinated Debentures to be held by the Property Trustee. Distributions in arrears for more than one semi-annual period will bear interest thereon compounded semi-annually at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Subordinated Debentures held by the Property Trustee. The amount of Distributions payable for any period will be computed for any full semi-annual Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full semi-annual Distribution period for which Distributions are computed, Distributions will be computed on the basis of the actual number of days elapsed per 30-day month. (b) Distributions on each series of Trust Securities will be cumulative, will accumulate from the date of original issuance of the Trust Securities of such series (the "Series Issue Date"), and will be payable semi-annually in arrears, on June 15 and December 15 of each year, commencing on the first such date following the Series Issue Date, except as otherwise described below. The Sponsor has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time and for varying lengths of time on the Subordinated Debentures for a period not exceeding 10 consecutive semi-annual periods (each, an "Extension Period") and during such Extension Period, Distributions will also be deferred. Despite such deferral, semi-annual Distributions will continue to accumulate with interest thereon (to the extent permitted by applicable law) at an annual rate of thirteen percent (13%) per annum compounded semi-annually during any such Extension Period. Prior to the termination of any such Extension Period, the Sponsor may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 10 consecutive semi-annual periods. Payments of accumulated Distributions will be payable to Holders as they appear on the books and records of the Trust on the first record date after the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Sponsor may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Trust Securities will be payable to the Holders thereof as they appear on the books and records of the Trust on the relevant record dates. Distributions payable on any Trust Securities that are not punctually paid on any Distribution payment date, as a result of the Sponsor having failed to make a payment under the Subordinated Debentures, will cease to be payable to the Person -2- in whose name such Trust Securities are registered on the relevant record date, and such Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Trust Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (d) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata (as defined herein) among the Holders of the Trust Securities. 3. LIQUIDATION DISTRIBUTION UPON DISSOLUTION. ------------------------------------------ In the event of any voluntary or involuntary dissolution of the Trust, the Holders of the Trust Securities on the date of the dissolution will be entitled to receive out of the assets of the Trust available for distribution to Holders of Trust Securities after satisfaction of liabilities to creditors of the Trust, if any (including, without limitation, by paying or making reasonable provisions to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act), an amount equal to the aggregate of the stated liquidation amount of $25 per Trust Security plus accumulated and unpaid Distributions thereon (including interest thereon) to the date of payment (such amount being the "LIQUIDATION DISTRIBUTION"), unless, in connection with such dissolution, after satisfaction of liabilities to creditors of the Trust (including, without limitation, by paying or making reasonable provision to pay all claims and obligations of the Trust in accordance with Section 3808(e) of the Business Trust Act) Subordinated Debentures in an aggregate principal amount equal to the aggregate stated liquidation amount of such Trust Securities and of like tenor shall be distributed on a Pro Rata basis to the Holders of the Trust Securities in exchange for such Trust Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Trust Securities shall be paid on a Pro Rata basis. The holders of the Common Securities will be entitled to receive distributions upon any such dissolution Pro Rata with the holders of the Preferred Securities, except that if an Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities with regard to such distributions. -3- On and from the date fixed by the Regular Trustees for any distribution of Subordinated Debentures: (i) the Trust Securities will no longer be deemed to be outstanding, (ii) the Depositary, as the Holder of the Preferred Securities, will receive a registered global certificate representing the Subordinated Debentures to be delivered upon such distribution, and (iii) any certificates representing Trust Securities not held by the Depositary or its nominee (or any successor depositary or its nominee), will be deemed to represent beneficial interests in the Subordinated Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accumulated and unpaid Distributions on, such Trust Securities until such certificates are presented to the Sponsor or its agent for transfer or reissue. 4. REDEMPTION; REDEMPTION/DISTRIBUTION PROCEDURES. ---------------------------------------------- (a) Upon the repayment of a series of Subordinated Debentures (a "Debenture Series"), whether at the Maturity Date or upon redemption thereof, in whole or in part, the proceeds from such repayment or redemption shall be simultaneously applied to redeem the series of Trust Securities used to purchase such Debenture Series, having an aggregate liquidation amount equal to the aggregate principal amount of the Subordinated Debentures so repaid or redeemed at a redemption price of $25 per Trust Security plus an amount equal to accumulated and unpaid Distributions thereon at the date of the redemption, payable in cash (the "Redemption Price"). Applicable Holders will be given not less than 30 nor more than 60 days notice of such redemption. (b) If fewer than all the outstanding Trust Securities in a series are to be so redeemed, the applicable Preferred Securities and the applicable Common Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be as described in Section 4(d)(ii) below. (c) The Trust may not redeem fewer than all the outstanding Trust Securities unless all accumulated and unpaid Distributions have been paid on all Trust Securities for all semi-annual Distribution periods terminating on or before the date of redemption. (d) (i) Notice of any redemption of a series of Trust Securities, or notice of distribution of Subordinated Debentures in exchange for the Trust Securities (a "REDEMPTION/DISTRIBUTION NOTICE"), will be given by the Regular Trustees on behalf of the Trust by mail to each Holder of Trust Securities to be redeemed or exchanged not fewer than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Subordinated Debentures. For purposes of the calculation of the date of -4- redemption or exchange and the dates on which notices are given pursuant to this Section 4(d)(i), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, to Holders of Trust Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Trust Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (ii) In the event that fewer than all the outstanding Trust Securities are to be redeemed, the Trust Securities to be redeemed shall be redeemed Pro Rata. (iii) If Trust Securities are to be redeemed and the Regular Trustees on behalf of the Trust give a Redemption/Distribution Notice, which notice may only be issued if the Subordinated Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then with respect to Preferred Securities and Common Securities, provided that the Sponsor has paid the Property Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Subordinated Debentures, then the Property Trustee will pay the relevant Redemption Price to the Holders of such Trust Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date upon surrender of their Certificates evidencing such Preferred Securities and such Common Securities. If a Redemption/Distribution Notice shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, or on the redemption date, as applicable, Distributions will cease to accumulate on the Trust Securities so called for redemption and all rights of Holders of such Trust Securities so called for redemption will cease, except the right of the Holders of such Trust Securities to receive the Redemption Price, but without interest on such Redemption Price. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Trust Securities that have been so called for redemption. If any date fixed for redemption of Trust Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. If -5- payment of the Redemption Price in respect of any Trust Securities is improperly withheld or refused and not paid either by the Property Trustee or by the Sponsor as guarantor pursuant to the Preferred Securities Guarantee or the Common Securities Guarantee, as the case may be, Distributions on such Trust Securities will continue to accumulate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purpose of calculating the Redemption Price. (iv) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to the Holder. (v) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), provided the acquirer is not the Holder of the Common Securities or the obligor under the Indenture, the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. 5. VOTING RIGHTS - PREFERRED SECURITIES. ------------------------------------ (a) Except as provided under Sections 5(b) and 6 and as otherwise required by law, the Preferred Securities Guarantee and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) Subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Preferred Securities, voting as a class may direct the time, method, and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred on the Indenture Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 413 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent under the Indenture would require the consent or act of all of the holders of Subordinated Debentures affected thereby, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Preferred Securities. The Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the -6- Property Trustee shall not take any action in accordance with the directions of the Holders of the Preferred Securities under this paragraph unless the Property Trustee has obtained an opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration or the Subordinated Debentures, any Holder of Preferred Securities may institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration or the Subordinated Debentures without first instituting a legal proceeding against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Preferred Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Preferred Securities in connection with such direct action. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which the written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem and cancel Preferred Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. -7- 6. VOTING RIGHTS - COMMON SECURITIES. ---------------------------------- (a) Except as provided under Sections 6(b) and 6(c), and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration, only after an Event of Default with respect to the Preferred Securities has been cured, waived or otherwise eliminated and subject to the requirements set forth in this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or the exercise of any trust or power conferred upon the Property Trustee under the Declaration, including (i) directing the time, method, place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waiving any past default and its consequences that is waivable under Section 413 of the Indenture, or (iii) exercising any right to rescind or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require the consent or act of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent or take such action at the direction of all of the Holders of the Common Securities. Pursuant to this Section 6(c), the Property Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Common Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Property Trustee or the Indenture Trustee as set forth above, the Property Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Property Trustee has obtained, at the expense of the Holders of the Common Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not fail to be classified as a grantor trust on account of such action. If the Property Trustee fails to enforce its rights under the Declaration and the Subordinated Debentures, any Holder of Common Securities may after written request to the Property Trustee to enforce such rights, institute a legal proceeding directly against any Person to enforce the Property Trustee's rights under the Declaration and the Subordinated Debentures, without first instituting a legal proceeding against the Property Trustee or any other person. Notwithstanding the foregoing, if an Event of Default has occurred and is -8- continuing and such event is attributable to the failure of the Sponsor to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Common Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Subordinated Debentures having a principal amount equal to the aggregate liquidation amount of the Common Securities of such holder on or after the respective due dates specified in the Subordinated Debentures. In connection with such direct action, the Sponsor will be subrogated to the rights of such Holder of Common Securities under the Declaration to the extent of any payment made by the Sponsor to such Holder of Common Securities in connection with such direct action. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Trust Securities in the Trust or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of record of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute the Subordinated Debentures in accordance with the Declaration and the terms of the Trust Securities. 7. AMENDMENTS TO DECLARATION AND INDENTURE. ---------------------------------------- (a) If any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect (i) any action that would adversely affect the powers, preferences or special rights of the Trust Securities, whether by way of amendment to the Declaration or otherwise, or (ii) the involuntary or voluntary liquidation, dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Trust Securities as a class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least 66-2/3% in liquidation amount of the Trust Securities, voting together as a single class; provided that a reduction of the aggregate liquidation amount or the Distribution rate, a change in the payment dates or maturities of the Preferred Securities or a reduction in the percentage in liquidation amount of outstanding Preferred Securities, the consent of the Holders of which is required for an amendment to the -9- Declaration shall not be permitted without the consent of each Holder of the Preferred Securities. In the event any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of 66-2/3% in liquidation amount of such class of Trust Securities. (b) In the event the consent of the Property Trustee, as the holder of the Subordinated Debentures, the Preferred Securities Guarantee and the Common Securities Guarantee is required under the Indenture with respect to any amendment, modification, waiver or termination of the Indenture, the Subordinated Debentures, the Preferred Securities Guarantee or the Common Securities Guarantee, the Property Trustee shall request the direction of the Holders of the Trust Securities with respect to such amendment, modification, waiver or termination and shall vote with respect to such amendment, modification, waiver or termination as directed by a Majority in liquidation amount of the Trust Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of all of the holders of the Subordinated Debentures, the Property Trustee may only give such consent at the direction of all of the Holders of the Trust Securities; provided, further, that the Property Trustee shall not take any action in accordance with the directions of the Holders of the Trust Securities under this Section 6(b) unless the Property Trustee has obtained, at the expense of the Holders of the Trust Securities, a written opinion of a nationally recognized independent tax counsel experienced in such matters to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 8. PRO RATA. --------- A reference to any payment, distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of applicable Trust Securities according to the aggregate liquidation amount of such Trust Securities held by the relevant Holder in relation to the aggregate liquidation amount of all applicable Trust Securities outstanding unless, in relation to a payment, an Event of Default under the Indenture has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the applicable Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Preferred Securities outstanding, and only after satisfaction of all amounts owed to the applicable Holders of the Preferred Securities, to each applicable Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by the relevant Holder relative to the aggregate liquidation amount of all applicable Common Securities outstanding. -10- 9. RANKING. -------- The Preferred Securities rank pari passu and payment thereon shall be made Pro Rata with the Common Securities except that, where an Event of Default occurs and is continuing under the Indenture in respect of the Subordinated Debentures held by the Property Trustee, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights to payment of the Holders of the Preferred Securities. 10. ACCEPTANCE OF TRUST SECURITIES GUARANTEE AND INDENTURE. ------------------------------------------------------- Each Holder of Preferred Securities and Common Securities, by the acceptance thereof, agrees to the provisions of the Preferred Securities Guarantee and the Common Securities Guarantee, respectively, including the subordination provisions therein and to the provisions of the Indenture. 11. NO PREEMPTIVE RIGHTS. --------------------- The Holders of the Trust Securities shall have no preemptive rights to subscribe for any additional securities. 12. MISCELLANEOUS. -------------- These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee or and the Common Securities Guarantee (as may be appropriate), and the Indenture to a Holder without charge on written request to the Trust at its principal place of business. -11- ANNEX I Certificate Evidencing Preferred Securities of MIDAMERICAN CAPITAL TRUST I Series ____ Preferred Securities (liquidation amount $25 per Preferred Security) MIDAMERICAN CAPITAL TRUST I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that _____________________ (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Issued Preferred Securities Series ____ (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of March __, 2000, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Preferred Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. The Preferred Securities are transferable only to Permitted Holders (as such term is defined in the Declaration). By acceptance, the Holder agrees to treat for United States federal income tax purposes, the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. -12- IN WITNESS WHEREOF, the Trust has executed this certificate this _____ day of March, 2000. Gregory E. Abel, as Trustee - ------------------------------------------ David L. Sokol, as Trustee - ------------------------------------------ -13- ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ---------------------------------------- Signature: ----------------------------------- (Sign exactly as your name appears on the other side of this Preferred Security Certificate) -14- ANNEX II Certificate Number Number of Common Securities Certificate Evidencing Common Securities of MIDAMERICAN CAPITAL TRUST I Series ___ Common Securities (liquidation amount $25 per Common Security) MIDAMERICAN CAPITAL TRUST I, a statutory business trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that ___________________ (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the 11% Trust Common Securities, Series ___ (liquidation amount $25 per Common Security) (the "Common Securities"). Subject to the limitations set forth in Article 9 of the Declaration, the Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of March __, 2000, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Exhibit A to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Common Securities Guarantee to the extent provided therein. The Trust will provide a copy of the Declaration, the Common Securities Guarantee and the Indenture to the Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Sponsor is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat for United States federal income tax purposes the Subordinated Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Subordinated Debentures. -15- IN WITNESS WHEREOF, the Trust has executed this certificate this __________ day of ________, ______. Gregory E. Abel, as Trustee - ------------------------------------------ David L. Sokol, as Trustee - ------------------------------------------ -16- ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert assignee's social security or tax identification number) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: -------------------------------------- Signature: --------------------------------- (Sign exactly as your name appears on the other side of this Common Security Certificate) -17- EXHIBIT B PREFERRED SECURITIES GUARANTEE AGREEMENT MIDAMERICAN CAPITAL TRUST I DATED AS OF MARCH ___, 2000 PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of March __, 2000, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), and The Bank of New York, a New York corporation, as trustee (the "PREFERRED GUARANTEE TRUSTEE"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of MidAmerican Capital Trust I, a Delaware statutory business trust (the "TRUST"). RECITALS WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of March __, 2000, among the trustees of the Trust named therein, the Guarantor as sponsor and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust will be issuing from time to time up to $800,000,000 aggregate stated liquidation amount of Preferred Securities designated the 11% Trust Issued Preferred Securities (the "PREFERRED SECURITIES"); and WHEREAS, as incentive for the Holders (as hereinafter defined) to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "COMMON SECURITIES GUARANTEE AGREEMENT") with substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Common Securities (as defined herein) except that if an Event of Default (as defined in the Indenture (as defined herein)), has occurred and is continuing, the rights of holders of the Common Securities to receive Guarantee Payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Guarantee Agreement. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. -2- ARTICLE I --------- DEFINITIONS AND INTERPRETATION ------------------------------ SECTION 1.01 DEFINITIONS AND INTERPRETATION. - ------------ In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.01; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHORIZED OFFICER" of a Person means any Person that is authorized to bind such Person and, with respect to the Guarantor, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Treasurer, any assistant Treasurer or any other Officer, or agent of the Guarantor duly authorized by the board of directors of the Guarantor to act in such matters relating to the Declaration. "COVERED PERSON" means any Holder or beneficial owner of Preferred Securities. "DIRECTION" by a Person means a written direction signed: (a) if the Person is a natural person by that Person; or (b) in any other case, in the name of such Person by one or more Authorized Officers of that Person. -3- "EVENT OF DEFAULT" means a default by the Guarantor on any of its payment or other material obligations under this Guarantee Agreement. "GUARANTEE PAYMENTS" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE"), to the extent the Trust shall have funds available therefor with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution of the Trust (other than in connection with the distribution of Subordinated Debentures to the Holders or the redemption of all the Preferred Securities upon the redemption or Maturity Date (as defined in the Indenture) of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Preferred Securities to the date of payment to the extent the Trust shall have funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" means any holder, as registered on the books and records of the Trust of any Preferred Securities; provided, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "INDEMNIFIED PERSON" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives or agents of the Preferred Guarantee Trustee. "INDENTURE" means the Indenture dated as of March __, 2000, among the Guarantor and The Bank of New York, as trustee, as modified, amended or supplemented from time to time. "MAJORITY IN LIQUIDATION AMOUNT OF THE TRUST SECURITIES" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Preferred Securities, voting separately as a class, of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all Preferred Securities. -4- "OFFICER'S CERTIFICATE" means, with respect to any Person, a certificate signed by an Authorized Officer of such Person. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that such officer signing the Officer's Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "OPINION OF COUNSEL" or "OPINION OF COUNSEL" means a written opinion of counsel for the Preferred Guarantee Trustee or the Guarantor, who may be an employee of or counsel to the Preferred Guaranty Trustee or the Guarantor, and who shall be reasonably acceptable to the Preferred Guarantee Trustee. "PERSON" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "PREFERRED GUARANTEE TRUSTEE" means The Bank of New York, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement, and thereafter means each such Successor Preferred Guarantee Trustee. "RESPONSIBLE OFFICER" means, when used with respect to the Preferred Guarantee Trustee, any vice-president, any assistant vice-president, the secretary, any assistant secretary, the treasurer, any assistant treasurer or any other officer in the Corporate Trust Office customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for administration of this Guarantee Agreement and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "SUBORDINATED DEBENTURES" means up to $800,000,000 aggregate principal amount of the Guarantor's 11% Junior Subordinated Deferrable Interest Debentures held by the Property Trustee of the Trust. -5- "SUCCESSOR PREFERRED GUARANTEE TRUSTEE" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.01. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means collectively the Common Securities and the Preferred Securities. ARTICLE II ---------- TRUST INDENTURE ACT ------------------- SECTION 2.01 TRUST INDENTURE ACT; APPLICATION. - ------------ (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act, if any, that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions; and (b) If and to the extent that any provision of this Guarantee Agreement limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such duties imposed by the Trust Indenture Act shall control. SECTION 2.02 LISTS OF HOLDERS OF TRUST SECURITIES. - ------------ (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("LIST OF HOLDERS") as of such date, (i) within 14 days after each record date for payment of distributions, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee provided that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. -6- SECTION 2.03 REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. - ------------ Within 60 days after December 31 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.04 PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. - ------------ The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.05 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. - ------------ The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314 (c) of the Trust Indenture Act. Any certificate or opinion required to be given by officers of the Guarantor pursuant to Section 314(c)(1) shall be given in the form of an Officer's Certificate. SECTION 2.06 EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.07 EVENT OF DEFAULT; NOTICE. - ------------ (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default known to the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, the -7- Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors and/or Responsible Officers of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless a Responsible Officer of the Preferred Guarantee Trustee shall have received written notice as provided in Section 9.03, or a Responsible Officer shall have obtained actual notice, of such Event of Default. SECTION 2.08 CONFLICTING INTERESTS. - ------------ The Declaration shall be deemed to be specifically described in this Guarantee Agreement for the purposes of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III ----------- POWER, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE ------------------------------------------------------- SECTION 3.01 POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE. - ------------ (a) This Guarantee Agreement shall be held by the Preferred Guarantee Trustee for the benefit of the Holders, and the Preferred Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.05(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee -8- Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.06), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee Agreement shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and no implied covenants or obligations shall be read into this Guarantee Agreement against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with -9- the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.02 CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. - ------------ (a) Subject to the provisions of Section 3.01: (i) The Preferred Guarantee Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by a Direction or an Officer's Certificate. (iii) Whenever, in the administration of this Guarantee Agreement, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any re-recording, refiling or registration thereof). -10- (v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. (vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity acceptable to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.02(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vii) The Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion may make such further inquiry or investigation into such facts or matters as it may see fit. (viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee -11- Agreement, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Guarantee Agreement the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.03 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. - ------------ The recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Guarantee Agreement. ARTICLE IV ---------- PREFERRED GUARANTEE TRUSTEE --------------------------- SECTION 4.01 PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. - ------------ (a) There shall at all times be a Preferred Guarantee Trustee that shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the -12- Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.01(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.01(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.02 (c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.02 APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE - ------------ TRUSTEES. (a) Subject to Section 4.02(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.02(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the Preferred Guarantee Trustee being removed. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. -13- (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.02 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee at the expense of the Guarantor. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. ARTICLE V --------- GUARANTEE --------- SECTION 5.01 GUARANTEE. - ------------ The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.02 SUBORDINATION. - ------------ If an event of default under the Indenture has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee Agreement are subordinated to the rights of Holders to receive Guarantee Payments. SECTION 5.03 WAIVER OF NOTICE AND DEMAND. - ------------ The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.04 OBLIGATIONS NOT AFFECTED. - ------------ The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: -14- (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sums payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.04 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. -15- SECTION 5.05 RIGHTS OF HOLDERS. - ------------ (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Guarantee Agreement or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Guarantee Agreement. (b) Notwithstanding anything contained herein, any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.06 GUARANTEE OF PAYMENT. - ------------ This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 5.07 SUBROGATION. - ------------ The Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however , that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.08 INDEPENDENT OBLIGATIONS. - ------------ The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.04 hereof. -16- ARTICLE VI ---------- LIMITATION OF TRANSACTIONS; SUBORDINATION ----------------------------------------- SECTION 6.01 LIMITATION OF TRANSACTIONS. - ------------ So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default or an event of default under the Declaration, then the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Company (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Company and (b) payments under this Guarantee Agreement. SECTION 6.02 RANKING. - ------------ This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than the Common Securities Guarantee Agreement or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII ----------- TERMINATION ----------- SECTION 7.01 TERMINATION. - ------------ This Guarantee Agreement shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) the distribution of the Subordinated Debentures to the Holders of all Preferred Securities or (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. Notwithstanding anything contained herein to the contrary, the obligations of the Guarantor set forth in Article VIII hereof shall survive termination of this Guarantee Agreement or the earlier resignation or removal of the Preferred Guarantee Trustee. -17- ARTICLE VIII ------------ INDEMNIFICATION --------------- SECTION 8.01 EXCULPATION. - ------------ (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Guarantee Agreement or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.02 INDEMNIFICATION. - ------------ (a) To the fullest extent permitted by applicable law, the Guarantor shall indemnify and hold harmless each Indemnified Person from and against any loss, damage or claim incurred by such Indemnified Person in connection with this Guarantee Agreement including without limitation by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Guarantee Agreement and in a manner such Indemnified Person reasonably believed to be within the scope of authority conferred on such Indemnified Person by this Guarantee Agreement, except that no Indemnified Person shall be entitled to be indemnified in respect of any loss, damage or claim incurred by such Indemnified Person by reason of negligence or willful misconduct with respect to such acts or omissions. (b) To the fullest extent permitted by applicable law, expenses (including legal fees) incurred by an Indemnified Person in defending any claim, demand, action, -18- suit or proceeding shall, from time to time, be advanced by the Guarantor prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Guarantor of any undertaking by or on behalf of the Indemnified Person to repay such amount if it shall be determined that the Indemnified Person is not entitled to be indemnified as authorized in Section 8.02(a). ARTICLE IX ---------- MISCELLANEOUS ------------- SECTION 9.01 SUCCESSORS AND ASSIGNS. - ------------ All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.02 AMENDMENTS. - ------------ Except with respect to any changes that do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all the outstanding Preferred Securities (as defined in the Declaration). The provisions of Section 12.2 of the Declaration with respect to meetings or actions by written consent of Holders of the Trust Securities apply to the giving of such approval. The Preferred Guarantee Trustee may, but shall have no obligation to, execute and deliver any amendment to this Guarantee Agreement which affects the Preferred Guarantee Trustee's rights, duties or immunities hereunder or otherwise. SECTION 9.03 NOTICES. - ------------ All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): -19- The Bank of New York 101 Barclay Street, Floor 21 West New York, New York 10286 Attention: Corporate Trustee Department Telecopy Number: (212) 815-5915 (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Attention: General Counsel (c) If given to any Holder of Preferred Securities, at the address set forth in the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.04 BENEFIT. - ------------ This Guarantee Agreement is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.01(a), is not separately transferable from the Preferred Securities. SECTION 9.05 GOVERNING LAW. - ------------ THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. -20- IN WITNESS WHEREOF, the parties hereto have caused this Guarantee Agreement to be executed by their respective officers thereunto duly authorized, as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ----------------------------------- Name: Title: THE BANK OF NEW YORK, as Preferred Guarantee Trustee By: ----------------------------------- Name: Title: -21- EXHIBIT C COMMON SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (this "GUARANTEE AGREEMENT"), dated as of __________, 2000, is executed and delivered by MidAmerican Energy Holdings Company, an Iowa corporation (the "GUARANTOR"), for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined in the Declaration referred to below) of MidAmerican Capital Trust I, a Delaware business trust (the "ISSUER"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "DECLARATION"), dated as of ____________, 2000, among the Trustees of the Issuer named therein, the Guarantor as sponsor and the holders from time to time of securities representing undivided beneficial interests in the assets of the Issuer, the Issuer will be issuing from time to time up to $24,742,275 aggregate stated liquidation amount of the Issuer's Common Securities designated the 11% Trust Issued Common Securities (the "COMMON SECURITIES"), representing beneficial interests in the assets of the Issuer; WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement on substantially identical terms to this Guarantee Agreement for the benefit of the holders of the Preferred Securities (the "PREFERRED SECURITIES Guarantee") except that if an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders. ARTICLE I --------- DEFINITIONS AND INTERPRETATION ------------------------------ SECTION 1.1 DEFINITIONS. ----------- In this Guarantee Agreement, unless the context otherwise requires, the terms set forth below shall have the following meanings. (a) Capitalized terms used in this Guarantee Agreement but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) Terms defined in the Declaration as at the date of execution of this Guarantee Agreement have the same meaning when used in this Guarantee Agreement unless otherwise defined in this Guarantee Agreement; (c) A term defined anywhere in this Guarantee Agreement has the same meaning throughout; (d) All references to "this Guarantee Agreement" are to this Guarantee Agreement as modified, supplemented or amended from time to time; (e) All references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement unless otherwise specified; and (f) A reference to the singular includes the plural and vice versa. "GUARANTEE PAYMENTS" shall mean the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by the Issuer: (i) any accumulated and unpaid Distributions which are required to be paid on such Common Securities to the extent the Issuer shall have funds available therefor, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "REDEMPTION PRICE") to the extent the Issuer shall have funds available therefor, with respect to any Common Securities called for redemption by the Issuer, and (iii) upon a voluntary or involuntary dissolution of the Issuer (other than in connection with the distribution of Subordinated Debentures to the Holders on the redemption of all the Common Securities upon the redemption or Maturity Date of the Subordinated Debentures), the lesser of (a) the aggregate of the liquidation amount and all accumulated and unpaid Distributions on the Common Securities to the date of payment, and (b) the -2- amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "LIQUIDATION DISTRIBUTION"). "HOLDER" shall mean any holder, as registered on the books and records of the Issuer, of any Common Securities. ARTICLE II ---------- GUARANTEE --------- SECTION 2.1 GUARANTEE. --------- The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim which the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. SECTION 2.2 WAIVER OF NOTICE AND DEMAND. ---------------------------- The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of non-payment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.3 SUBORDINATION. ------------- If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under the Preferred Securities Guarantee. SECTION 2.4 OBLIGATIONS NOT AFFECTED. ------------------------ The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: -3- (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Subordinated Debentures or any extension of the maturity date of the Subordinated Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in the Common Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. -4- SECTION 2.5 RIGHTS OF HOLDERS. ----------------- The Guarantor expressly acknowledges that any Holder of Common Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Issuer or any other Person. SECTION 2.6 GUARANTEE OF PAYMENT. -------------------- This Guarantee Agreement creates a guarantee of payment and not of collection. SECTION 2.7 SUBROGATION OF PAYMENT. ---------------------- The Guarantor shall be subrogated to all (if any) rights of the Holders of Common Securities against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 2.8 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.4 hereof. ARTICLE III ----------- LIMITATION OF TRANSACTIONS; SUBORDINATION ----------------------------------------- SECTION 3.1 LIMITATION OF TRANSACTIONS. -------------------------- So long as any Common Securities remain outstanding, if (A) the Guarantor shall be in default with respect to its Guarantee Payments or other obligations -5- hereunder, or (B) there shall have occurred any Event of Default, then the Guarantor shall not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (ii) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness of the Company (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Subordinated Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Company and (b) payments under this Guarantee Agreement). SECTION 3.2 RANKING. ------- This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor (other than any obligation in respect of the Preferred Securities Guarantee or any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor), (ii) PARI PASSU with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. If an Event of Default (as defined in the Indenture), has occurred and is continuing, the rights of Holders of the Common Securities to receive Guarantee Payments under this Guarantee Agreement are subordinated to the rights of holders of Preferred Securities to receive Guarantee Payments. ARTICLE IV ---------- TERMINATION ----------- SECTION 4.1 TERMINATION. ----------- This Guarantee Agreement shall terminate upon full payment of the Redemption Price of all Common Securities, upon the distribution of the Subordinated Debentures to the Holders of all of the Common Securities or upon full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Common Securities must restore payment of any sums paid under the Common Securities or under this Guarantee Agreement. -6- ARTICLE V --------- MISCELLANEOUS ------------- SECTION 5.1 SUCCESSORS AND ASSIGNS. ---------------------- All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. SECTION 5.2 AMENDMENTS. ----------- Except with respect to any changes which do not adversely affect the rights of Holders (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least 66-2/3% in liquidation amount of all the outstanding Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of holders of the Trust Securities apply to the giving of such approval. SECTION 5.3 NOTICES. ------- All notices provided for in this Guarantee Agreement shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) if given to the Issuer, in care of the Regular Trustees at the Issuer's mailing address set forth below (or such other address as the Issuer may give notice of to the Holders of the Common Securities): MidAmerican Capital Trust I c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Attention: General Counsel (b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Common Securities): MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Attention: General Counsel -7- (c) if given to any Holder of Common Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 5.4 BENEFICIARIES. ------------- This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Common Securities. SECTION 5.5 GOVERNING LAW. -------------- THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THIS GUARANTEE AGREEMENT is executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: - ------------------------------------ Name: Title: -8- EX-4.17 9 file008.txt INDENTURE DATED AS OF AUGUST 16, 2002 MIDAMERICAN ENERGY HOLDINGS COMPANY TO THE BANK OF NEW YORK as Trustee INDENTURE Dated as of August 16, 2002 ------------------------ 11% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES TABLE OF CONTENTS
PAGE ---- ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...............................................1 SECTION 1.01. DEFINITIONS............................................................................1 SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS...................................................8 SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.................................................9 SECTION 1.04. ACTS OF HOLDERS; RECORD DATES..........................................................9 SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY.................................................10 SECTION 1.06. NOTICE TO HOLDERS; WAIVER.............................................................11 SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT.....................................................11 SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS..............................................11 SECTION 1.09. SUCCESSORS AND ASSIGNS................................................................12 SECTION 1.10. SEPARABILITY CLAUSE...................................................................12 SECTION 1.11. BENEFITS OF INDENTURE.................................................................12 SECTION 1.12. GOVERNING LAW.........................................................................12 SECTION 1.13. LEGAL HOLIDAYS........................................................................12 ARTICLE TWO THE DEBENTURES.......................................................................................12 SECTION 2.01. FORM AND DATING.......................................................................12 SECTION 2.02. MATURITY..............................................................................13 SECTION 2.03. PAYMENT...............................................................................13 SECTION 2.04. TRANSFERABILITY.......................................................................13 SECTION 2.05. INTEREST..............................................................................13 SECTION 2.06. EXTENSION OF INTEREST PAYMENT PERIOD..................................................14 SECTION 2.07. NOTICE OF EXTENSION...................................................................15 SECTION 2.08. MANDATORY REDEMPTION..................................................................15 SECTION 2.09. INTENTIONALLY LEFT BLANK..............................................................15 SECTION 2.10. DENOMINATIONS.........................................................................15 SECTION 2.11. EXECUTION, AUTHENTICATION, DELIVERY AND DATING........................................15 SECTION 2.12. TEMPORARY DEBENTURES..................................................................16 SECTION 2.13. REGISTRATION OF TRANSFER AND EXCHANGE.................................................17 SECTION 2.14. MUTILATED, DESTROYED, LOST AND STOLEN DEBENTURES......................................18 SECTION 2.15. DEFAULTED INTEREST; INTEREST RIGHTS PRESERVED.........................................19 SECTION 2.16. PERSONS DEEMED OWNERS.................................................................20 SECTION 2.17. CANCELLATION..........................................................................20 SECTION 2.18. CUSIP NUMBERS.........................................................................20 ARTICLE THREE SATISFACTION AND DISCHARGE.........................................................................20 SECTION 3.01. SATISFACTION AND DISCHARGE OF INDENTURE...............................................20 SECTION 3.02. APPLICATION OF TRUST MONEY............................................................21 ARTICLE FOUR REMEDIES............................................................................................21 SECTION 4.01. EVENTS OF DEFAULT.....................................................................21 SECTION 4.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT....................................23 SECTION 4.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.......................24 SECTION 4.04. TRUSTEE MAY FILE PROOFS OF CLAIM......................................................24 SECTION 4.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES...........................25 SECTION 4.06. APPLICATION OF MONEY COLLECTED........................................................25 SECTION 4.07. LIMITATION ON SUITS...................................................................25 SECTION 4.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST; ACKNOWLEDGMENT REGARDING PREFERRED SECURITIES HOLDERS...............................26 SECTION 4.09. RESTORATION OF RIGHTS AND REMEDIES....................................................26 SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE........................................................26 SECTION 4.11. DELAY OR OMISSION NOT A WAIVER........................................................27 SECTION 4.12. CONTROL BY HOLDERS....................................................................27 SECTION 4.13. WAIVER OF PAST DEFAULTS...............................................................27 SECTION 4.14. UNDERTAKING FOR COSTS.................................................................28 SECTION 4.15. WAIVER OF USURY, STAY OR EXTENSION LAWS...............................................28 SECTION 4.16. THIRD PARTY BENEFICIARIES.............................................................28 ARTICLE FIVE THE TRUSTEE.........................................................................................28 SECTION 5.01. CERTAIN DUTIES AND RESPONSIBILITIES...................................................28 SECTION 5.02. NOTICE OF DEFAULTS....................................................................29 SECTION 5.03. CERTAIN RIGHTS OF TRUSTEE.............................................................29 SECTION 5.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES................................30 SECTION 5.05. MAY HOLD DEBENTURES...................................................................31 SECTION 5.06. MONEY HELD IN TRUST...................................................................31 SECTION 5.07. COMPENSATION AND REIMBURSEMENT........................................................31 SECTION 5.08. DISQUALIFICATION; CONFLICTING INTERESTS...............................................32 SECTION 5.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY...............................................32 SECTION 5.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.....................................32 SECTION 5.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR................................................34 SECTION 5.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS...........................34 - ii - SECTION 5.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.....................................34 SECTION 5.14. APPOINTMENT OF AUTHENTICATING AGENT...................................................35 ARTICLE SIX HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY....................................................36 SECTION 6.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS.............................36 SECTION 6.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS................................37 SECTION 6.03. REPORTS BY TRUSTEE....................................................................37 ARTICLE SEVEN CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE...............................................37 SECTION 7.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS..................................37 SECTION 7.02. SUCCESSOR SUBSTITUTED.................................................................38 ARTICLE EIGHT SUPPLEMENTAL INDENTURES............................................................................38 SECTION 8.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS....................................38 SECTION 8.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.......................................39 SECTION 8.03. EXECUTION OF SUPPLEMENTAL INDENTURES..................................................40 SECTION 8.04. EFFECT OF SUPPLEMENTAL INDENTURES.....................................................40 SECTION 8.05. CONFORMITY WITH TRUST INDENTURE ACT...................................................40 SECTION 8.06. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES....................................40 ARTICLE NINE COVENANTS...........................................................................................40 SECTION 9.01. PAYMENT OF PRINCIPAL AND INTEREST.....................................................40 SECTION 9.02. MAINTENANCE OF OFFICE OR AGENCY.......................................................40 SECTION 9.03. MONEY FOR DEBENTURES PAYMENTS TO BE HELD IN TRUST.....................................41 SECTION 9.04. STATEMENT BY OFFICERS AS TO DEFAULT...................................................42 SECTION 9.05. EXISTENCE.............................................................................42 SECTION 9.06. MAINTENANCE OF PROPERTIES.............................................................42 SECTION 9.07. PAYMENT OF TAXES AND OTHER CLAIMS.....................................................43 SECTION 9.08. LIMITATION ON DIVIDENDS AND REPURCHASES...............................................43 SECTION 9.09. COVENANTS AS TO THE TRUST.............................................................43 SECTION 9.10. PAYMENT OF EXPENSES...................................................................44 SECTION 9.11. INTENTIONALLY LEFT BLANK..............................................................44 SECTION 9.12. WAIVER OF CERTAIN COVENANTS...........................................................44 - iii - ARTICLE TEN REDEMPTION OF DEBENTURES.............................................................................45 SECTION 10.01. MANDATORY AND SPECIAL EVENT REDEMPTION................................................45 SECTION 10.02. ELECTION TO REDEEM: NOTICE TO TRUSTEE.................................................45 SECTION 10.03. PARTIAL REPAYMENTS PRO RATA...........................................................45 SECTION 10.04. NOTICE OF REDEMPTION..................................................................46 SECTION 10.05. DEPOSIT OF REDEMPTION PRICE...........................................................46 SECTION 10.06. DEBENTURES PAYABLE ON REDEMPTION DATE.................................................46 SECTION 10.07. DEBENTURES REDEEMED IN PART...........................................................47 ARTICLE ELEVEN SUBORDINATION.....................................................................................47 SECTION 11.01. AGREEMENT TO SUBORDINATE; RANKING OF DEBENTURES.......................................47 SECTION 11.02. DEFAULT ON SENIOR INDEBTEDNESS........................................................48 SECTION 11.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY..................................................48 SECTION 11.04. SUBROGATION...........................................................................49 SECTION 11.05. TRUSTEE TO EFFECTUATE SUBORDINATION...................................................50 SECTION 11.06. NOTICE BY THE COMPANY.................................................................50 SECTION 11.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS.................................51 SECTION 11.08. SUBORDINATION MAY NOT BE IMPAIRED.....................................................51 ARTICLE TWELVE DEFEASANCE........................................................................................52 SECTION 12.01. DEFEASANCE AND DISCHARGE..............................................................52 SECTION 12.02. CONDITIONS TO DEFEASANCE..............................................................52 SECTION 12.03. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS......................................................54 SECTION 12.04. REINSTATEMENT.........................................................................55 ARTICLE THIRTEEN MEETINGS OF HOLDERS OF DEBENTURES...............................................................55 SECTION 13.01. PURPOSE FOR WHICH MEETINGS MAY BE CALLED..............................................55 SECTION 13.02. CALL, NOTICE AND PLACE OF MEETINGS....................................................55 SECTION 13.03. PERSONS ENTITLED TO VOTE AT MEETINGS..................................................56 SECTION 13.04. QUORUM; ACTION........................................................................56 SECTION 13.05. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS...................56 SECTION 13.06. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.......................................57
- iv - INDENTURE, dated as of August 16, 2002, between MIDAMERICAN ENERGY HOLDINGS COMPANY, a corporation duly organized and existing under the laws of the State of Iowa (herein called the "COMPANY"), having its principal office at 666 Grand Avenue, Des Moines, Iowa 50309 and The Bank of New York, a New York banking corporation, as Trustee (herein called the "TRUSTEE"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its 11% Junior Subordinated Deferrable Interest Debentures to be issued in one or more series (herein called the "DEBENTURES"). The Company has entered into that certain Purchase Agreement dated as of July 28, 2002 with Dynegy, Inc., an Illinois corporation ("DYNEGY"), and certain entities affiliated with Dynegy providing for the purchase of 100% of the outstanding common stock and 100% of the outstanding Series A Preferred Stock in Northern Natural Gas Corporation, a Delaware corporation. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Debentures by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Debentures, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01. DEFINITIONS For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with United States generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) the words "ARTICLE" and "SECTION" refer to an Article and Section, respectively, of this Indenture; (5) the words "HEREIN", "HEREOF" and "HEREUNDER" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (6) a reference to the masculine includes the feminine and vice versa. "ACT" when used with respect to any Holder, has the meaning specified in Section 1.04. "ADDITIONAL INTEREST" has the meaning given such term in Section 2.05(3). "AFFILIATE" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. "AUTHENTICATING AGENT" means any Person authorized by the Trustee pursuant to Section 5.14 to act on behalf of the Trustee to authenticate the Debentures. "BOARD OF DIRECTORS" means either the board of directors of the Company or any duly authorized committee of that board. "BOARD RESOLUTION" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. "BUSINESS DAY" means any day other than Saturday, Sunday or a day on which banking institutions in New York, New York are authorized or required by law to close. "COMMISSION" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "COMMON SECURITIES" has the meaning given to such term in the Declaration. "COMPANY" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, Chief Executive Officer, President or a Vice President, Treasurer or an Assistant Treasurer or other officer or agent of the Company duly authorized by the board of directors of the Company to execute such request or order. "COMPOUNDED INTEREST" has the meaning given such term in Section 2.06. - 2 - "CORPORATE TRUST OFFICE" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at The Bank of New York, 101 Barclay Street, Attention: Corporate Trust Administration, Floor 8 West, New York, New York 10286. "CORPORATION" means a corporation, association, company, joint-stock company or statutory business trust. "DEBENTURES" has the meaning stated in the first recital of this Indenture and more particularly means any Debentures authenticated and delivered under this Indenture. "DEBT" means with respect to the Company whether recourse is to all or a portion of the assets of the Company and whether or not contingent, (i) every obligation of the Company for money borrowed, (ii) every obligation of the Company evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of the Company with respect to letters of credit, bankers' acceptances, lines of credit or similar facilities issued for the account of the Company, (iv) every obligation of the Company issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) every capital lease obligation of the Company and (vi) every obligation of the type referred to in clauses (i) through (v) of another person and all dividends of another person the payment of which, in either case, the Company has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise. "DECLARATION" means the Amended and Restated Declaration of Trust relating to the Trust dated as of August 16, 2002 among MidAmerican Energy Holdings Company, as sponsor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, Gregory E. Abel, Patrick J. Goodman and Douglas L. Anderson, as Regular Trustees, and the holders, from time to time, of undivided beneficial interests in the Trust issued pursuant to the Declaration. "DEFAULTED INTEREST" has the meaning specified in Section 2.15. "DEFEASANCE" has the meaning specified in Section 12.01. "DEFERRED INTEREST" means Additional Interest and Compounded Interest; any reference herein to interest on the Subordinated Debentures shall be deemed to include any Deferred Interest. "DEFINITIVE DEBENTURES" has the meaning specified in Section 2.01. "DEFINITIVE PREFERRED SECURITY CERTIFICATES" has the meaning given such term in the Declaration. "DELAWARE TRUSTEE" has the meaning given such term in the Declaration. - 3 - "DISSOLUTION EVENT" means a termination of the Trust pursuant to Section 8.1(a)(v) of the Declaration pursuant to which the Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities in accordance with the Declaration. "DISTRIBUTIONS" has the meaning given such term in the Declaration. "EVENT OF DEFAULT" has the meaning specified in Section 4.01. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as the same may be amended from time to time, and any successor legislation. "EXTENSION PERIOD" has the meaning given such term in Section 2.06. "HOLDER" means the Person in whose name a Debenture is registered in the Register. "INDENTURE" means this instrument as originally executed or as it may from time to time be supplemented or amended, including, for all purposes of this instrument, the provisions of the Trust Indenture Act, if applicable, that are deemed to be a part of and govern this instrument. "INTEREST PAYMENT DATE" has the meaning given to such term in Section 2.05(1). "INTEREST RATE" has the meaning given such term in Section 2.05(1). "INVESTMENT COMPANY ACT EVENT" means receipt by the Trust or the Company of an opinion of nationally recognized independent counsel experienced in such matters to the effect that, as a result of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority after the date hereof, there is more than an insubstantial risk that the Trust is or will be considered an investment company under the Investment Company Act of 1940 (the "1940 Act"). "LIEN" means any lien, mortgage, pledge, security interest, charge or other encumbrance of any kind. "MATURITY" when used with respect to any Debenture, means the date on which the principal of such Debenture or an installment of interest thereon becomes due and payable as therein or herein provided, whether at an Interest Payment Date, at the Maturity Date or by declaration of acceleration, call for redemption or otherwise. "MATURITY DATE" means the date determined in accordance with Section 2.02 and on which the Debentures shall mature and the principal thereof shall be due and payable together with all accrued and unpaid interest thereon, including Deferred Interest, if any. "OFFICER'S CERTIFICATE" means a certificate signed by the Chief Executive Officer, President, a Vice President, Treasurer or an Assistant Treasurer or other officer or agent of the Company duly authorized by the Board of Directors of the Company to execute such certificate, and delivered to the Trustee. The officer signing an Officer's Certificate pursuant to Section 9.04 shall be the principal executive, financial or accounting officer of the Company. - 4 - "OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel for the Company. "OUTSTANDING" when used with respect to the Debentures, means, as of the date of determination, all Debentures of all series theretofore authenticated and delivered under this Indenture, EXCEPT: (1) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (2) Debentures for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debentures; provided that, if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Debentures as to which Defeasance has been effected pursuant to Section 12.02; and (4) Debentures which have been paid pursuant to Section 2.14 or in exchange for or in lieu of which other Debentures have been authenticated and delivered pursuant to this Indenture, other than any such Debentures in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Debentures are held by a bona fide purchaser in whose hands such Debentures are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Subsidiary of the Company or of such other obligor. "PAYING AGENT" means any Person authorized by the Company to pay the principal of or interest on any Debenture on behalf of the Company. "PERMITTED HOLDERS" means (i) Berkshire Hathaway Inc. and any of its subsidiaries which are directly or indirectly 50% or more owned by it and which are consolidated with it for financial reporting purposes or (ii) any Person following any Event of Default specified in Section 4.01(1), (2), or (3) that results in an acceleration of the Subordinated Debentures or any Event of Default specified in Section 4.01(4), (5) or (6). - 5 - PERSON" means a legal person, including any individual, corporation, estate, limited liability company, partnership, joint venture, association, joint stock company, trust, statutory business trust, unincorporated association or government or any agency or political subdivision thereof. "PLACE OF PAYMENT" means, except as otherwise specified herein, the Corporate Trust Office of the Trustee. "PREDECESSOR DEBENTURE" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.14 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed, mutilated or stolen Debenture. "PREFERRED SECURITIES" means 11% Trust Issued Preferred Securities of the Trust representing preferred undivided beneficial interests in the assets of the Trust in an aggregate amount of up to $950,000,000 as may be issued from time to time pursuant to that certain Subscription Agreement dated August 16, 2002 between the Trust and Berkshire Hathaway Inc. (including any of its assignees thereunder) or any similar such agreement entered into by such parties subsequent to the date hereof. "PREFERRED SECURITIES GUARANTEE" has the meaning given such term in the Declaration. "PROPERTY TRUSTEE" has the meaning given such term in the Declaration. "REDEMPTION DATE", when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "REDEMPTION PRICE" means a price equal to 100% of the principal amount of the Debentures to be redeemed, plus any accrued but unpaid interest to the date of such redemption. "REGISTER" and "REGISTRAR" have the respective meanings specified in Section 2.13. "REGULAR RECORD DATE" has the meaning given to such term in Section 2.05(1). "REGULAR TRUSTEE" has the meaning given to such term in the Declaration. "RESPONSIBLE OFFICER" when used with respect to the Trustee, means any vice president, any assistant vice president, any assistant treasurer or any other officer in the Corporate Trust Office of the Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Indenture, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SECURITIES ACT" means the Securities Act of 1933, as the same may be amended from time to time, or any successor legislation. - 6 - "SENIOR INDEBTEDNESS" means, with respect to the Company, principal of and premium and interest, if any, on Debt of the Company, except for (i) any Debt that is by its terms subordinated to or pari passu with the Debentures, (ii) any Debt (including all other debt securities and guarantees in respect of those debt securities) initially issued to any trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company in connection with the issuance by such entity of preferred securities or other similar securities that contain or have applicable thereto subordination provisions substantially identical in effect to the subordination provisions set forth herein applicable to the Debentures providing for such indebtedness being junior and subordinate in right of payment to all Senior Indebtedness, (iii) any Debt of the Company to any of its Subsidiaries, (iv) Debt or monetary obligations to trade creditors created or assumed by the Company or any of its Subsidiaries in the ordinary course of business in connection with the obtaining of goods, materials or services, (v) any Debt of the Company which, when incurred and without respect to any election under Section 1111(b) of the United States Bankruptcy Code, was without recourse to the Company, (vi) Debt to any employee of the Company, and (vii) any liability for taxes. "SERIES ISSUE DATE" has the meaning specified in Section 2.05. "SPECIAL EVENT" means the occurrence of an Investment Company Act Event or a Tax Event. "SPECIAL RECORD DATE" for the payment of any Defaulted Interest on any Debenture means a date fixed by the Trustee pursuant to Section 2.15. "SUBSIDIARY" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "TAX EVENT" means receipt by the Trust or the Company of an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that, as a result of (i) any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, (ii) any amendment to or change in an interpretation or application of such laws or regulations by any legislative body, court, governmental agency or regulatory authority (including the enactment of any legislation and the publication of any judicial decision or regulatory determination on or after the date hereof), (iii) any interpretation or pronouncement by any such body, court, agency or authority that provides for a position with respect to such laws or regulations that differs from the theretofore generally accepted position or (iv) any action taken by any governmental agency or regulatory authority, which amendment or change is enacted, promulgated or effective, or which interpretation or pronouncement is issued or announced, or which action is taken, in each case on or after the date hereof, there is more than an insubstantial risk that (a) the Trust is, or within 90 days of the date - 7 - thereof will be, subject to United States federal income tax with respect to income accrued or received on the Debentures, (b) interest payable by the Company on the Debentures is not, or within 90 days of the date thereof will not be, deductible by the Company for United States federal income tax purposes or (c) the Trust is, or within 90 days of the date thereof will be, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "TRUST" means MidAmerican Capital Trust III, a Delaware statutory business trust. "TRUSTEE" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such with respect to the Debentures pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder. "TRUST INDENTURE ACT" means the Trust Indenture Act of 1939 as the same may be amended from time to time, or any successor legislation. "TRUST SECURITIES" means Common Securities and Preferred Securities. "U.S. GOVERNMENT OBLIGATIONS" has the meaning specified in Section 12.02(1). "VICE PRESIDENT", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officer's Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. - 8 - SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04. ACTS OF HOLDERS; RECORD DATES Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "ACT" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Debenture, shall be sufficient for any purpose of this Indenture and (subject to Section 5.01) conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution - 9 - of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership, principal amount and serial number of Debentures shall be proved by the Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture. The Company may, in the circumstances permitted by the Trust Indenture Act, set any day as the record date for the purpose of determining the Holders of Outstanding Debentures entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action permitted by this Indenture to be given or taken by Holders of Debentures. With regard to any record date set pursuant to this paragraph, the Holders of Outstanding Debentures on such record date (or their duly appointed agents), and only such Persons, shall be entitled to give or take the relevant action, whether or not such Holders remain Holders after such record date. With regard to any action that may be given or taken hereunder only by Holders of a requisite principal amount of Outstanding Debentures (or their duly appointed agents) and for which a record date is set pursuant to this paragraph, the Company may, at its option, set an expiration date after which no such action purported to be given or taken by any Holder shall be effective hereunder unless given or taken on or prior to such expiration date by Holders of the requisite principal amount of Outstanding Debentures on such record date (or their duly appointed agents). On or prior to any expiration date set pursuant to this paragraph, the Company may, on one or more occasions at its option, extend such date to any later date. Nothing in this paragraph shall prevent any Holder (or any duly appointed agent thereof) from giving or taking, after any expiration date, any action identical to, or, at any time, contrary to or different from, any action given or taken, or purported to have been given or taken, hereunder by a Holder on or prior to such date, in which event the Company may set a record date in respect thereof pursuant to this paragraph. Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Debenture may do so with regard to all or any part of the principal amount of such Debenture or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount. SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its - 10 - Corporate Trust Office or sent by facsimile to the Trustee at (212) 815-5707 or at any other number previously furnished in writing to the Company by the Trustee, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it to the attention of its Treasurer at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company or if sent to the Company by facsimile addressed to it to the attention of its Treasurer at (515) 242-4295. SECTION 1.06. NOTICE TO HOLDERS; WAIVER Except as otherwise expressly provided in or pursuant to this Indenture, where this Indenture provides for notice to Holders of Debentures of any event, such notice shall be sufficiently given to Holders of Debentures if in writing and mailed, first-class postage prepaid, to each Holder of a Debenture affected by such event, at his address as it appears in the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders of Debentures is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Debenture shall affect the sufficiency of such notice with respect to other Holders of Debentures given as provided herein. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Debentures shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. - 11 - SECTION 1.09. SUCCESSORS AND ASSIGNS All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10. SEPARABILITY CLAUSE In case any provision in this Indenture or any Debenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11. BENEFITS OF INDENTURE Nothing in this Indenture or the Debentures, express or implied, shall give to any Person (including any Paying Agent or Authenticating Agent appointed pursuant to Section 5.14), other than the parties hereto and holders of Senior Indebtedness and their successors hereunder and the Holders of Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12. GOVERNING LAW This Indenture and the Debentures shall, pursuant to New York General Obligations Law Section 5-1401, be governed by and construed in accordance with the law of the State of New York. SECTION 1.13. LEGAL HOLIDAYS In any case where any Redemption Date or the Maturity Date shall not be a Business Day at the Place of Payment, then (notwithstanding any other provision of this Indenture or the Debentures) payment of principal need not be made at the Place of Payment on such date, but may be made on the next succeeding Business Day at the Place of Payment with the same force and effect as if made on the respective Redemption Date or the Maturity Date, provided that no interest shall accrue for the period from and after such Redemption Date or the Maturity Date, as the case may be. ARTICLE TWO THE DEBENTURES SECTION 2.01. FORM AND DATING There is hereby authorized $979,381,450 aggregate principal amount of Debentures designated the "11% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES." The Debentures may be issued in one or more series, provided, however, that the original principal amount of each series (other than the final series) must be at least $50,000,000 and further provided that each series has its own Series Issue Date (as defined below). There shall be - 12 - established in or pursuant to one or more Officer's Certificates, prior to the initial issuance of Debentures of any series, the designation of the Debentures of such series, which shall distinguish the Debentures of the series from the Debentures of all other series. All other terms of such series shall be identical and consistent with the provisions of this Indenture. Pursuant to Section 2.11, the Debentures are to be initially issued in fully registered certificated form without interest coupons ("DEFINITIVE DEBENTURES") in the name of the Property Trustee pursuant to the Declaration on behalf of the Trust. The Debentures and the Trustee's certificate of authentication thereof shall be substantially in the form set forth in EXHIBIT A hereto, which is hereby incorporated in and made a part of this Indenture. The Debentures may have such notations, legends or endorsements as may be required by any law, rule, usage or agreement to which the Company is subject. SECTION 2.02. MATURITY The Maturity Date of each series will be August 31, 2011. SECTION 2.03. PAYMENT Principal of and interest on Definitive Debentures will be payable, the transfer of such Debentures will be registrable and such Debentures will be exchangeable for Debentures bearing identical terms and provisions, at the Corporate Trust Office of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder at such address as shall appear in the Register. Notwithstanding the foregoing, so long as the Holder of the Debentures is the Property Trustee, the payment of the principal of and interest, including Deferred Interest, if any, on such Debentures held by the Property Trustee will be made in immediately available funds at such place and to such account as may be designated by the Property Trustee. SECTION 2.04. TRANSFERABILITY The Debentures shall be transferable only to Permitted Holders. SECTION 2.05. INTEREST (1) Subject to the provisions of Section 2.06, the Debentures of each series will bear interest at the rate of 11% per annum (the "INTEREST RATE") from the date of original issuance of the Debentures of such series under this Indenture (the "SERIES ISSUE DATE") until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Interest Rate, compounded semi-annually, payable (subject to the provisions of Section 2.06) semi-annually in arrears on February 28 and August 31 of each year (each, an "INTEREST PAYMENT Date"), commencing on the first such date following the date one month following the Series Issue Date, to the Person in whose name such Debenture or any predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which, in respect of any Debenture registered in the name of the Property Trustee, shall be the close of business on the Business Day next preceding that Interest Payment Date (the - 13 - "REGULAR RECORD DATE"). Notwithstanding the foregoing sentence, if the Debentures are not registered in the name of the Property Trustee, the Company may select a regular record date for such interest installment which shall be any date at least one Business Day before an Interest Payment Date. (2) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full semi-annual period for which interest is computed, will be computed on the basis of the actual number of days elapsed in such a 30-day month. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, notwithstanding the provisions of Section 1.13, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (3) If at any time while the Property Trustee is the Holder of any Debentures, the Trust is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in such case, the Company will pay as additional interest on the Debentures ("ADDITIONAL INTEREST"), such additional amounts as shall be required so that the net amounts received and retained by the Trust after paying such taxes, duties, assessments or other governmental charges will not be less than the amounts the Trust would have received had no such taxes, duties, assessments or other governmental charges been imposed. SECTION 2.06. EXTENSION OF INTEREST PAYMENT PERIOD So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time, and from time to time and for varying lengths of time, during the term of the Debentures to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 10 consecutive semi-annual periods (each, an "EXTENSION PERIOD"). Despite such deferral, semi-annual interest will continue to accumulate with interest thereon (to the extent permitted by applicable law) at an annual rate of thirteen percent (13%) per annum compounded semi-annually during any such Extension Period ("COMPOUNDED INTEREST"). At the end of the Extension Period the Company shall pay all interest accrued and unpaid on the Debentures, including any Deferred Interest that shall be payable, to the Holders of the Debentures in whose names the Debentures are registered in the Register on the first Regular Record Date after the end of the Extension Period. Prior to the termination of any Extension Period, the Company may further defer payments of interest by extending the interest payment period, provided that such Extension Period together with all such previous and further extensions thereof shall not exceed 10 consecutive semi-annual periods. Upon the termination of any Extension Period and upon the payment of all amounts then due, the Company may commence a new Extension Period, subject to the foregoing requirements. No interest shall be due and payable during an Extension Period except at the end thereof. An Extension Period with respect to any Debenture may not extend beyond the Maturity of the principal of such Debenture - 14 - or, as to each Debenture being optionally redeemed or, in the case of mandatory redemption, the portion thereof being redeemed, beyond the relevant Redemption Date. SECTION 2.07. NOTICE OF EXTENSION (1) If the Property Trustee is the only Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Regular Trustees, and the Property Trustee of its selection of such Extension Period one Business Day prior to the earlier of (a) the next succeeding date on which Distributions on the Trust Securities are payable and (b) the date the Regular Trustees are required to give notice of the record date or the date such Distributions are payable to the New York Stock Exchange, Inc. (or other applicable self-regulatory organization) or to holders of the Preferred Securities, but in any event at least one Business Day before such record date. (2) If the Property Trustee is not the only Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of the Debentures and the Trustee written notice of its selection of such Extension Period 10 Business Days prior to the earlier of (i) the next succeeding Interest Payment Date and (ii) the date the Company is required to give notice of the record or such Interest Payment Date of such interest payment to the New York Stock Exchange, Inc. (or other applicable self-regulatory organization) or to Holders. (3) The semi-annual period in which any notice is given pursuant to paragraphs (1) or (2) of this Section 2.07 shall be counted as one of the 10 semi-annual periods permitted in the maximum Extension Period permitted under Section 2.06. SECTION 2.08. MANDATORY REDEMPTION The Debentures are subject to mandatory redemption in accordance with Section 10.01. SECTION 2.09. INTENTIONALLY LEFT BLANK SECTION 2.10. DENOMINATIONS The Debentures shall be issued in denominations of $25 and any integral multiple thereof. SECTION 2.11. EXECUTION, AUTHENTICATION, DELIVERY AND DATING The Debentures shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents or any other authorized officer. The signature of any of these officers on the Debentures may be manual or facsimile. - 15 - Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures. The Company may at any time and from time to time deliver Debentures, executed by the Company, to the Trustee for authentication, together with a Company Order (attaching a form of the Debentures and the Officer's Certificate required by Section 2.01) for the authentication and delivery of such Debentures, and the Trustee in accordance with the Company Order shall authenticate and deliver such Debentures. Each Debenture shall be dated the date of its authentication. The Trustee shall be provided with and (subject to Section 5.01) shall be fully protected in relying upon an Opinion of Counsel stating that the Debentures, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute the legally valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors, rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief regardless of whether considered in a proceeding in equity or at law. No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Debenture shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Debenture to the Trustee for cancellation as provided in Section 2.17, for all purposes of this Indenture such Debenture shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 2.12. TEMPORARY DEBENTURES Pending the preparation of Definitive Debentures hereunder, the Company may execute, and upon Company Order the Trustee shall, at the expense of the Company, authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of such Definitive Debentures in lieu of which they are issued, in registered form and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such temporary Debentures may determine, as evidenced by their execution of such temporary Debentures. Every temporary Debenture shall be executed by the Company and authenticated by the Trustee and registered by the Registrar, upon the same conditions, and with like effect, as a Definitive Debenture. - 16 - If temporary Debentures are issued, the Company will cause Definitive Debentures to be prepared without unreasonable delay. After the preparation of such Definitive Debentures, the temporary Debentures shall be exchangeable for such Definitive Debentures upon surrender of the temporary Debentures at the office or agency of the Company in the Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures, the Company shall execute and the Trustee shall, at the expense of the Company, authenticate and deliver in exchange therefor one or more Definitive Debentures, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged such temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as Definitive Debentures. SECTION 2.13. REGISTRATION OF TRANSFER AND EXCHANGE The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company specified therefor being herein sometimes collectively referred to as the "REGISTER") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of transfer or exchange of Debentures. The Trustee is hereby appointed "REGISTRAR" for the purpose of registering transfers or exchanges of Debentures as herein provided. Upon surrender for registration of transfer of any Debenture at the Corporate Trust Office of the Trustee or any office or agency specified therefor by the Company, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, Debentures may be exchanged for other Debentures of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Debentures to be exchanged at such office or agency. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Debentures which the Holder making the exchange is entitled to receive. All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange. Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or - 17 - exchange of Debentures, other than exchanges pursuant to Section 2.12, 8.06 or 10.07 not involving any transfer. The Company shall not be required (1) to issue, register the transfer of or exchange Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Debentures selected for redemption under Section 10.03 and ending at the close of business on the day of such mailing, or (2) to register the transfer or exchange of any Debenture so selected for redemption in whole or in part, except the unredeemed portion of any Debenture being redeemed in part. SECTION 2.14. MUTILATED, DESTROYED, LOST AND STOLEN DEBENTURES If any mutilated Debenture is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Debenture of the same series of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Debenture and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and the Trustee, pursuant to a Company Order, shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of the same series of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture. Upon the issuance of any new Debenture under this Section 2.14, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Debenture, issued pursuant to this Section 2.14 in lieu of any mutilated, destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. The provisions of this Section 2.14 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures. Each Holder of a Debenture agrees to indemnify the Company and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's - 18 - Debenture in violation of any provision of this Indenture and/or applicable United States Federal or state securities law. The Trustees shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Debenture other than to require delivery of such certificates and other documentation or evidence as expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. SECTION 2.15. DEFAULTED INTEREST; INTEREST RIGHTS PRESERVED Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "DEFAULTED INTEREST") shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company as provided below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names such Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause (1) provided. Thereupon the Trustee shall fix a special record date (the "SPECIAL RECORD Date") for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Debentures at his address as it appears in the Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) Subject to the foregoing provisions of this Section 2.15, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any - 19 - other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Debenture. SECTION 2.16. PERSONS DEEMED OWNERS Prior to due presentment of a Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Debenture is registered as the owner of such Debenture for the purpose of receiving payment of principal of and any interest on such Debenture and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 2.17. CANCELLATION All Debentures surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Debentures previously authenticated hereunder which the Company has not issued and sold, and all Debentures so delivered shall be promptly canceled by the Trustee. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be disposed of as directed by a Company Order in accordance with the Trustee's customary procedures. SECTION 2.18. CUSIP NUMBERS The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE THREE SATISFACTION AND DISCHARGE SECTION 3.01. SATISFACTION AND DISCHARGE OF INDENTURE This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided for), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when - 20 - (1) either (a) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.14, and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 9.03) have been delivered to the Trustee for cancellation; or (b) all such Debentures not theretofore delivered to the Trustee for cancellation have become due and payable, and the Company has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Debentures, for principal and any interest to the date of such deposit; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 5.07, the obligations of the Trustee to any Authenticating Agent under Section 5.14 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section 3.01, the obligations of the Trustee under Section 3.02 and the last paragraph of Section 9.03 shall survive such satisfaction and discharge. SECTION 3.02. APPLICATION OF TRUST MONEY Subject to provisions of the last paragraph of Section 9.03, all money deposited with the Trustee pursuant to Section 3.01 shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee. ARTICLE FOUR REMEDIES SECTION 4.01. EVENTS OF DEFAULT "EVENT OF DEFAULT" wherever used herein with respect to the Debentures, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Four or be voluntary or involuntary or be effected by - 21 - operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest upon any Debenture when it becomes due and payable, and continuance of such default for a period of 10 days; provided, however, that a valid extension of the interest payment period by the Company for the Debentures in accordance with this Indenture shall not constitute a default in the payment of interest; or (2) default in the payment of the principal of any Debenture at its Maturity; or (3) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section 4.01 specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Debentures a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "NOTICE OF DEFAULT" hereunder; or (4) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (5) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or - 22 - (6) the Trust shall have voluntarily or involuntarily dissolved, wound up its business or otherwise terminated its existence pursuant to the Declaration except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation or redemption of their interests in the Trust, (ii) the redemption of all of the outstanding Trust Securities of the Trust, or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration. SECTION 4.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT If an Event of Default with respect to Debentures at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Debentures may declare the principal amount of all of the Debentures to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Debentures, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (a) all overdue interest on the Debentures, (b) the principal of any Debentures which has become due otherwise than by such declaration of acceleration and any interest thereon at the rate prescribed therefor in the Debentures, (c) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate prescribed therefor in the Debentures, and (d) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default with respect to the Debentures, other than the non-payment of the principal of the Debentures which has become due solely by such declaration of acceleration, have been cured or waived as provided in Section 4.13. No such rescission or annulment shall affect any subsequent default or impair any right consequent thereon. - 23 - SECTION 4.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE The Company covenants that if (1) default is made in the payment of any interest on any Debenture when such interest becomes due and payable and such default continues for a period of 10 days, or (2) default is made in the payment of the principal of any Debenture at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate or rates prescribed therefor in such Debentures, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If an Event of Default with respect to the Debentures occurs and is continuing, the Trustee may in its discretion (or shall at the direction of the requisite number of Holders pursuant to Section 4.12) proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 4.04. TRUSTEE MAY FILE PROOFS OF CLAIM In case of any judicial proceeding relative to the Company (or any other obligor upon the Debentures), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 5.07. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. - 24 - SECTION 4.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF DEBENTURES All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered. SECTION 4.06. APPLICATION OF MONEY COLLECTED Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest, upon presentation of the Debentures and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 5.07; SECOND: To the payment of the amounts then due and unpaid for principal of and interest on the Debentures in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on the Debentures for principal and interest, respectively; and THIRD: To the Company. SECTION 4.07. LIMITATION ON SUITS No Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Debentures; (2) the Holders of not less than 25% in principal amount of the Outstanding Debentures shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request in such amount as shall be reasonably acceptable to the Trustee; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and - 25 - (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. SECTION 4.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL AND INTEREST; ACKNOWLEDGMENT REGARDING PREFERRED SECURITIES HOLDERS (1) Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 2.15) interest on such Debenture, at the Maturity expressed in such Debenture and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. (2) The Company acknowledges that, with respect to any Debentures registered in the name of the Property Trustee for the benefit of the Trust, if the Property Trustee fails to enforce its rights under the Debentures and this Indenture as such Holder, then holders of Preferred Securities may institute legal proceedings directly against the Company to enforce such rights without first instituting any legal proceedings against the Property Trustee or any other Person. Notwithstanding the foregoing, if an Event of Default has occurred under Section 4.01(1) or 4.01(2), any holder of Preferred Securities may directly institute a proceeding against the Company for enforcement of payment to such holder of the principal of or interest on the Debentures having an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due dates specified in the Debentures. SECTION 4.09. RESTORATION OF RIGHTS AND REMEDIES If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.10. RIGHTS AND REMEDIES CUMULATIVE Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 2.14, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be - 26 - cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.11. DELAY OR OMISSION NOT A WAIVER No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 4.12. CONTROL BY HOLDERS The Holders of a majority in aggregate principal amount of the Outstanding Debentures shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Debentures, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) subject to the provisions of Section 5.01, the Trustee shall have the right to decline to follow such direction if the Trustee shall, in good faith, determine that the proceeding so directed would be unjustly prejudicial to the Holders not joining in any such direction or would potentially involve the Trustee in personal liability. SECTION 4.13. WAIVER OF PAST DEFAULTS The Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures may on behalf of the Holders of all the Debentures waive any past default hereunder with respect to the Debentures and its consequences, except a default (1) in the payment of the principal of or interest on any Debenture, or (2) in respect of a covenant or provision hereof which under Article Eight cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. - 27 - SECTION 4.14. UNDERTAKING FOR COSTS In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs (including reasonable legal fees and expenses) against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section 4.14 nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or by the Trustee. SECTION 4.15. WAIVER OF USURY, STAY OR EXTENSION LAWS The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.16. THIRD PARTY BENEFICIARIES The Property Trustee, the trustee under the Preferred Securities Guarantee and the Delaware Trustee are each a third party beneficiary of, and shall be entitled to enforce, and to exercise all rights and remedies with respect to, the provisions of Section 9.10. ARTICLE FIVE THE TRUSTEE SECTION 5.01. CERTAIN DUTIES AND RESPONSIBILITIES The duties, responsibilities, rights, immunities and protection of the Trustee shall be as provided by the Trust Indenture Act. Prior to any Event of Default the Trustee shall not be liable except for the performance of such duties as are specifically set out herein and in the Trust Indenture Act and no implied covenants or obligations shall be read into this Indenture against the Trustee. In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein.) Upon the occurrence of an Event of Default (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the - 28 - same degree of care and skill in their exercise, as a prudent individual would exercise or use under the circumstances in the conduct of his or her own affairs. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 5.01. SECTION 5.02. NOTICE OF DEFAULTS The Trustee shall give notice of any default actually known to a Responsible Officer of the Trustee with respect to the Debentures when, as and to the extent provided by the Trust Indenture Act and in the manner provided by Section 1.06 hereof; provided, however, that in the case of any default of the character specified in Section 4.01(3) with respect to Debentures, no such notice to Holders shall be given until at least 30 days after the default is actually known (as set forth in Section 5.03(9)) to a Responsible Officer of the Trustee. For the purpose of this Section, the term "DEFAULT" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Debentures. SECTION 5.03. CERTAIN RIGHTS OF TRUSTEE Subject to the provisions of Section 5.01: (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, Officer's Certificate, statement, instrument, opinion, Opinion of Counsel, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (4) the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to - 29 - this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities (including legal fees and expenses) which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney upon 10 Business Days advance written notice and during regular business hours at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Indenture; (9) the Trustee shall not be charged with knowledge of any Event of Default unless either (i) a Responsible Officer of the Trustee shall have actual knowledge or (ii) the Trustee shall have received written notice thereof in accordance with Section 1.05(1) hereof from the Company or a Holder; and (10) no permissive power or authority available to the Trustee shall be construed as a duty. (11) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder, absent any gross negligence or willful misconduct. SECTION 5.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF DEBENTURES The recitals contained herein and in the Debentures, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of the Debentures or the proceeds thereof. - 30 - SECTION 5.05. MAY HOLD DEBENTURES The Trustee, any Authenticating Agent, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 5.08 and 5.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Registrar or such other agent. SECTION 5.06. MONEY HELD IN TRUST Money held by the Trustee, or by any Paying Agent (other than the Company if the Company shall act as Paying Agent), in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 5.07. COMPENSATION AND REIMBURSEMENT The Company agrees (1) to pay to the Trustee from time to time such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as shall be determined by a court of competent jurisdiction to have been caused by its own negligence or willful misconduct; and (3) to indemnify the Trustee or any predecessor Trustee for, and to hold it harmless against, any and all loss, damage, liability or expense (including taxes (other than taxes based upon, measured by or determined by the income of the Trustee), incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder or performance of its duties hereunder, including the costs and expenses (including legal fees and expenses) of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. As security for the performance of the obligations of the Company under this Section 5.07, the Trustee shall have a claim prior to the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of or interest on particular Debentures. When the Trustee renders services or incurs expenses after the occurrence of an Event of Default specified in Sections 4.01(4) or 4.01(5) hereof, the compensation for services and - 31 - expenses are intended to constitute expenses of administration under any applicable bankruptcy or insolvency law or law applicable to creditors' rights to the extent permitted by applicable law. The benefits of this Section 5.07 shall survive the termination of this Indenture and resignation or removal of the Trustee. SECTION 5.08. DISQUALIFICATION; CONFLICTING INTERESTS If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture and the Company shall take prompt action to have a successor Trustee appointed in the manner provided herein. SECTION 5.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY There shall at all times be a Trustee hereunder, which shall be a Person that (1) is eligible pursuant to the Trust Indenture Act to act as such, and (2) has a combined capital and surplus of at least $50,000,000 and is subject to supervision or examination by a Federal or State authority; provided, however, that if the Trustee shall be a member of a bank holding company group, such bank holding company group shall have combined capital and surplus of at least $50,000,000 and the Trustee shall have a combined capital and surplus of at least $10,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 5.09, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 5.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 5.11. The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures, at the sole expense of the Company. The Trustee may be removed at any time by Act of the Company or the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. If at any time: - 32 - (1) the Trustee shall fail to comply with Section 5.08 after written request therefor by the Company or by any Holder who has been a Holder of a Debenture for at least six months, or (2) the Trustee shall cease to be eligible under Section 5.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 4.14, any Holder who has been a Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee being removed may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Debentures of such series. If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee (it being understood that any time there shall be only one Trustee) and shall comply with the applicable requirements of Section 5.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by an Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 5.11, become the successor Trustee and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 5.11, any Holder who has been a Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders of Debentures in the manner provided in Section 1.06. The Company also shall give notice of appointment (and acceptance of such appointment) of a successor Trustee to the Trustee who is resigning or being removed. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. No resignation or removal pursuant to this Section 5.10 shall be effective unless and until any and all amounts due to such Trustee pursuant to Section 5.07 shall have been paid. The - 33 - obligations of the Company provided for in Section 5.07 shall survive such resignation or removal. SECTION 5.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee, provided, however, that no Trustee under this Indenture shall be liable for any act or omission of any successor Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 5.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. In the event any Debentures shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Debentures, in either its own name or that of its predecessor Trustee, with the full force and effect which this indenture provides for the certificate of authentication of the Trustee. SECTION 5.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). - 34 - SECTION 5.14. APPOINTMENT OF AUTHENTICATING AGENT The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon original issue and upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.14, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Debentures by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall provide notice of such appointment to the Holders of Debentures, in the manner provided in Section 1.06. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. - 35 - The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 5.07. If an appointment is made pursuant to this Section 5.14, the Debentures may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Debentures referred to in the within-mentioned Indenture. -------------------------- As Trustee By, -------------------------- As Authenticating Agent By, ---------------------------------- Authorized Officer ARTICLE SIX HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 6.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF HOLDERS The Company will furnish or cause to be furnished to the Trustee (1) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; EXCLUDING from any such list names and addresses received by the Trustee in its capacity as Registrar. - 36 - SECTION 6.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 6.01 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 6.01 upon receipt of a new list so furnished. The rights of the Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debentures, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 6.03. REPORTS BY TRUSTEE The Trustee shall transmit to the Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. ARTICLE SEVEN CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 7.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation, partnership, limited liability company or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and interest on all the Debentures and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; - 37 - (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company as a result of such transaction as having been incurred by the Company at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 7.02. SUCCESSOR SUBSTITUTED Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 7.01, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Debentures. ARTICLE EIGHT SUPPLEMENTAL INDENTURES SECTION 8.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures; or (2) to add to the covenants of the Company or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee and to add to or change any of the provisions of this Indenture as shall be - 38 - necessary to provide for or facilitate the administration of the trusts hereunder by the Trustee, pursuant to the requirements of Section 5.11; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (5) shall not adversely affect the interests of the Holders (except for holders consenting pursuant to Section 8.02). SECTION 8.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture, (1) change the Maturity of the principal of or interest on, the Debentures, or reduce the principal amount thereof or the rate of interest thereon, or change the coin or currency in which any Debenture or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or (2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required for any such supplemental indenture or other modification or amendment of this Indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Indenture relating to the subordination of the Debentures in a manner adverse to the Holders, or (4) modify any of the provisions of this Section 8.02 or Section 4.13, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section 8.02, or the deletion of this proviso, in accordance with the requirements of Sections 5.11 and 8.01(4). It shall not be necessary for any Act of Holders under this Section 8.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. - 39 - SECTION 8.03. EXECUTION OF SUPPLEMENTAL INDENTURES In executing, or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 5.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 8.04. EFFECT OF SUPPLEMENTAL INDENTURES Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 8.05. CONFORMITY WITH TRUST INDENTURE ACT Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 8.06. REFERENCE IN DEBENTURES TO SUPPLEMENTAL INDENTURES Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures. ARTICLE NINE COVENANTS SECTION 9.01. PAYMENT OF PRINCIPAL AND INTEREST The Company covenants and agrees for the benefit of the Holders that it will duly and punctually pay the principal of and interest on the Debentures in accordance with the terms of the Debentures and this Indenture. SECTION 9.02. MAINTENANCE OF OFFICE OR AGENCY The Company will maintain in the Place of Payment for the Debentures an office or agency where Debentures may be presented or surrendered for payment, where Debentures may - 40 - be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Place of Payment for the Debentures for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 9.03. MONEY FOR DEBENTURES PAYMENTS TO BE HELD IN TRUST If the Company shall at any time act as its own Paying Agent with respect to the Debentures, it will, on or before each due date of the principal of or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will immediately notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Debentures, it will, prior to each due date of the principal of or interest on the Debentures, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will immediately notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for the Debentures other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 9.03, that such Paying Agent will (1) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (2) during the continuance of any default by the Company (or any other obligor upon the Debentures) in the making of any payment in respect of the Debentures, and upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Debentures. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were - 41 - held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Debenture and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request (including interest income accrued on said funds to which the Company is otherwise entitled), or (if then held by the Company) shall be discharged from such trust; and the Holder of such Debenture shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an appropriate newspaper in the Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.04. STATEMENT BY OFFICERS AS TO DEFAULT The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officer's Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. SECTION 9.05. EXISTENCE Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 9.06. MAINTENANCE OF PROPERTIES The Company will cause all properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, in - 42 - the judgment of the Company, desirable in the conduct of its business and not disadvantageous in any material respect to the Holders. SECTION 9.07. PAYMENT OF TAXES AND OTHER CLAIMS The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or upon the income, profits or property of the Company, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 9.08. LIMITATION ON DIVIDENDS AND REPURCHASES If (1) there shall have occurred any event that would constitute an Event of Default, (2) the Company shall be in default with respect to its payment of any obligations under the Preferred Securities or the Preferred Securities Guarantee, or (3) if the Company shall have given notice of its election to defer payments of interest on the Debentures by extending the interest payment period as provided herein and such period, or any extension thereof, shall be continuing, then the Company shall not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (2) make any payment of principal of, or interest or premium, if any, on or repay, repurchase or redeem, or make any sinking fund payment with respect to, any indebtedness for money borrowed of the Company (including other junior subordinated debt securities) that ranks pari passu with or junior in right of payment to the Debentures or make any guarantee payments with respect to the foregoing (other than (a) dividends or distributions in common stock of the Company and (b) payments under the Preferred Securities Guarantee). SECTION 9.09. COVENANTS AS TO THE TRUST For so long as the Trust Securities remain outstanding, the Company will (1) maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities, (2) not cause, as sponsor of the Trust, or permit, as holder of the Common Securities, the dissolution or winding-up of the Trust, except in connection with a distribution of the Debentures held by the Trust as provided in the Declaration, and (3) use its reasonable efforts to cause the Trust (a) to remain a statutory business trust, except in connection with a distribution of Debentures as provided in the Declaration, the redemption of all of the Trust Securities and in connection with certain mergers, consolidations or amalgamations permitted by the Declaration, and (b) to otherwise continue to be treated as a grantor trust for United States federal income tax purposes. - 43 - SECTION 9.10. PAYMENT OF EXPENSES In connection with the offering, sale and issuance of the Debentures to the Trust in connection with the sale of the Trust Securities by the Trust, as long as the Preferred Securities are outstanding the Company shall: (1) pay all costs and expenses relating to the offering, sale and issuance of the Debentures, including compensation of the Trustee under the Indenture in accordance with the provisions of Section 5.07 of the Indenture; (2) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust; and (3) pay all other debts and obligations of the Trust (other than with respect to the Trust Securities) and all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the fees and expenses of the Property Trustee, the trustee under the Preferred Securities Guarantee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses or printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets). SECTION 9.11. INTENTIONALLY LEFT BLANK. SECTION 9.12. WAIVER OF CERTAIN COVENANTS The Company may omit in any particular instance to comply with any term, provision or condition set forth in this Indenture with respect to the Debentures if before the time for such compliance the Holders of a majority in aggregate principal amount of the Outstanding Debentures shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, provided that no such waiver shall without the consent of each Holder affected thereby (1) change the Maturity Date, (2) reduce the principal amount of the Debentures or the rate of interest thereon or extend the time of payment of interest thereon (except pursuant to Section 2.06), (3) change any Place of Payment or the currency in which the Debentures or any interest thereon is payable or (4) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required with respect to supplemental indentures and for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for herein. - 44 - ARTICLE TEN REDEMPTION OF DEBENTURES SECTION 10.01. MANDATORY AND SPECIAL EVENT REDEMPTION The Debentures shall be redeemable in accordance with their terms and in accordance with this Article as follows: (1) MANDATORY REDEMPTION. Each series of Debentures is subject to mandatory redemption, in nine annual principal installments equal to the then applicable Sinking Fund Amount (each, an "INSTALLMENT"), with the first Installment payable on the first Interest Payment Date which is at least one year following the Series Issue Date of the Debentures of such series and an Installment payable on each August 31 Interest Payment Date thereafter with the last Installment payable on the Maturity Date, at a redemption price equal to the principal amount to be redeemed, without premium, plus accrued interest thereon to the date of redemption. The Sinking Fund Amount of such first Installment shall be an amount equal to 15.789474% of the aggregate principal amount of Debentures of such series issued upon original issuance under this Indenture (the "FIRST SINKING FUND AMOUNT"), and the Sinking Fund Amount of each following Installment shall be an amount equal to 10.526316% of the aggregate principal amount of Debentures of such series issued upon original issuance under this Indenture (the "OTHER SINKING FUND AMOUNT" and, collectively with the First Sinking Fund Amount, a "SINKING FUND AMOUNT"). (2) SPECIAL EVENT REDEMPTION. Upon the occurrence of a Special Event, the Company shall have the right, at any time, to redeem the Debentures, in whole and not in part, at the Redemption Price (a "SPECIAL REDEMPTION"). SECTION 10.02. ELECTION TO REDEEM: NOTICE TO TRUSTEE The election of the Company to redeem any Debentures under Section 10.01(2) shall be evidenced by a Board Resolution. In the case of any Special Event Redemption of Debentures, the Company shall, within 30 days after any such redemption, furnish the Trustee with an Officer's Certificate evidencing compliance with all conditions precedent to such redemption. SECTION 10.03. PARTIAL REPAYMENTS PRO RATA Upon any partial redemption of the Debentures of any series, the principal amount so redeemed shall be allocated to all Debentures of such series at the time outstanding (including for the purpose of this Section 10.03 only, all Debentures redeemed or otherwise retired or purchased or otherwise acquired by the Company or any of its subsidiaries) in proportion to the respective outstanding principal amounts thereof. - 45 - SECTION 10.04. NOTICE OF REDEMPTION Notice of redemption shall be given in the manner provided in Section 1.06, not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debentures to be redeemed. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, and (4) the place or places where such Debentures are to be surrendered for payment of the Redemption Price. Notice of redemption of Debentures to be redeemed shall be given by the Company or, at the Company's direction, by the Trustee in the name and at the expense of the Company and shall be irrevocable. SECTION 10.05. DEPOSIT OF REDEMPTION PRICE At least one Business Day prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.03) an amount of money sufficient to pay the Redemption Price of all of the Debentures which are to be redeemed on that date. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the Redemption Date or at such earlier time as the Company determines. SECTION 10.06. DEBENTURES PAYABLE ON REDEMPTION DATE Any required notice of redemption having been given as aforesaid, all Debentures to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures (or any portion thereof which is mandatorily redeemed) shall cease to bear interest. Upon surrender of any such Debenture for redemption, in accordance with said notice in the case of Special Event Redemption, or to the Company in the case of each mandatory redemption, such Debenture shall be paid by the Company at the Redemption Price; provided, however, that installments of interest whose Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 2.15. - 46 - If any Debenture called for Special Event Redemption or required to be mandatorily redeemed shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Debenture. SECTION 10.07. DEBENTURES REDEEMED IN PART Any Debenture which is to be redeemed only in part shall be surrendered at the Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Debenture without service charge, a new Debenture or Debentures of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debenture so surrendered. ARTICLE ELEVEN SUBORDINATION SECTION 11.01. AGREEMENT TO SUBORDINATE; RANKING OF DEBENTURES The Company covenants and agrees, and each Holder of Debentures issued hereunder by such Holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article Eleven; and each Holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of and interest on the Debentures shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all present and future Senior Indebtedness and shall rank pari passu with (1) all notes, debentures and other evidences of indebtedness of the Company that shall contain or have applicable thereto subordination provisions substantially identical in effect to the subordination provisions applicable to the Debentures providing for such indebtedness being junior and subordinate in right of payment to all Senior Indebtedness, (2) any Debt (including all other debt securities and guarantees in respect of those debt securities) initially issued to any trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company in connection with the issuance by such entity of preferred securities or other similar securities that contain or have applicable thereto subordination provisions substantially identical in effect to the subordination provisions set forth herein applicable to the Debentures providing for such indebtedness being junior and subordinate in right of payment to all Senior Indebtedness, and (3) obligations to, or rights of, the Company's other general unsecured creditors, in each case whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article Eleven shall prevent the occurrence of any default or Event of Default hereunder. - 47 - SECTION 11.02. DEFAULT ON SENIOR INDEBTEDNESS In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, as the case may be, or in the event that the maturity of any Senior Indebtedness of the Company, as the case may be, has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of, or interest on, the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 11.02, subject to the provisions of Section 11.06, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 11.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal of or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article Eleven, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Holders or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the - 48 - foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness. For purposes of this Article Eleven, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Eleven with respect to the Debentures to the payment of all Senior Indebtedness of the Company, as the case may be, that may at the time be outstanding provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or other entity or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation or other entity upon the terms and conditions provided for in Article Seven shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 11.03 if such other corporation or other entity shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Seven. Nothing in Section 11.02 or in this Section 11.03 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 5.07. SECTION 11.04. SUBROGATION Subject to the payment in full of all Senior Indebtedness of the Company, the rights of the Holders shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article Eleven to or for the benefit of the holders of such Senior Indebtedness by Holders or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company and the Holders, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article Eleven are intended solely for the purposes of defining the relative rights of the Holders, on the one hand, and the holders of such Senior Indebtedness on the other hand. - 49 - Nothing contained in this Article Eleven or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under the Indenture, subject to the rights, if any, under this Article Eleven of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Eleven, the Trustee, subject to the provisions of Section 5.03, and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any dissolution, winding-up, liquidation or reorganization proceedings in respect of the Company are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eleven. SECTION 11.05. TRUSTEE TO EFFECTUATE SUBORDINATION Each Holder of Debentures by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Eleven and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. SECTION 11.06. NOTICE BY THE COMPANY The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Eleven. Notwithstanding the provisions of this Article Eleven or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Eleven, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 5.03, shall be entitled in all respects to assume that no such facts exist; provided, however, that, if a Responsible Officer of the Trustee shall not have received the notice provided for in this Section 11.06 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose - 50 - (including, without limitation, the payment of the principal of or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Section 5.03, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company, as the case may be (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article Eleven, the Trustee shall be entitled to require such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Eleven, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 11.07. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS The Trustee or any Authenticating Agent in its individual capacity shall be entitled to all the rights set forth in this Article Eleven in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Eleven, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 5.03, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to Holders, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article Eleven or otherwise. SECTION 11.08. SUBORDINATION MAY NOT BE IMPAIRED No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company, as the case may be, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. - 51 - Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders, without incurring responsibility to the Holders and without impairing or releasing the subordination provided in this Article Eleven or the obligations hereunder of the Holders to the holders of such Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (3) release any Person liable in any manner for the collection of such Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Company, as the case may be, and any other Person. ARTICLE TWELVE DEFEASANCE SECTION 12.01. DEFEASANCE AND DISCHARGE The Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Debentures appertaining thereto as provided in this Section on and after the date the conditions set forth in Section 12.02 are satisfied (hereinafter called "DEFEASANCE"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Debentures and to have satisfied all its other obligations under the Debentures and this Indenture insofar as the Debentures are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of Debentures to receive, solely from the trust fund described in Section 12.02 and as more fully set forth in such Section, payments in respect of the principal of and interest on such Debentures when payments are due, (2) the Company's obligations with respect to the Debentures under Sections 2.12, 2.13, 2.14, 9.02 and 9.03, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (4) this Article Twelve. SECTION 12.02. CONDITIONS TO DEFEASANCE The following shall be the conditions to application of Section 12.01 to the Outstanding Debentures: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee that satisfies the requirements contemplated by Section 5.09 and agrees to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of Outstanding Debentures, (a) money in an amount, or (b) U.S. - 52 - Government Obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (c) a combination thereof, in each case, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and interest on the Debentures on the Maturity thereof in accordance with the terms of this Indenture and the Debentures. As used herein, "U.S. GOVERNMENT OBLIGATION" means (x) any security that is (i) a direct obligation of the United States of America for the payment of which the full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act, as amended) as custodian with respect to any U.S. Government Obligation specified in clause (x) and held by such custodian for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any such U.S. Government Obligation, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) The Company shall have delivered to the Trustee an Opinion of Counsel stating that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date first set forth hereinabove, there has been a change in the applicable Federal income tax law, in either case (a) or (b) to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Debentures will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to the Debentures and will be subject to United States federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that the Debentures, if then listed on any Debentures exchange, will not be delisted as a result of such deposit. (4) No Event of Default or event that (after notice or lapse of time or both) would become an Event of Default shall have occurred and be continuing at the time of such deposit or, with regard to any Event of Default or any such event specified in - 53 - Sections 4.01(4), (5) and (6), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (5) Such Defeasance shall not cause the Trustee to have a conflicting interest within the meaning of the Trust Indenture Act (assuming all Debentures are in default within the meaning of the Trust Indenture Act). (6) Such Defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (7) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance have been complied with. (8) Such Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the 1940 Act, as amended, unless such trust shall be qualified under such Act or exempt from regulation thereunder. SECTION 12.03. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS Subject to the provisions of the last paragraph of Section 9.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section 12.03 and Section 12.04, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 12.02 in respect of the Debentures shall be held in trust and applied by the Trustee, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders, of all sums due and to become due thereon in respect of principal and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 12.02 or the principal and interest received in respect thereof other than any such tax, fee or other charge that by law is for the account of the Holders of Outstanding Debentures. Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 12.02 with respect to Debentures that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect a Defeasance with respect to the Debentures. - 54 - SECTION 12.04. REINSTATEMENT If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article Twelve with respect to the Debentures by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Debentures shall be revived and reinstated as though no deposit had occurred pursuant to this Article Twelve with respect to Debentures until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 12.03 with respect to Debentures in accordance with this Article Twelve; provided, however, that if the Company makes any payment of principal of or interest on any Debenture following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of Debentures to receive such payment from the money so held in trust. ARTICLE THIRTEEN MEETINGS OF HOLDERS OF DEBENTURES SECTION 13.01. PURPOSE FOR WHICH MEETINGS MAY BE CALLED A meeting of Holders may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders. SECTION 13.02. CALL, NOTICE AND PLACE OF MEETINGS (1) The Trustee may at any time call a meeting of Holders for any purpose specified in Section 13.01, to be held at such time and at such place in Des Moines, Iowa, as the Trustee shall determine. Notice of every meeting of Holders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.06, not less than 21 nor more than 180 days prior to the date fixed for the meeting. The Trustee or the Company may fix, in advance of the giving of such notice, a date as the record date for determining the Holders entitled to notice or to vote at any such meeting not more than 15 days prior to the date fixed for the giving of such notice. (2) In case at any time the Company or the Holders of at least 10% in principal amount of the Outstanding Debentures shall have requested the Trustee to call a meeting of the Holders for any purpose specified in Section 13.01, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Debentures in the amount above specified, as the case may be, may determine the time and the place in Des Moines, Iowa for such meeting and may call such meeting for such purposes by giving notice thereof as provided in subsection (1) of this Section. - 55 - SECTION 13.03. PERSONS ENTITLED TO VOTE AT MEETINGS To be entitled to vote at any meeting of Holders, a Person shall be (1) a Holder of one or more Outstanding Debentures, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Debentures by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 13.04. QUORUM; ACTION The Persons entitled to vote a majority in principal amount of the Outstanding Debentures shall constitute a quorum for a meeting of Holders. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 13.02(1), except that such notice need be given only once not less than five days prior the date on which the meeting is scheduled to be reconvened. Except as limited by the proviso to Section 8.02, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Debentures, provided, however, that, except as limited by the proviso to Section 8.02, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority in principal amount of the Outstanding Debentures may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Debentures. Any resolution passed or decision taken at any meeting of Holders duly held in accordance with this Section 13.04 shall be binding on all the Holders, whether or not present or represented at the meeting. SECTION 13.05. DETERMINATION OF VOTING RIGHTS; CONDUCT AND ADJOURNMENT OF MEETINGS (1) Notwithstanding any other provisions of this Indenture, the Company may make such reasonable regulations as it may deem advisable for any meeting of Holders in regard to proof of the holding of Debentures and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meetings as it shall deem appropriate. Except as otherwise permitted or required by any - 56 - such regulations, the holding of Debentures shall be proved in the manner specified in Section 1.04. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.04 or other proof. (2) The Company shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders as provided in Section 13.02(2), in which case the Company or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Debentures represented at the meeting. (3) At any meeting each Holder or proxy shall be entitled to one vote for each $1,000 principal amount of Debentures held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder or proxy. (4) Any meeting of Holders duly called pursuant to Section 13.02 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Debentures represented at the meeting; and the meeting may be held as so adjourned without further notice. SECTION 13.06. COUNTING VOTES AND RECORDING ACTION OF MEETINGS The vote upon any resolution submitted to any meeting of Holders shall be by written ballots on which shall be subscribed the signatures of the Holders or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Debentures held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 13.02 and, if applicable, Section 13.04. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. - 57 - This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. - 58 - IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. MIDAMERICAN ENERGY HOLDINGS COMPANY By: /s/ Douglas L. Anderson ----------------------- Name: Douglas L. Anderson Title: Senior Vice President THE BANK OF NEW YORK as Trustee By: /s/ Robert A. Massimillo ------------------------ Name: Robert A. Massimillo Title: Vice President - 59 - EXHIBIT A FORM OF DEBENTURE (FORM OF FACE OF DEBENTURE) Series ________ Series Issue Date: No.___________ __________________ $_____________ Original Aggregate Principal Amount of Series: ------------------- 11% JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURE, SERIES __, DUE ____ MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________, or registered assigns, the principal sum of __________________ Dollars on ______________, ____, subject to mandatory redemption in nine annual principal installments, commencing ________, as more fully described on the reverse hereof, together with any accrued and unpaid interest thereon, including any Deferred Interest, and to pay interest on said principal sum from ____________, ____, or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on February 28 and August 31 of each year (each such date, an "Interest Payment Date") commencing __________, ____, at the rate of 11% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded semi-annually. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full semi-annual period for which interest is computed will be computed on the basis of the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the Business Day next preceding such Interest Payment Date. [IF THE PROPERTY TRUSTEE IS NO LONGER THE HOLDER OF THE DEBENTURES -- which shall be the close of business on the ___ Business Day next preceding such Interest Payment Date.] Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of the Debentures not less than 10 days prior to such special record date. The principal of and the interest on this Debenture shall be payable at the Corporate Trust Office of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the Holder of this Debenture is the Property Trustee, the payment of the principal of and interest on this Debenture will be made at such place and to such account as may be designated by the Property Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. Unless the Certificate of Authentication hereon has been executed by the Trustee referred to on the reverse side hereof, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated: MIDAMERICAN ENERGY HOLDINGS COMPANY By ________________________________________ - 2 - (FORM OF CERTIFICATE OF AUTHENTICATION) CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. THE BANK OF NEW YORK By: ________________________________________ Authorized Signatory (FORM OF REVERSE OF DEBENTURE) This Debenture is one of the duly authorized Debentures of the Company (herein sometimes referred to as the "Debentures"), all issued under and pursuant to an Indenture dated as of August 16, 2002, (the "Indenture") duly executed and delivered between the Company and The Bank of New York, as Trustee (the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures. The Debentures are issuable in series (this Debenture being of the series specified on the front hereof) in an aggregate principal amount not exceeding $979,381,450. The Debentures of this series are subject to mandatory redemption in nine annual principal installments, with the first installment equal to 15.789474% of the original aggregate principal amount of Debentures of this series and payable on the first Interest Payment Date which is at least one year following the Series Issue Date, and each following installment equal to 10.526316% of such original aggregate principal amount and payable on each August 31 Interest Payment Date thereafter with the last installment payable on the Maturity Date. The Company shall also have the option to redeem this Debenture, at any time in certain circumstances upon the occurrence of a Special Event, at a redemption price equal to 100% of the principal amount plus any accrued but unpaid interest to the date of such redemption (the "Redemption Price"). Any Special Event Redemption pursuant to this paragraph will be made upon not less than 30 nor more than 60 days' notice at the Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to a mandatory redemption, the Debentures of this series will be redeemed pro rata. In the event of redemption of this Debenture in part only, a new Debenture of the same series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Debentures affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the Holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Debentures at the time outstanding affected thereby, on behalf of all of the Holders of the Debentures, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to the Debentures, and its consequences, except a default in the payment of the principal of or interest on any of the Debentures. Any such consent or waiver by the registered Holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures from time to time to extend the interest payment period of such Debentures to up to 10 consecutive six-month payment periods (an "Extension Period"); provided that an Extension Period may not extend beyond the Maturity Date or, as to each Debenture being optionally redeemed or, in the case of mandatory redemption, the portion thereof being redeemed, beyond the relevant Redemption Date. At the end of any such Extension Period, the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such Extension Period together with all such further extensions thereof shall not exceed 10 consecutive six-month payment periods. At the termination of any such Extension Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extension Period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable under limited circumstances by the registered Holder hereof on the Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in ____________________ accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and any Registrar may deem and treat the registered Holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Registrar shall be affected by any notice to the contrary. - 2 - No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Debentures are issuable only in definitive form without coupons in denominations of $25 and any integral multiple thereof. Debentures so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof as provided in the Indenture and subject to certain limitations herein and therein set forth. Debentures so issued are exchangeable for a like aggregate principal amount of Debentures of the same series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. - 3 - EX-4.18 10 file009.txt SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT MidAmerican Capital Trust III c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 Attn: Gregory E. Abel Ladies and Gentlemen: The undersigned is executing this Agreement in connection with its subscription for Trust Securities (as defined below) of MidAmerican Capital Trust III (the "Trust"), a statutory business trust formed by MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), under the laws of the State of Delaware. The undersigned understands that the Trust is relying upon the accuracy and completeness of the information contained herein in complying with its obligations under federal and state securities and other applicable laws. The Company has entered into that certain Purchase Agreement dated as of July 28, 2002 (the "Dynegy Purchase Agreement") with Dynegy, Inc., an Illinois corporation ("Dynegy"), and certain entities affiliated with Dynegy providing for the purchase of 100% of the outstanding common stock and 100% of the outstanding Series A Preferred Stock in Northern Natural Gas Corporation, a Delaware corporation. The purchase and sale of the stock interests contemplated under the Dynegy Purchase Agreement is referred to herein as the "Transaction." The undersigned hereby irrevocably agrees with, and represents and warrants to and for the benefit of, the Trust, the Company and the shareholders of the Company, as follows: 1. Subscription. ------------ (a) On the terms and subject to the conditions of this Agreement, the undersigned hereby irrevocably agrees to purchase, and the Trust hereby irrevocably agrees to sell, on the Closing Date (as defined in Section 5 below): 38,000,000 11% Trust Issued Preferred Securities (liquidation amount $25 per security) (the "Trust Securities") of the Trust, having the terms, limitations and relative rights and preferences set forth in the Amended and Restated Declaration of Trust (including the exhibits thereto), to be dated as of the Closing Date and in the form attached as Schedule I hereto (the "Declaration of Trust"), for an aggregate purchase price of $950,000,000. (b) The purchase price for the Trust Securities is payable in cash or other immediately available funds. The undersigned may assign its subscription rights hereunder to one or more of its consolidated subsidiaries; provided, however, that the undersigned shall remain fully liable for all of its obligations hereunder, including, without limitation, the payment of the purchase price for all of the Trust Securities. As a condition to such subscription, each consolidated subsidiary of the undersigned purchasing Trust Securities shall execute and deliver to the Trust a counterpart of this Agreement, and shall be bound by the terms and conditions of this Agreement (but with its obligations limited to the Trust Securities being purchased by it) as if such person was the original signatory hereto. 2. [Intentionally omitted.] 3. Representations and Warranties of the Trust. The Trust hereby represents and warrants to the undersigned that: (a) Organization and Qualification. The Trust is a statutory business trust duly organized, validly existing and in good standing under the laws of the State of Delaware. Except for obligations or liabilities incurred, or to be incurred, in connection with the transactions contemplated by the Dynegy Purchase Agreement or in connection with its organization, on the Closing Date the Trust will not have incurred any obligations or liabilities or engaged in any business activities of any kind. (b) Authority. On the Closing Date, the issuance and delivery of the Trust Securities being purchased in accordance with this Agreement will have been duly authorized by the Trust. (c) Issuance of Securities. On the Closing Date, the Trust Securities to be issued and sold by the Trust pursuant to this Agreement, when issued in accordance with the provisions hereof, will be validly issued, fully paid and nonassessable undivided beneficial interests in the assets of the Trust, and no holder of interests in the Trust will have any preemptive rights to subscribe for any such Trust Securities. On the Closing Date, the only securities which will be authorized for issuance by the Trust are the Trust Securities to be issued and sold by the Trust pursuant to this Agreement and the Trust's Common Securities issued or to be issued by the Trust pursuant to the Common Securities Purchase Agreement, to be dated as of the Closing Date, by and between the Trust and the Company. (d) Approvals and Consents; Non-Contravention. The creation, authorization, issuance, offer and sale of the Trust Securities do not require any consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the Company (except as otherwise obtained) or the Trust (other than with respect to the organization of the Trust) or the vote, consent or approval in any manner of the holders of any capital stock or other security of the Company as a condition to the execution and delivery of this Agreement or the creation, authorization, issuance, offer and sale of the Trust Securities. The execution and delivery by the Trust of this Agreement and the performance by the Trust of its obligations hereunder will not violate (i) the terms and conditions of the Trust's Certificate of Trust or the Declaration of Trust or any agreement to which the Trust is a party or by which it is bound or (ii) subject to the accuracy of the representations and warranties of the undersigned contained in Section 4 hereof, any federal or state law. (e) Use of Proceeds. The Trust will use all of the proceeds from the sale of the Trust Securities hereby to purchase a series of the Company's 11% Junior Subordinated Deferrable Interest Debentures, which shall require that the Company will cause the proceeds of -2- such debenture issuance to be applied toward funding the Transaction, related fees and expenses and related capital expenditures. 4. Representations and Warranties of the Undersigned. The undersigned hereby represents and warrants to the Trust that: (a) Organization and Qualification. The undersigned is duly organized or formed, validly existing and in good standing under the laws of the state of its organization or formation. (b) Authority. The undersigned has the requisite power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the undersigned and the consummation by the undersigned of the transactions contemplated hereby have been duly and validly approved by all necessary action, and no other proceedings on the part of the undersigned are necessary to authorize the execution, delivery and performance of this Agreement by the undersigned and the consummation by the undersigned of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the undersigned and, assuming the due authorization, execution and delivery of this Agreement by the Trust, constitutes a legal, valid and binding obligation of the undersigned enforceable against the undersigned in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) Approvals and Consents; Non-Contravention. The execution, delivery and performance of this Agreement by the undersigned and the consummation by the undersigned of the transactions contemplated hereby do not require any consent, approval or authorization of, or filing, registration or qualification with, any governmental authority on the part of the undersigned, or the vote, consent or approval in any manner of the holders of any capital stock or other security of the undersigned as a condition to the execution and delivery of this Agreement or the consummation by the undersigned of the transactions contemplated hereby. The execution and delivery by the undersigned of this Agreement and the performance by the undersigned of its obligations hereunder will not violate (i) the terms and conditions of the certificate of incorporation, or other applicable formation document, or the bylaws of the undersigned, or any agreement to which the undersigned is a party or by which it is bound or (ii) any federal or state law. Notwithstanding any other provision of this Section 4(c), no representation or warranty is made as to whether the undersigned or any of its affiliates, as a result of the transactions contemplated by this Agreement or the Dynegy Purchase Agreement would be subject to regulation as a registered holding company under the Public Utility Holding Company Act of 1935, as amended. The undersigned would not intend to register as such a holding company if that were a required condition of the transaction. (d) Residence. The principal place of business address set forth on the signature page hereof is the undersigned's true and correct principal place of business and is the only jurisdiction in which an offer to sell the Trust Securities was made to the undersigned and -3- the undersigned has no present intention of moving its principal place of business to any other state or jurisdiction. (e) No Registration; Transfer Restrictions. The undersigned understands that the Trust Securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or under the laws of any other jurisdiction, and that the Trust does not contemplate and is under no obligation to so register the Trust Securities and that the Trust Securities are only transferable to "Permitted Holders" (as defined in the Declaration of Trust). The undersigned understands and agrees that the Trust Securities must be held indefinitely unless they are subsequently transferred (i) pursuant to an effective registration statement under the Act and, where required, under the laws of other jurisdictions or (ii) pursuant to an exemption from applicable registration requirements. The undersigned recognizes that there is no established trading market for the Trust Securities and that it is unlikely that any public market for the Trust Securities will develop. The undersigned will not offer, sell, transfer or assign its Trust Securities or any interest therein in contravention of this Agreement, the Declaration of Trust, the Act or any state or federal law. (f) Purchase for Investment. The Trust Securities for which the undersigned hereby subscribes are being acquired solely for the undersigned's own account for investment and are not being purchased with a view to or for resale, distribution or other disposition, and the undersigned has no present plans to enter into any contract, undertaking, agreement or arrangement for any such resale, distribution or other disposition. (g) Information. The undersigned has been granted the opportunity to ask questions of, and receive answers from, the Trust and the Company and the officers of the Trust and the Company concerning the terms and conditions of the sale of the Trust Securities, the Dynegy Purchase Agreement and the transactions contemplated thereby, and to obtain any additional information which the undersigned deems necessary to make an informed investment decision. The undersigned has received or has had access to other documents requested from the Trust and the Company relating to the Trust Securities and the purchase thereof, and the Trust and the Company have afforded the undersigned the opportunity to discuss the undersigned's investment in the Trust and to ask and receive answers to any questions relating to the investment in the Trust Securities, the Dynegy Purchase Agreement and the transactions contemplated thereby. The undersigned understands and has evaluated the risks of a purchase of the Trust Securities. (h) Accredited Investor. The undersigned has read the text of Rule 501(a)(1) - (8) of Regulation D under the Act and confirms that it is an "accredited investor" as described thereby. (i) Plan Assets. (i) By checking below, the undersigned has indicated whether or not it is, or is acting on behalf of, a "benefit plan investor", as defined in 29 C.F.R. ss. 2510.3-101. The undersigned acknowledges that (A) a benefit plan investor includes (x) an "employee benefit plan" within the meaning of Section 3(3) of the U.S. Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not such plan is subject -4- to ERISA, or (y) a plan or arrangement subject to Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") or (iii) an entity which is deemed to hold the assets of any such employee benefit plan, plan or arrangement described in (x) or (y) above pursuant to 29 C.F.R. ss. 2510.3-101 or otherwise, (B) a plan which is maintained by a foreign corporation, governmental entity or church, a Keogh plan covering no common-law employees and an individual retirement account would each be a benefit plan investor for this purpose, even though they are generally not subject to ERISA and (C) a foreign or U.S. entity which is not an operating company and which is not publicly traded or registered as an investment company under the Investment Company Act of 1940, as amended, and in which 25% or more of the value of any class of equity interests is held by benefit plan investors, would be deemed to hold the assets of one or more employee benefit plans pursuant to 29 C.F.R. 2510.3-101. The undersigned further understands that for purposes of determining whether this 25% threshold has been met or exceeded, the value of any equity interests held by a person (other than a benefit plan investor) who has discretionary authority or control with respect to the assets of the entity, or any person who provides investment advice for a fee (direct or indirect) with respect to such assets, or any affiliate of such a person, is disregarded: Yes X No --- --- (ii) By checking below, the undersigned has indicated whether it is, or is acting on behalf of, such an employee benefit plan, plan or arrangement described in the preceding question, or is an entity deemed to hold the assets of any such employee benefit plan, plan or arrangement that is subject to ERISA and/or Section 4975 of the Code. Yes X No --- --- (iii) By checking below, the undersigned has indicated whether it is an insurance company using assets of its general account. Yes X No --- --- If the answer to the above question is yes, please indicate the percentage of the general account that is attributable to benefit plan investors subject to ERISA and/or Section 4975 of the Code: _______%. (j) Holding Company. The undersigned is not a "public utility company," a "holding company," a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company," as such terms are defined in the Public Utility Holding Company Act of 1935, as amended, or a "public utility" as such term is defined in the Federal Power Act. (k) Assignment. The undersigned will only assign its subscription rights hereunder to one or more of its consolidated subsidiaries who are capable of making the representations and warranties contained in this Section 4 and of performing the obligations they undertake hereunder. -5- 5. Closing. The closing (the "Closing") of the purchase and sale of the Trust Securities pursuant to this Agreement shall be held on the day of the closing of the Transaction (such date, the "Closing Date"). 6. Conditions to Closing. (a) The undersigned's obligation to purchase the Trust Securities under this Agreement at the Closing is subject to the fulfillment on or prior to the Closing of the following conditions: (i) Representations and Warranties. Each representation and warranty made by the Trust in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though such representation or warranty was made on the Closing Date, and any representation or warranty made as of a specified date earlier than the Closing Date shall have been true and correct in all material respects on and as of such earlier date. (ii) Performance. The Trust shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the Trust at or before the Closing Date. (b The Trust's obligation to sell the Trust Securities under this Agreement at the Closing is subject to the fulfillment on or prior to the Closing of the following conditions: (i) Representations and Warranties. Each representation and warranty made by the undersigned in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though such representation or warranty was made on the Closing Date, and any representation or warranty made as of a specified date earlier than the Closing Date shall have been true and correct in all material respects on and as of such earlier date. (ii) Performance. The undersigned shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by the undersigned at or before the Closing Date. 7. Covenants. Each of the Trust and the undersigned covenants and agrees with the other that, at all times from and after the date hereof until the Closing Date, it will comply with all covenants and provisions of this Section 7, except to the extent the other party may otherwise consent in writing. (a) Formation of Trust. The Company shall take all actions necessary to organize the Trust, to issue its 11% Junior Subordinated Deferrable Interest Debentures, Series A, to the Trust and to cause the Trust to perform its obligations in accordance with the terms, and subject to the conditions, of this Agreement. (b) Regulatory and Other Approvals. Subject to the terms and conditions of this Agreement, each of the Company and the undersigned will proceed diligently and in good faith to, as promptly as practicable (x) obtain all consents, approvals or actions of, make all filings with and give all notices to governmental or regulatory authorities or any public or private -6- third parties required of the Trust and the undersigned to consummate the transactions contemplated hereby and by the Dynegy Purchase Agreement, and (y) provide such other information and communications to such governmental or regulatory authorities or other public or private third parties as the other party or such governmental or regulatory authorities or other public or private third parties may reasonably request in connection therewith. (c) Notice and Cure. Each of the Trust and the undersigned will promptly notify the other in writing of, and contemporaneously will provide the other with true and complete copies of any and all information or documents relating to, and will use all commercially reasonable efforts to cure before the Closing Date, any event, transaction or circumstance, occurring after the date of this Agreement that causes or will cause any covenant or agreement of either such party under this Agreement to be breached or that renders or will render untrue any representation or warranty of either such party contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. (d) Fulfillment of Conditions. Each of the Trust and the undersigned will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each condition to the obligations of such party contained in this Agreement and will not take any action that could reasonably be expected to result in the nonfulfillment of any such condition or fail to take any commercially reasonable action that could reasonably be expected to prevent the nonfulfillment of any such condition. 8. Indemnification. The undersigned agrees to indemnify and hold harmless the Trust, the Company or any officer, director, employee, agent or control person (within the meaning of Section 15 of the Act) of any such entity from and against any and all loss, damage or liability due to or arising out of a breach of any representation or warranty of the undersigned contained in any document furnished by the undersigned in connection with the offering and sale of the Trust Securities, including, without limitation, this Agreement, or failure by the undersigned to comply with any covenant or agreement made by the undersigned herein or in any other document furnished by the undersigned to any of the foregoing in connection with this transaction. 9. Survival; Binding Effect. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and delivery of the Trust Securities and payment therefor and, notwithstanding any investigation heretofore or hereafter made by the undersigned or on the undersigned's behalf, shall continue in full force and effect. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party and all covenants, promises and agreements in this Agreement by or on behalf of the Trust, or by or on behalf of the undersigned, shall bind and inure to the benefit of the successors and assigns of such parties hereto. 10. Termination. (a) This Agreement may be terminated, and the transactions contemplated hereby may be abandoned at any time before the Closing (i) by mutual written agreement of the Trust and the undersigned or (ii) by the Trust or the undersigned, in the event that any order or law becomes effective restraining, enjoining or otherwise prohibiting or making illegal the -7- consummation of any of the transactions contemplated by this Agreement, upon notification of the non-terminating party by the terminating party. (b) This Agreement shall terminate prior to the Closing Date, with no further action being required on the part of either party hereto, automatically, upon any termination of the Dynegy Purchase Agreement in accordance with its terms by the Company. (c) If this Agreement is validly terminated pursuant to this Section 10, this Agreement will forthwith become null and void, and there will be no liability or obligation on the part of the undersigned or the Trust or the Company (or any of their respective shareholders, officers, directors, employees, agents or other representatives or affiliates), except to the extent of the transactions previously consummated hereunder. Notwithstanding the foregoing, no such termination shall affect the obligations of the undersigned pursuant to Section 8, which shall survive any such termination. 11. Notices. All notices, statements, instructions or other documents required to be given hereunder shall be in writing and shall be given either personally, by overnight courier or by facsimile, addressed to the Trust at its principal offices, with a copy to the Company, at 666 Grand Avenue, Des Moines, Iowa 50309, Attn: President, Telecopy: (515) 242-4031, and to the other party at its address or facsimile number reflected on the signature page hereto. The undersigned, by written notice given to the Trust in accordance with this Section 11 may change the address to which notices, statements, instructions or other documents are to be sent to the undersigned. 12. Complete Agreement; Counterparts. This Agreement constitutes the entire agreement and supersedes all other agreements and understandings, both written and oral, between the parties hereto, with respect to the subject matter hereof. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 13. Assignment. Without the prior written consent of each of the parties hereto, neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto and any attempt to do so will be void; provided, however, that, notwithstanding any other provisions of this Agreement, this Agreement and all rights, interests and obligations of the undersigned hereunder (or, at the option of the undersigned, the right and obligation to purchase some, but not all, of the Trust Securities) may be assigned by the undersigned to one or more subsidiaries of the undersigned which are, and which continue to be as of the Closing Date, consolidated with the undersigned for financial accounting purposes, without obtaining the consent of any other party hereto. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and shall be enforceable by the parties hereto and their respective successors and assigns. 14. Amendment and Waiver. This Agreement may be amended or modified only by an instrument signed by the parties hereto. A waiver of any provision of this Agreement must be in writing, designated as such, and signed by the party against whom enforcement of that waiver -8- is sought. The waiver by a party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent or other breach thereof. 15. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. -9- IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement on this 16 day of August 2002. BERKSHIRE HATHAWAY INC. 1440 Kiewit Plaza --------------------------------------- Mailing Address By: /s/ Marc D. Hamburg Omaha NE 68131 -------------------- --------------------------------------- Name: Marc D. Hamburg City State Zip Code Title: Vice President 47-0813844 --------------------------------------- Tax Identification Number (402) 346-3375 --------------------------------------- Facsimile Number SUBSCRIPTION ACCEPTED AS OF THE ABOVE DATE MIDAMERICAN CAPITAL TRUST III By: /s/ Douglas L. Anderson ----------------------- Name: Douglas L. Anderson Title: Regular Trustee By: /s/ Patrick J. Goodman ---------------------- Name: Patrick J. Goodman Title: Regular Trustee EX-4.19 11 file010.txt SHAREHOLDERS AGREEMENT DATED AS OF MARCH 14, 2000 SHAREHOLDERS AGREEMENT DATED AS OF MARCH 14, 2000 TABLE OF CONTENTS
1. COVENANTS OF THE PARTIES......................................................................................1 (a) Legends...............................................................................................1 (b) Additional Management Investors.......................................................................2 (c) Additional Investors..................................................................................2 (d) Amendment No. 1 to David L. Sokol's Employment Agreement..............................................2 (e) Restated Articles of Incorporation....................................................................3 2. TRANSFER OF STOCK.............................................................................................3 (a) Resale of Management Investors' Securities............................................................3 (b) Resale of Scott's; Scott Entities' and Scott Family Entities' Securities..............................3 (c) Statutory Transfer Restrictions.......................................................................4 (d) Rights of First Refusal...............................................................................4 (e) Offer by Transferor...................................................................................4 (f) Acceptance of Offer...................................................................................4 (g) Purchase Price........................................................................................5 (h) Consideration Other Than Cash.........................................................................5 (i) Appraisal Procedure...................................................................................5 (j) Closing of Purchase...................................................................................6 (k) Release from Restriction; Termination of Rights.......................................................6 (l) Ownership Limitation..................................................................................6 (m) Prohibited Transfers..................................................................................7 3. TAG-ALONG RIGHT...............................................................................................7 4. PUTS AND CALLS................................................................................................7 (a) The Management Put....................................................................................7 (b) The Company Call on Management Securities.............................................................8 (c) The Scott, Scott Entities and Scott Family Entities Put...............................................8 (d) The Purchase Price....................................................................................8 (e) Determination of the Purchase Price for the Management Put or Management Call.........................9 (f) Determination of the Purchase Price for the Scott Put................................................10 (g) Closing of Purchases.................................................................................10 5. COMPANY COVENANTS............................................................................................10 (a) Appraisals...........................................................................................10 6. TERMINATION..................................................................................................10 7. INTERPRETATION OF THIS AGREEMENT.............................................................................11 (a) Terms Defined........................................................................................11 (b) Directly or Indirectly...............................................................................13 (c) Governing Law........................................................................................13 i (d) Section Headings.....................................................................................13 (e) Affiliate Action.....................................................................................13 8. MISCELLANEOUS................................................................................................13 (a) Notices..............................................................................................13 (b) Reproduction of Documents............................................................................14 (c) Successors and Assigns...............................................................................14 (d) Entire Agreement; Amendment and Waiver...............................................................14 (e) Severability.........................................................................................15 (f) Counterparts.........................................................................................15
Schedule I - Management Investors Exhibit A - Joinder Agreement Exhibit B - Amendment No. 1 to David L. Sokol's Employment Agreement Exhibit C - Restated Articles of Incorporation ii SHAREHOLDERS AGREEMENT Shareholders Agreement, dated as of this 14 day of March, 2000 (this "Agreement"), by and among Berkshire Hathaway Inc., a Delaware corporation ("Berkshire"); Walter Scott, Jr. ("Scott"), Sandra Scott Parker, Amy Lynn Scott Trust #3, Karen Ann Scott Trust #3, Sandra Sue Scott Trust #3, Walter David Scott Trust #3, Amy Lynn Scott Wyoming Trust, W. David Scott Wyoming Trust, Karen Ann Dixon Wyoming Trust, Double Eight Land Corporation (the "Scott Family Entities") and David L. Sokol and Gregory E. Abel whose names and addresses appear on Schedule I hereto (the "Management Investors," and, together with Berkshire, Scott and the Scott Family Entities, the "Investors"); and Teton Acquisition Corp., an Iowa corporation (the "Company"). Certain terms used in this Agreement are defined in Section 7 hereof. This Agreement shall become effective upon the consummation of the Merger. R E C I T A L S WHEREAS, pursuant to the terms of certain Subscription Agreements with the Company (the "Subscription Agreements") and the Agreement and Plan of Merger dated as of October 24, 1999, by and among MidAmerican Energy Holdings Company, Teton Formation L.L.C. and the Company (the "Merger Agreement"), (i) Berkshire will purchase shares of Common Stock, no par value, of the Company ("Common Stock"), shares of Zero Coupon Convertible Preferred Stock, no par value, of the Company ("Convertible Preferred Stock") and Trust Preferred Securities of MidAmerican Capital Trust, a Delaware statutory business trust; (ii) Scott and the Scott Family Entities will purchase shares of Common Stock; and (iii) the Management Investors will purchase shares of Common Stock and options to purchase Common Stock (together with any other options to purchase Common Stock issued to the Management Investors on the date hereof, the "Options"); WHEREAS, the Investors and the Company desire to promote their mutual interests by agreeing to certain matters relating to the disposition of the shares of Common Stock, Convertible Preferred Stock and Options owned by the Investors on the date hereof, together with any other shares of Common Stock or Convertible Preferred Stock or Options subsequently acquired or otherwise owned by them from time to time (collectively, the "Securities"), as further set forth herein; and WHEREAS, pursuant to the Merger Agreement, the Company will merge with and into MidAmerican Energy Holdings Company (the "Merger"), with the surviving corporation being referred to herein as the Company; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. COVENANTS OF THE PARTIES (a) Legends. The certificates evidencing the Securities owned or acquired by the Investors or their permitted transferees will bear the following legends reflecting the restrictions on the transfer of such securities under the Securities Act and those contained in this Agreement: "The securities evidenced hereby have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and may not be transferred except pursuant to an effective registration under the Securities Act or in a transaction which, in the opinion of counsel reasonably satisfactory to MidAmerican Energy Holdings Company (the "Company"), qualifies as an exempt transaction under the Securities Act and the rules and regulations promulgated thereunder. The securities evidenced hereby are subject to the terms of that certain Shareholders Agreement, dated as of March 14, 2000, by and among the Company and certain holders of securities of the Company, including, as applicable, certain restrictions on transfer and certain rights of first refusal. A copy of such Shareholders Agreement has been filed with the Secretary of the Company and is available upon request." (b) Additional Management Investors. The parties hereto acknowledge that, subject to the terms hereof, certain Management Permitted Transferees (as defined below in Section 2(a)) may become shareholders of the Company after the date hereof pursuant to Section 2(a) and that each Management Permitted Transferee will be required, as a condition to the Transfer of Securities to them, to execute a Joinder Agreement in the form attached hereto as Exhibit A (the "Joinder Agreement"). Upon execution of a Joinder Agreement, each such Management Permitted Transferee shall be deemed to be a Management Investor under this Agreement and shall be entitled to all of the rights and benefits afforded to, and shall be subject to all the restrictions on and obligations of, a Management Investor hereunder. (c) Additional Investors. The parties hereto acknowledge that, subject to the terms hereof, certain third parties may become shareholders of the Company pursuant to the Permitted Transfers set forth in Section 2(b) after the date hereof and that each such permitted transferee will be required, as a condition to the Transfer of Securities to them, to execute a Joinder Agreement. Upon execution of a Joinder Agreement, each such Person shall be deemed to be an Investor under this Agreement and shall be subject to all the restrictions on and obligations of, an Investor hereunder. Upon execution of a Joinder Agreement, each such Scott Entity who becomes a shareholder pursuant to Section 2(b)(i) shall be entitled to all of the rights and benefits afforded to, and shall be subject to all the restrictions on and obligations of, a Scott Entity hereunder. Upon execution of a Joinder Agreement, each such Scott Family Entity Permitted Transferee shall be deemed to be a Scott Family Entity under this Agreement and shall be entitled to all of the rights and benefits afforded to, and shall be subject to all the restrictions on and obligations of, a Scott Family Entity hereunder. (d) Amendment No. 1 to David L. Sokol's Employment Agreement. Contemporaneously with the execution of this Agreement, the Company and David L. Sokol shall enter into Amendment No. 1 to the existing Amended and Restated Employment Agreement between MidAmerican Energy Holdings Company and David L. Sokol, which amendment shall be substantially in the form set forth on Exhibit B hereto. 2 (e) Voting Agreement Regarding Restated Articles of Incorporation. (i) The Company shall immediately after the Merger, call and hold a special meeting of the Company's shareholders. At such meeting, the Investors shall vote all of their Securities in favor of the adoption of Restated Articles of Incorporation in the form set forth in Exhibit C hereto. (ii) EACH OF THE INVESTORS HEREBY GRANTS TO, AND APPOINTS DAVID L. SOKOL AND MARC D. HAMBURG, THE INVESTOR'S IRREVOCABLE PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SECURITIES OF THE INVESTORS AT THE SPECIAL MEETING AND IN RESPECT OF THE MATTER IDENTIFIED IN SECTION 1(e)(i) ABOVE AND TO WAIVE NOTICE OF THE SPECIAL MEETING. EACH OF THE INVESTORS INTEND THIS PROXY TO BE IRREVOCABLE AND COUPLED WITH AN INTEREST AND SHALL TAKE SUCH FURTHER ACTIONS AND EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH INVESTOR WITH RESPECT TO THE SECURITIES OWNED BY SUCH INVESTOR. (iii) The Company shall file the Restated Articles of Incorporation adopted by the Company's shareholders with the Secretary of State of Iowa. 2. TRANSFER OF STOCK (a) Resale of Management Investors' Securities. Except as otherwise provided in Section 3, until the third anniversary of the date hereof, no Management Investor shall Transfer any Securities, or any beneficial interest therein, other than to such Management Investor's estate, spouse, lineal descendants or any Qualified Trusts for the benefit of such Management Investor or the foregoing persons or non-corporate charitable foundations controlled by such Management Investor (collectively, "Management Permitted Transferees"). For the avoidance of doubt, this Section 2(a) is not intended to diminish any transfer restrictions contained in any option agreement governing the Options. The Transfer restrictions contained in this Section 2(a) shall terminate upon a Berkshire Majority Transfer. (b) Resale of Scott's, Scott Entities' and Scott Family Entities' Securities. Except as otherwise provided in Section 3 and except for Permitted Transfers (as defined below), Scott, his Qualified Trusts, his estate (including a grantor Qualified Trust created by him to receive his probate estate and distributions by such Qualified Trust to a non-corporate foundation created by him) and any charitable Qualified Trust or non-corporate foundation controlled as to voting by him (collectively, the "Scott Entities") and the Scott Family Entities shall not Transfer the Retained Shares or the Additional Shares other than, as applicable, to the individual beneficiaries of those of the Scott Family Entities which are trusts (such individuals, hereinafter, the "Trust Individuals") or the respective estates, spouses and lineal descendants of such Trust Individuals or any Qualified Trusts for the benefit of such spouses or lineal descendants of such Trust Individuals or non-corporate charitable foundations controlled by such Scott Family Entities (collectively, "Scott Family Entity Permitted Transferees"). "Permitted Transfers" shall mean (i) (x) Transfers between or among the Scott Entities, (y) Transfers between or among the 3 Scott Family Entities or (z) Transfers by the Scott Family Entities to the Scott Entities, (ii) Transfers of the Retained Shares at any time after the fifth anniversary of the date hereof and of the Additional Shares at any time after the third anniversary of the date hereof to Eligible Purchasers in compliance with the provisions of Sections 2(d) through 2(j), (iii) Transfers made at any time pursuant to the Scott Put provided for in Section 4(c), and (iv) other Transfer arrangements agreed upon by Scott and Berkshire which would not cause either Scott or Berkshire or any of their affiliates to become subject to regulation as a registered holding company under PUHCA or cause the Company or any of its subsidiaries to become subject to regulation as a subsidiary of a registered holding company under PUHCA. The Transfer restrictions contained in this Section 2(b) shall terminate upon a Berkshire Majority Transfer. (c) Statutory Transfer Restrictions. No Investor shall Transfer any Securities (including any Securities received as a result of dividends, splits or any other forms of recapitalization in respect of such Securities), either voluntarily or involuntarily, directly or indirectly, except pursuant to an effective registration under the Securities Act, or in a transaction which qualifies as an exempt transaction under the Securities Act and the rules and regulations promulgated thereunder. No Investor shall Transfer any Securities (including any Securities received as a result of dividends, splits or any other forms of recapitalization in respect of such Securities) in violation of PUHCA. (d) Rights of First Refusal. Except as otherwise permitted by clauses (i), (iii) and (iv) of the definition of Permitted Transfers contained in Section 2(b) and as otherwise permitted by Section 3, none of Scott, any of the Scott Entities or any of the Scott Family Entities shall Transfer any Retained Shares or Additional Shares or any shares of Common Stock received in exchange therefor, or any beneficial interest therein, unless such Investor desiring to make the Transfer (hereinafter referred to as the "Transferor") shall have first made the offer to sell to Berkshire as contemplated by Sections 2(d) through 2(k), and such offers shall not have been accepted in the manner set forth below or shall not have been timely paid for in the manner set forth below. (e) Offer by Transferor. Transferor shall provide written notice to Berkshire of Transferor's intent to make a Transfer subject to Section 2(d), which written notice shall include an offer to sell to Berkshire all of the shares of Common Stock then proposed to be transferred by the Transferor (the "Subject Shares") and a certification that the Proposed Transfer would be made pursuant to a bona fide offer of a third party, identification of the name and address of such third party transferee, the number of shares of Common Stock involved in the proposed Transfer and the material terms of such offer. (f) Acceptance of Offer. (i) If Berkshire is an Eligible Purchaser at the time of receipt of the offer described in Section 2(e), within ten (10) days after the receipt of the offer described in Section 2(e), Berkshire may, at its option, elect to purchase all, but not less than all, of the Subject Shares. Berkshire shall exercise such option by giving written notice thereof to the Transferor within such 10-day period, which notice shall specify a date for the closing of the purchase which shall not be more than thirty (30) days after the date of the giving of such notice, or, if applicable and required by law, two business days after the later of (A) the expiration or 4 termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder, (B) the receipt of any orders or approvals required by any federal or state regulatory authority, and (C) the receipt of any orders or approvals or the expiration without action of any waiting period required by any European or United Kingdom competition authority; (ii) If Berkshire is not an Eligible Purchaser at the time of receipt of the offer described in Section 2(e), within forty-five (45) days after the receipt of the offer described in Section 2(e), Berkshire may, at its option, elect to assign its rights to purchase the Subject Shares pursuant to this Section 2 to one or more Eligible Purchasers (each, an "Assignee"); provided that such Assignee(s) agree in writing to purchase the Subject Shares in accordance with the terms of this Agreement. Berkshire or its Assignee(s) shall exercise such option by giving written notice to the Transferor within such 45-day period, which notice shall specify the purchaser or purchasers of the Subject Shares, a date for the closing of the purchase which shall not be more than thirty (30) days after the date of the giving of such notice, or, if applicable and required by law, two (2) business days after the later of (A) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder, (B) the receipt of any orders or approvals required by any federal or state regulatory authority, and (C) the receipt of any orders or approvals or the expiration without action of any waiting period required by any European or United Kingdom competition authority. (g) Purchase Price. The purchase price per share for the Subject Shares shall be the price per share offered to be paid by the prospective transferee described in the offer, which price shall be paid in cash or, if so provided in the offer of the prospective transferee, cash plus deferred payments of cash in the same proportions, and with the same terms of deferred payment as therein set forth. (h) Consideration Other Than Cash. If the offer of Subject Shares under this Section 2 is for consideration other than cash or cash plus deferred payments of cash, Berkshire (or its Assignee(s)) shall pay the cash equivalent of such other consideration. If the Transferor and Berkshire (or its Assignee(s)) cannot agree on the amount of such cash equivalent within the 10-day period or the 45-day period, as applicable, under Section 2(f), either of such parties may, by written notice to the other given before the end of that period, initiate appraisal proceedings under Section 2(i) for determination of the cash equivalent. (i) Appraisal Procedure. If any party shall initiate appraisal proceedings to determine the amount of the cash equivalent of any consideration for Subject Shares under Section 2(h), then the Transferor, on the one hand, and Berkshire or its Assignee(s), on the other hand, shall each promptly (and in any event within ten (10) days of the expiration of the 10-day or 45-day period, as applicable) appoint as an appraiser an individual who shall be a member of a reputable valuation firm or investment bank. Each appraiser shall, within thirty (30) days of appointment, separately determine the value of the consideration for the Subject Shares as of the proposed transfer date and shall submit a written determination of value to each party. Each appraiser shall determine such value without regard to income tax consequences to the Transferor as a result of receiving cash rather than other consideration. If, upon the completion of the initial appraisals (the "Earlier Appraisals"), the higher appraised value of such 5 consideration is not more than one hundred ten percent (110%) of the lower appraised value of such consideration, the average of the two appraisals on a per share basis shall be controlling as the amount of the cash equivalent. If the higher appraised value is more than one hundred ten percent (110%) of the lower appraised value, the appraisers, within ten (10) days of the submission of the last appraisal, shall appoint a third appraiser who shall be a member of a reputable valuation firm or investment bank. The third appraiser shall, within thirty (30) days of his appointment, appraise the value of the consideration for the Subject Shares (without regard to the income tax consequences to the Transferor as a result of receiving cash rather than other consideration) as of the proposed transfer date and submit a written determination of value to each party. The value determined by the third appraiser shall be controlling as the amount of the cash equivalent unless the value is greater than the two Earlier Appraisals, in which case the higher of the two Earlier Appraisals will control, and unless that value is lower than the two Earlier Appraisals, in which case the lower of the two Earlier Appraisals will control. If any party fails to appoint an appraiser or if one of the two initial appraisers fails after appointment to submit his appraisal within the required period, the appraisal submitted by the remaining appraiser shall be controlling. The cost of the foregoing appraisals shall be shared one-half by the Transferor and one-half by Berkshire or its Assignee(s). (j) Closing of Purchase. The closing of the purchase shall take place at the office of the Company or such other location as shall be mutually agreeable and the purchase price, to the extent comprised of cash, shall be paid at the closing, and cash equivalents and documents evidencing any deferred payments of cash permitted pursuant to Section 2(g) above shall be delivered at the closing. At the closing, the Transferor shall deliver to Berkshire or its Assignee(s), as the case may be, the certificates evidencing the Subject Shares to be conveyed, duly endorsed and in negotiable form with all the requisite documentary stamps affixed thereto. (k) Release from Restriction; Termination of Rights. If the offer pursuant to Section 2(e) is not timely accepted by Berkshire or its Assignee(s) pursuant to Section 2(f) hereof or is not timely paid for by Berkshire or its Assignee(s) in accordance with Sections 2(f) and (j) hereof, then the Transferor may make a bona fide Transfer to the prospective transferee named in the certification included in the offer in accordance with the terms set forth therein, provided, that such Transfer shall be made only in strict accordance with the terms therein stated. If Berkshire or its Assignee(s) do not elect to purchase as provided in Section 2(f) and the Transferor shall fail to make such Transfer within sixty (60) days following the expiration of the time hereinabove provided for the acceptance by Berkshire or its Assignee(s), such shares of Common Stock shall again become subject to all the restrictions of this Section 2. If Berkshire elects to purchase as provided in Section 2(f), but the purchase is not timely paid for by Berkshire (or its Assignee(s)) in accordance with Sections 2(f) and (j) hereof, then the Subject Shares shall be released from all restrictions under this Section 2. (l) Ownership Limitation. No Investor shall own shares of Common Stock equal to or in excess of the Ownership Limit. No Investor shall Transfer any Securities which shall cause any Person (together with its Affiliates) to own shares of Common Stock equal to or in excess of the Ownership Limit. Notwithstanding the foregoing, if the exercise of a Put or Call would cause a holder of Convertible Preferred Stock and its Affiliates to own shares of Common Stock equal to or in excess of the Ownership Limit, then, pursuant to the terms of its Restated Articles of Incorporation, the Company shall accept and such holder or its Affiliates shall tender 6 for exchange that number of shares of Common Stock and the Company shall issue the equivalent number of shares of Convertible Preferred Stock to such holder or its Affiliates, as the case may be, so that such holder and its Affiliates will not own shares of Common Stock equal to or in excess of the Ownership Limit. (m) Prohibited Transfers. Any Transfer or purported Transfer made in violation of this Section 2 shall be null and void and of no effect. 3. TAG-ALONG RIGHT In the event that Berkshire or any of its consolidated subsidiaries intends to Transfer (other than to one or more of Berkshire's consolidated subsidiaries) shares of Common Stock or Convertible Preferred Stock which, together with any previous Transfers (other than Transfers within Berkshire's consolidated group of companies) of shares of Common Stock or Convertible Preferred Stock by Berkshire or its consolidated subsidiaries from and after the date of this Agreement, represent more than fifty percent (50%) of the Common Stock (calculated on a fully-diluted basis assuming conversion of the Convertible Preferred Stock) held by Berkshire and its consolidated subsidiaries on the date hereof, Berkshire shall notify the other Investors, in writing, of such proposed Transfer and its price terms and conditions (the "Proposed Sale"). Following receipt of such a notice, any of Scott, the Scott Entities, the Scott Family Entities and the Management Investors ("Eligible Investors") shall have the right to exercise the tag-along right described in this Section 3. Within ten (10) days of the date of receipt of such notice delivered under Section 8(a), each Eligible Investor that elects to participate in the Proposed Sale shall so notify receipt of Berkshire in writing (a "Transfer Notice," all Eligible Investors who give such Transfer Notice being the "Tag-Along Investors"). In the event Berkshire fails to receive a Transfer Notice from any Eligible Investor within such 10-day period, such Eligible Investor shall have no right to participate in the Proposed Sale. Each Tag-Along Investor delivering a Transfer Notice shall have the right to sell, at the same price and on the same terms as Berkshire, that number of shares of Common Stock equal to the number of shares of Common Stock (assuming that all Convertible Preferred Stock shall be considered on an as-converted basis as Common Stock) the third party proposes to purchase multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (assuming that all Options shall be considered on an as-exercised basis as Common Stock) issued and owned by such Tag-Along Investor and the denominator of which shall be the aggregate number of shares of Common Stock issued and owned by Berkshire (assuming that all Convertible Preferred Stock shall be considered on an as-converted basis as Common Stock) and each Tag-Along Investor (including such Tag-Along Investor exercising its rights under this Section 3). Nothing contained herein shall obligate Berkshire to consummate the Proposed Sale or limit Berkshire's right to amend or modify the terms of the Proposed Sale in any respect; provided that the Tag-Along Investors are offered the opportunity to participate in the Proposed Sale on such amended or modified terms. The tag-along rights described in this Section 3 shall terminate upon a Berkshire Majority Transfer. 4. PUTS AND CALLS (a) The Management Put. At any time after the earlier of (i) the third anniversary of the date hereof, (ii) a Berkshire Majority Transfer or (iii) the death of David L. 7 Sokol or Gregory E. Abel, each Management Investor (in the case of clauses (i) and (ii)), and the estate of David L. Sokol or Gregory E. Abel, as applicable, in the case of clause (iii), shall have the right to require the Company to purchase, and the Company at the time of any such put shall be obligated to purchase from the Management Investors (or the estate of David L. Sokol or Gregory E. Abel, as applicable), upon the terms and subject to the conditions of this Agreement, not less than twenty-five percent (25%) and up to one hundred percent (100%) of the Securities owned at that time by such Management Investor (the "Management Put") at the Purchase Price; provided, however, that a Management Investor may exercise a Management Put as to his or her Securities only once in any twelve (12) month period. If a Management Investor wishes to exercise the Management Put, the Management Investor shall provide written notice to such effect and specifying the number and type of Securities to be put to the Company (the "Management Put Notice"). (b) The Company Call on Management Securities. At any time after the earlier of the third anniversary of the date hereof or a Berkshire Majority Transfer, the Company shall have the right to purchase from any or all of the Management Investors, and the Management Investors designated by the Company at the time of any such call shall be obligated to sell to the Company, upon the terms and subject to the conditions of this Agreement, not less than twenty-five percent (25%) and up to one hundred percent (100%) of the Securities owned at that time by any such Management Investor so designated by the Company (the "Management Call") at the Purchase Price; provided, however, that the Company may exercise a Management Call as to any Management Investor-owned Securities only once in any twelve (12) month period. If the Company wishes to exercise the Management Call, the Company shall provide written notice to the designated Management Investors specifying the number and type of Securities to be called by the Company (the "Management Call Notice"). (c) The Scott, Scott Entities and Scott Family Entities Put. At any time following the third anniversary of the date hereof, and provided in any such case that Berkshire is then an Eligible Purchaser, any or all of Scott, the Scott Entities and the Scott Family Entities shall have the right to require Berkshire to purchase, upon the terms and subject to the conditions of this Agreement, any or all of the shares of Common Stock owned by such persons and entities at the Purchase Price (the "Scott Put"); provided, however, that any or all of Scott, the Scott Entities and the Scott Family Entities may choose to receive shares of Berkshire common stock equal in value to the Purchase Price, which value shall be the closing price quoted on the New York Stock Exchange on the day immediately preceding the closing (which Berkshire shall register for resale by filing an S-3 Registration Statement with respect to such shares if the value thereof exceeds $15 million) in exchange for shares of Common Stock so put by them (in lieu of the cash Purchase Price). In the event that any such persons or entities elect to exercise the Scott Put, then such persons or entities shall provide written notice to Berkshire specifying the number of shares of Common Stock to be put by them and whether they choose to receive the Purchase Price in cash or shares of Berkshire common stock (a "Scott Put Notice"). The Scott Put shall terminate upon a Berkshire Majority Transfer. (d) The Purchase Price. The purchase price payable pursuant to Section 4(a), (b) or (c) above shall be payable in cash except as provided in Section 4(c) above. With respect to any shares of Common Stock subject to any Management Put, Management Call or Scott Put, the purchase price shall equal the applicable number of shares multiplied by the purchase price 8 per share, which shall be the fair market value of a share of Common Stock assuming the Company is valued on a going-concern basis as though it were a publicly traded company with reasonable liquidity and without a controlling shareholder and without attributing any change of control premium to the sale of such share, and taking into account all aspects of the Company's capital structure including all outstanding options. With respect to any Options subject to any such Management Put or Scott Put, the purchase price shall be determined as if the Options had been exercised, with the purchase price per share determined as described above, and reduced by the applicable exercise price or prices. With respect to any Options subject to any such Management Call, the purchase price determined as described in the immediately preceding sentence shall be increased to the extent required to reflect the loss of the remaining time value of the Options. The applicable purchase price as determined pursuant to this Section 4(d) is referred to as the "Purchase Price." (e) Determination of the Purchase Price for the Management Put or Management Call. As soon as reasonably practicable, but in any event within fifteen (15) days, following the delivery of a Management Put Notice or a Management Call Notice, the Company shall prepare and deliver to each selling Management Investor a statement setting forth the good faith calculation of the Purchase Price as of the date of the notice, together with detail reasonably sufficient for such Management Investor(s) to evaluate the accuracy of such calculation (the "Purchase Price Statement"). Unless any Management Investor, within fifteen (15) days after receipt of the Purchase Price Statement, delivers to the Company a notice (the "Dispute Notice"): (i) objecting in good faith to the Purchase Price Statement, (ii) setting forth in reasonable detail the items being disputed and the reasons therefor and (iii) specifying such Management Investor's preliminary calculation of the Purchase Price as of the date of the Put Notice or the Call Notice, as applicable, the Purchase Price Statement shall be deemed to be final, and the Purchase Price set forth therein shall be deemed to be the "Final Purchase Price". If a Management Investor delivers a Dispute Notice and if the Company and such Management Investor(s) are unable to agree upon a Final Purchase Price within thirty (30) days of the date of the Dispute Notice, then either the selling Management Investor or the Company may elect to submit the calculation of the Purchase Price to an independent appraiser who shall be a member of a reputable valuation firm or investment bank which is designated jointly by the Company and such Management Investor(s); provided, however, that the Company and the Management Investors (as a group) may each only exercise this right to seek an appraisal once in any twelve (12) month period. Such appraiser shall determine the Purchase Price at the date of the Management Put Notice or Management Call Notice, as applicable, and such Purchase Price shall be deemed to be the Final Purchase Price. If the appraisal results from a Management Put Notice or a Management Call Notice, within thirty (30) days of the determination of the Final Purchase Price by the appraiser, (i) any Management Investor, including the Management Investor making the initial request, may elect to exercise its Management Put to sell Securities to the Company for the Final Purchase Price and (ii) the Company may elect to exercise the Management Call to purchase Securities from any Management Investor for the Final Purchase Price. If the Management Put is exercised pursuant to the preceding sentence by any Management Investor, then the Management Investors (as a group) shall have no further right to request an appraisal for a twelve (12) month period in connection with a Management Put or Management Call. If the Management Call is exercised pursuant to the preceding sentence, then the Company shall have no further right to request an appraisal for a twelve (12) month period in connection with a Management Put or Management Call. 9 (f) Determination of the Purchase Price for the Scott Put. As soon as reasonably practicable following the delivery of a Scott Put Notice, Berkshire shall prepare and deliver to each of Scott, the Scott Entities and the Scott Family Entities which delivered a Scott Put Notice a Purchase Price Statement. Unless the selling party, within ten (10) days after receipt of the Purchase Price Statement, deliver to Berkshire a Dispute Notice: (i) objecting in good faith to the Purchase Price Statement, (ii) setting forth in reasonable detail the items being disputed and the reasons therefor and (iii) specifying such party's calculation of the Purchase Price as of the date of the Scott Put Notice, the Purchase Price Statement shall be deemed to be final, and the Purchase Price set forth therein shall be deemed to be the "Final Purchase Price". If the selling party or parties deliver a Dispute Notice and if the selling party or parties and Berkshire are unable to agree upon a Final Purchase Price within thirty (30) days of the Dispute Notice, then the selling party or parties may elect to submit the calculation of the Purchase Price to an independent appraiser who shall be a member of a reputable valuation firm or investment bank which is designated jointly by the selling party or parties and Berkshire; provided, however, that Scott, the Scott Entities and the Scott Family Entities (as a group) may only exercise this right to seek an appraisal once every twelve (12) months (and such appraisal shall be available only to the party or parties selling contemporaneously with the delivery of the appraisal). Such appraiser shall determine the Final Purchase Price at the date of the Scott Put Notice and such Purchase Price shall be deemed to be the Final Purchase Price. (g) Closing of Purchases. The closing of the purchases pursuant to this Section 4 shall take place at the office of the Company or such other location as shall be mutually agreeable on a date three (3) days after the determination of the Final Purchase Price or, if applicable and required by law, two (2) business days after the later of (i) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (ii) the receipt of any orders or approvals required by any federal or state regulatory authority, and (iii) the receipt of any orders or approvals or the expiration without action of any waiting period required by any European or United Kingdom competition authority. The purchase price shall be paid at the closing. At the closing, the selling Investor shall deliver to the purchasing party the certificates evidencing the Securities to be conveyed, duly endorsed and in negotiable form with all requisite documentary stamps affixed thereto. 5. COMPANY COVENANTS (a) Appraisals. The Company shall engage an independent appraiser who shall be a member of a reputable valuation firm or investment bank to appraise the value of the Company's Common Stock as of December 31, 2002 based on information deemed relevant by the valuation firm or investment bank, valued on a going-concern basis as though it were a publicly traded company with reasonable liquidity and without a controlling shareholder and without attributing any change of control premium to the sale of shares, and taking into account all aspects of the Company's capital structure including all outstanding options. Such appraisal shall promptly (but in no event later than April 30, 2003) be delivered by the Company to the Investors. 6. TERMINATION Except as otherwise provided herein, the Agreement shall terminate on the date on which (i) Berkshire, (ii) Scott, (iii) David L. Sokol, and (iv) 10 Gregory E. Abel, or in the case of individuals their estates (for so long as they, or their estates in the case of individuals, or its Affiliates in the case of Berkshire, own any Securities) shall have agreed in writing to terminate this Agreement or upon the consummation of an initial public offering of Common Stock of the Company in which the Company receives proceeds of at least $100 million. 7. INTERPRETATION OF THIS AGREEMENT (a) Terms Defined. As used in this Agreement, the following terms have the respective meaning set forth below: "Additional Shares" shall mean the 3,000,000 shares of Common Stock owned by Scott, any of the Scott Entities or any of the Scott Family Entities in addition to the Retained Shares. "Affiliate" of a person or entity, shall mean any person or entity, directly or indirectly, controlling, controlled by or under common control with such person or entity. "Agreement" shall have the meaning specified in the preamble. "Assignee" shall have the meaning specified in Section 2(f). "Berkshire" shall have the meaning specified in the preamble. "Berkshire Majority Transfer" shall mean the Transfer by Berkshire and/or its consolidated subsidiaries (other than Transfers within Berkshire's consolidated group of companies) of shares of Common Stock or Convertible Preferred Stock representing fifty percent (50%) or more of the Common Stock (calculated on a fully-diluted basis assuming conversion of the Convertible Preferred Stock) held by Berkshire and its consolidated subsidiaries on the date hereof. "Common Stock" shall have the meaning specified in the recitals. "Company" shall have the meaning specified in the preamble. "Convertible Preferred Stock" shall have the meaning specified in the recitals. "Dispute Notice" shall have the meaning specified in Section 4(e). "Earlier Appraisals" shall have the meaning specified in Section 2(i). "Eligible Investors" shall have the meaning specified in Section 3. "Eligible Purchaser" shall mean, with respect to a particular purchase, a purchaser who may consummate such purchase without it or any of its affiliates becoming subject to regulation as a registered holding company under PUHCA or the Company or any of its subsidiaries becoming subject to regulation as a subsidiary of a registered holding company under PUHCA. 11 "Investors" shall have the meaning specified in the preamble. "Joinder Agreement" shall have the meaning specified in Section 1(b). "Management Call" shall have the meaning specified in Section 4(b). "Management Call Notice" shall have the meaning specified in Section 4(b). "Management Investors" shall have the meaning specified in the preamble. "Management Permitted Transferees" shall have the meaning specified in Section 2(a). "Management Put" shall have the meaning specified in Section 4(a). "Merger" shall have the meaning specified in the recitals. "Merger Agreement" shall have the meaning specified in the recitals. "Management Put Notice" shall have the meaning specified in Section 4(a). "Options" shall have the meaning specified in the recitals. "Ownership Limit" shall mean with respect to any Person, ownership of 10% of the issued and outstanding Common Stock if such ownership would cause such Person to become subject to regulation as a registered holding company under PUHCA or the Company or any of its subsidiaries to become subject to regulation as a subsidiary of a registered holding company under PUHCA. "Permitted Transferees" shall have the meaning specified in Section 2(b). "Person" shall mean an individual, partnership, joint-stock company, corporation, limited liability company, trust or unincorporated organization, and a government or agency or political subdivision thereof. "Proposed Sale" shall have the meaning specified in Section 3. "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as amended from time to time and any successor legislation. "Purchase Price" shall have the meaning specified in Section 4(d). "Purchase Price Statement" shall have the meaning specified in Section 4(e). "Qualified Trust" shall mean a trust other than a business trust. "Retained Shares " shall mean 5,000,000 shares of Common Stock owned by Scott or any of the Scott Entities (subject to adjustments for stock splits, reverse stock splits, stock dividends, recapitalizations and the like). 12 "Scott" shall have the meaning specified in the preamble. "Scott Entities" shall have the meaning specified in Section 2(b). "Scott Family Entities" shall have the meaning specified in the preamble. "Scott Family Entity Permitted Transferees" shall have the meaning specified in Section 2(b). "Scott Put" shall have the meaning specified in Section 4(c). "Scott Put Notice" shall have the meaning specified in Section 4(c). "Securities" shall have the meaning specified in the recitals. "Securities Act" shall mean the Securities Act of 1933, as amended. "Subject Shares" shall have the meaning specified in Section 2(e). "Subscription Agreements" shall have the meaning specified in the recitals. "Tag-Along Investors" shall have the meaning specified in Section 3. "Transfer" shall mean any sale, assignment, pledge, hypothecation, or other disposition or encumbrance, whether or not for consideration, including, without limitation, any Transfer pursuant to a Management Put, Scott Put or Management Call. "Transferor" shall have the meaning specified in Section 2(d). (b) Directly or Indirectly. Where any provision in this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. (c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Iowa applicable to contracts made and to be performed entirely within such State. (d) Section Headings. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof. (e) Affiliate Action. To the extent this Agreement contemplates any obligation, duty or other matter with respect to any Affiliate of any signatory hereto, such signatory shall be obligated and responsible to cause such Affiliate to take such action or otherwise act in a manner consistent with this Agreement. 8. MISCELLANEOUS (a) Notices. 13 (i) All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or certified mail, postage prepaid: (A) if to any of the Management Investors, at the address of such Management Investor shown on Schedule I, or at such other address as the Management Investor may have furnished the Company in writing; (B) if to Berkshire, at 1440 Kiewit Plaza, Omaha, NE 68131, Attention: Marc D. Hamburg, or at such other address as Berkshire may have furnished the Company in writing; (C) if to Scott, the Scott Entities or the Scott Family Entities, at 1000 Kiewit Plaza, Omaha, NE 68131; and (D) if to the Company, at 666 Grand Avenue, Des Moines, Iowa 50309, Attention: Chief Executive Officer, or at such other address as it may have furnished in writing to each of the Investors. (ii) Any notice so addressed shall be deemed to be given: if delivered by hand, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. (b) Reproduction of Documents. This Agreement and all documents relating thereto, including, without limitation, (i) consents, waivers and modifications which may hereafter be executed, (ii) documents received by each Investor pursuant hereto and (iii) financial statements, certificates and other information previously or hereafter furnished to each Investor, may be reproduced by each Investor by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and each Investor may destroy any original document so reproduced. All parties hereto agree and stipulate that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by each Investor in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. (c) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns, estates and beneficiaries of each of the parties. (d) Entire Agreement; Amendment and Waiver. This Agreement constitutes the entire understanding of the parties hereto relating to the subject matter hereof and supersedes all prior understandings among such parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of (i) Berkshire, (ii) Scott and (iii) David L. Sokol; provided, however, that (x) any such amendment or waiver with respect to Sections 3, 4(a), (b), (d), (e) and (g) or that would otherwise materially 14 adversely affect the Management Investors shall also require the written consent of Gregory E. Abel (for so long as he owns any Securities) and (y) any such amendment or waiver with respect to Sections 2 (b)-(m), 3, 4 (c)-(g) or that would otherwise materially adversely affect the Scott Family Entities shall require the written consent of the holders of a majority in interest of the Scott Family Entities' Securities (for so long as they own any Securities). (e) Severability. In the event that any part or parts of this Agreement shall be held illegal or unenforceable by any court or administrative body of competent jurisdiction, such determination shall not effect the remaining provisions of this Agreement which shall remain in full force and effect. (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. 15 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first above written. TETON ACQUISITION CORP. By: /s/ David L. Sokol ---------------------------------------- Name:David L. Sokol Title: Chairman, Chief Executive Officer and President /s/ Walter Scott, Jr. -------------------------------------------- Walter Scott, Jr. MANAGEMENT INVESTORS /s/ David L. Sokol -------------------------------------------- David L. Sokol /s/ Gregory E. Abel -------------------------------------------- Gregory E. Abel BERKSHIRE HATHAWAY INC. By: /s/ Marc D. Hamburg ---------------------------------------- Name: Marc D. Hamburg Title: Vice President [SIGNATURE PAGE 1 OF SHAREHOLDERS AGREEMENT] /s/ Sandra Scott Parker ---------------------------------------- Sandra Scott Parker AMY LYNN SCOTT TRUST #3 By: U.S. BANK NATIONAL ASSOCIATION, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: A.V.P. KAREN ANN SCOTT TRUST #3 By: U.S. BANK NATIONAL ASSOCIATION, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: A.V.P. SANDRA SUE SCOTT TRUST #3 By: U.S. BANK NATIONAL ASSOCIATION, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: A.V.P. [SIGNATURE PAGE 2 OF SHAREHOLDERS AGREEMENT] WALTER DAVID SCOTT TRUST #3 By: U.S. BANK NATIONAL ASSOCIATION, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: A.V.P. AMY LYNN SCOTT WYOMING TRUST By: WYOMING TRUST & MANAGEMENT COMPANY OF WYOMING, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: Officer W. DAVID SCOTT WYOMING TRUST By: WYOMING TRUST & MANAGEMENT COMPANY OF WYOMING, as trustee By: /s/ Kathleen Sites ------------------------------------ Name: Kathleen Sites Title: Officer [SIGNATURE PAGE 3 OF SHAREHOLDERS AGREEMENT] KAREN ANN DIXON WYOMING TRUST By: WYOMING TRUST & MANAGEMENT COMPANY OF WYOMING, as trustee By: /s/ Kathleen Sites ------------------------------ Name: Kathleen Sites Title: Officer DOUBLE EIGHT LAND CORPORATION By: /s/ Walter Scott, Jr. ------------------------------ Name: Walter Scott, Jr. Title: President [SIGNATURE PAGE 4 OF SHAREHOLDERS AGREEMENT] SCHEDULE I Management Investors David L. Sokol c/o MidAmerican Energy Holdings Company 302 South 36th Street Suite 400 Omaha, Nebraska 68131 Gregory E. Abel c/o MidAmerican Energy Holdings Company 666 Grand Avenue Des Moines, Iowa 50309 EXHIBIT A JOINDER AGREEMENT Joinder Agreement, dated as of this day of ___________ _____, by and among MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), and the undersigned (the "Investor"). Reference is made to that certain Shareholders Agreement (the "Shareholders Agreement"), dated as of March __, 2000, by and among MidAmerican Energy Holdings Company, Berkshire Hathaway Inc., Walter Scott, Jr., and the other shareholders from time to time party thereto, as the same may from time to time be amended. By executing this Joinder Agreement, the Investor hereby agrees to be bound by the terms of the Shareholders Agreement as if he were an original signatory to such Agreement and shall be deemed to be [a Management Investor] [an Investor] thereunder. [insert for corporations only: The Investor hereby represents and warrants that (i) it is a corporation duly organized, validly existing and in good standing under the laws of ____________ and has the power and authority to execute and deliver this Agreement and perform its obligations hereunder, (ii) the execution, delivery and performance of this Agreement has been authorized by the board of directors of the Investor and no other approval or authorization is necessary and (iii) the execution, delivery and performance of this Agreement does not conflict with or violate the terms of its Certificate of Incorporation or By-laws or any agreement to which it is a party or may be bound.] [Insert for other entities: language comparable to the foregoing as determined by the General Counsel or outside counsel of the Company.] IN WITNESS WHEREOF, the parties hereto have executed this Joinder Agreement as of the date first above written. ---------------------------------- Name: Agreed to and Accepted by: MIDAMERICAN ENERGY HOLDINGS COMPANY - ---------------------------------- Name: Title: EXHIBIT B --------- AMENDMENT NO. 1 TO THE AMENDED AND RESTATED EMPLOYMENT AGREEMENT BETWEEN MIDAMERICAN ENERGY HOLDINGS COMPANY AND DAVID L. SOKOL This Amendment No. 1 (the "Amendment") to the Amended and Restated Employment Agreement dated as of May 10, 1999 (the "Employment Agreement") by and between MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), and David L. Sokol (the "Executive"), is entered into as of March __, 2000. WHEREAS, the Company and the Executive are presently parties to the Employment Agreement; and WHEREAS, in consideration of the performance of future services by the Executive, the Company and the Executive desire to amend the Employment Agreement to increase the Executive's salary, and grant Executive additional options; NOW, THEREFORE, the Employment Agreement is hereby amended as follows: By inserting immediately following Section 2(b) a new Section 2(c) to read as follows: "(c) For so long as the Executive continues to serve as either Chairman or Chief Executive Officer of the Company, he shall have the right (i) to serve as a member of the Board, and (ii) to designate two other individuals as nominees for election to the Board." By deleting the phrase "six hundred seventy-five thousand ($675,000)" each time it appears in Section 4(a) and replacing it with "seven hundred fifty thousand ($750,000)". By inserting immediately following Section 5(b) a new Section 5(c) to read as follows: "(c) Effective as of the Closing Date (as defined in the Agreement and Plan of Merger by and among the Company, Teton Formation L.L.C. and Teton Acquisition Corp. (the "Merger Agreement")) and conditioned on the occurrence of the Closing, the Executive shall be granted under the Company's 1996 Stock Option Plan (or any successor plan thereto), new options (the "New Options") for a number of shares of Company common stock equal to 30% of the sum of (i) the number of shares of Company common stock owned beneficially by Executive as of October 23, 1999 (provided that all such shares are rolled over into common stock of the Surviving Corporation (as such term is defined in the Merger Agreement)), plus (ii) without duplication, the number of shares subject to outstanding Company common stock options held by Executive as of October 23, 1999 (provided that all such options are rolled over into equivalent options in respect of Surviving Corporation common stock). The exercise price applicable to the New Options shall be $35.05 per share. The New Options shall vest in equal installments of one thirty-sixth (1/36th) of the number of shares subject to the grant on each of the monthly anniversary dates of the Closing Date, shall have an exercise term of ten (10) years from the Closing Date, and shall otherwise be subject to customary terms and conditions, including anti-dilution protections." By inserting immediately following Section 5(c) a new Section 5(d) to read as follows: "(d) The Executive acknowledges that the grant of Company options to Executive in exchange for his surrender to Teton Acquisition Corp. of Company stock options and his right to continue to exercise such options is in consideration of his performance of future services." Except as provided herein and to the extent necessary to give full effect to the provisions of this Amendment, the terms of the Employment Agreement shall remain in full force and effect. -2- IN WITNESS WHEREOF, the parties hereto have entered into this Amendment effective as of the above date. MIDAMERICAN ENERGY HOLDINGS COMPANY By: ------------------------------- Name: Title: EXECUTIVE ----------------------------------- David L. Sokol -3- EXHIBIT C --------- RESTATED ARTICLES OF INCORPORATION OF MIDAMERICAN ENERGY HOLDINGS COMPANY TO THE SECRETARY OF STATE OF THE STATE OF IOWA: Pursuant to the provisions of Division X of the Iowa Business Corporation Act (the "Act"), the undersigned corporation hereby adopts the following Restated Articles of Incorporation ("Articles of Incorporation") (All capitalized terms used herein, but not defined shall have the respective meanings set forth in Article X hereof.): 9. The name of the corporation is "MidAmerican Energy Holdings Company" (hereinafter sometimes called the "Corporation") and its registered office shall be located at 666 Grand Avenue, Des Moines, Iowa 50309 with the right to establish and maintain branch offices at such other points within and without the State of Iowa as the Board of Directors of the Corporation (the "Board of Directors") may, from time to time, determine. The name of the Corporation's registered agent at such registered office is John A. Rasmussen, Jr. 10. The nature of the business or purposes to be conducted or promoted is to engage in any or all lawful act or activity for which a corporation may be incorporated under the Act. 11. A. The aggregate number of shares which the Corporation shall have authority to issue is 60,000,000 shares of Common Stock, no par value ("Common Stock"), and 50,000,000 shares of Preferred Stock, no par value ("Preferred Stock"). B. The shares of authorized Common Stock shall be identical in all respects and shall have equal rights and privileges. For all purposes, each registered holder of Common Stock shall, at each meeting of shareholders, be entitled to one vote for each share of Common Stock held, either in person or by proxy duly authorized in writing. Except to the extent required by law or as permitted by these Articles of Incorporation, as amended from time to time, the registered holders of the shares of Common Stock shall have exclusive voting rights. C. The Board of Directors, at any time or from time to time, may, and is hereby authorized to, issue and dispose of any of the authorized and unissued shares of Common Stock and any issued but not outstanding shares for such kind and amount of consideration and to such persons, firms or corporations, as may be determined by the Board of Directors, subject to any provisions of law then applicable. The holders of Common Stock shall have no preemptive rights to acquire or subscribe to any shares, or securities convertible into shares, of Common Stock. D. A first series of the Preferred Stock is created pursuant to Article IV hereof. The Board of Directors, at any time or from time to time may, and is hereby authorized to, further divide the authorized and unissued shares of Preferred Stock into one or more classes or series and in connection with the creation of any class or series to determine, in whole or in part, to the full extent now or hereafter permitted by law, by adopting one or more articles of amendment to the Articles of Incorporation providing for the creation thereof, the designation, preferences, limitations and relative rights of such class or series, which may provide for special, conditional or limited voting rights, or no rights to vote at all, and to issue and dispose of any of such shares and any issued but not outstanding shares for such kind and amount of consideration and to such persons, firms or corporations, as may be determined by the Board of Directors, subject to any provisions of law then applicable. E. The Board of Directors, at any time or from time to time may, and is hereby authorized to, create and issue, whether or not in connection with the issue and sale of any shares of its Common Stock, Preferred Stock or other securities of the Corporation, warrants, rights and/or options entitling the holders thereof to purchase from the Corporation any shares of its Common Stock, Preferred Stock or other securities of the Corporation. Such warrants, rights, or options shall be evidenced by such instrument or instruments as shall be approved by the Board of Directors. The terms upon which, the time or times (which may be limited or unlimited in duration) at or within which, and the price or prices (which shall be not less than the minimum amount prescribed by law, if any) at which any such shares or other securities may be purchased from the Corporation upon the exercise of any such warrant, right or option shall be fixed and stated in the resolution or resolutions of the Board of Directors providing for the creation and issue of such warrants, rights or options. The Board of Directors is hereby authorized to create and issue any such warrants, rights or options from time to time for such consideration, if any, and to such persons, firms or corporations, as the Board of Directors may determine. F. The Corporation may authorize the issue of some or all of the shares of any or all of the classes of its capital stock without certificates. G. The Corporation shall not be required to issue certificates representing any fraction or fractions of a share of stock of any class but may issue in lieu thereof one or more non-dividend bearing and non-voting scrip certificates in such form or forms as shall be approved by the Board of Directors, each scrip certificate representing a fractional interest in one share of stock of any class. Such scrip certificates upon presentation together with similar scrip certificates representing in the aggregate an interest in one or more full shares of stock of any class shall entitle the holders thereof to receive one or more full shares of stock of such class. Such scrip certificates may contain such terms and conditions as shall be fixed by the Board of Directors and may become void and of no effect after a period to be determined by the Board of Directors and to be specified in such scrip certificates. H. The Corporation shall be entitled to treat the person in whose name any share of Common Stock or Preferred Stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any person, whether or not the Corporation shall have notice thereof except as may be expressly provided otherwise by the laws of the State of Iowa. -2- ARTICLE IV. A. Creation, Designation and Amount of First Series of Preferred Stock. A first series of the Preferred Stock is hereby created as follows: The shares of such series (the "Preferred Shares") shall be designated as "Zero Coupon Convertible Preferred Stock", and the number of shares constituting such Preferred Stock shall be 40,000,000. B. Dividends and Distributions. In case the Corporation shall at any time or from time to time declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of stock or other securities or property or rights or warrants to subscribe for securities of the Corporation or any of its subsidiaries by way of a dividend, distribution or spin-off) on its Common Stock, other than (i) a distribution made in compliance with the provisions of Section F of this Article IV or (ii) a dividend or distribution made in Common Stock, the holders of the Preferred Shares shall be entitled (unless such right shall be waived by the affirmative vote or consent of the holders of at least two-thirds of the number of the then outstanding Preferred Shares) to receive from the Corporation with respect to each Preferred Share held, any dividend or distribution that would be received by a holder of the number of shares (including fractional shares) of Common Stock into which such Preferred Share is convertible on the record date for such dividend or distribution, with fractional shares of Common Stock deemed to be entitled to the corresponding fraction of any dividend or distribution that would be received by a whole share. Any such dividend or distribution shall be declared, ordered, paid or made at the same time such dividend or distribution is declared, ordered, paid or made on the Common Stock. C. Conversion Rights. Each Preferred Share is convertible at the option of the holder thereof into one Conversion Unit at any time upon the occurrence of a Conversion Event. A Conversion Unit will initially be one share of Common Stock of the Corporation adjusted as follows: (i) Stock splits, combinations, reclassifications etc. In case the Corporation shall at any time or from time to time declare a dividend or make a distribution on the outstanding shares of Common Stock payable in Common Stock or subdivide or reclassify the outstanding shares of Common Stock into a greater number of shares or combine or reclassify the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then, and in each such event, the number of shares of Common Stock into which each Preferred Share is convertible shall be adjusted so that the holder thereof shall be entitled to receive, upon conversion thereof, the number of shares of Common Stock which such holder would have been entitled to receive after the happening of any of the events described above had such share been converted immediately prior to the happening of such event or the record date therefor, whichever is the earlier. Any adjustment made pursuant to this clause (i) shall become effective (I) in the case of any such dividend or distribution on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or -3- (II) in the case of any such subdivision, reclassification or combination, on the day upon which such corporate action becomes effective. (ii) Issuances of Additional Shares below Fair Value Price. In case the Corporation shall issue shares of Common Stock (or rights or warrants or other securities exercisable or convertible into or exchangeable (collectively, a "conversion") for shares of Common Stock) (collectively, "convertible securities") (other than in Permitted Transactions) at a price per share (or having a conversion price per share) less than the Fair Value Price as of the date of issuance of such shares (or of such convertible securities), then, and in each such event, the number of shares of Common Stock into which each Preferred Share is convertible shall be adjusted so that the holder thereof shall be entitled to receive, upon conversion thereof, the number of shares of Common Stock determined by multiplying the number of shares of Common Stock into which such share was convertible immediately prior to such date of issuance by a fraction, (I) the numerator of which is the sum of (1) the number of shares of Common Stock outstanding on such date and (2) the number of additional shares of Common Stock issued (or into which the convertible securities may convert), and (II) the denominator of which is the sum of (1) the number of shares of Common Stock outstanding on such date and (2) the number of shares of Common Stock which the aggregate consideration receivable (including any amounts payable upon conversion of convertible securities) by the Corporation for the total number of additional shares of Common Stock so issued (or into which the convertible securities may convert) would purchase at the Fair Value Price on such date. For purposes of the foregoing, "Permitted Transactions" shall include issuances (i) as consideration for the acquisition of businesses and/or related assets, and (ii) in connection with employee benefit plans and any other transaction approved by the Board of Directors (including the approval of the directors elected by the holders of the Preferred Shares), and "Fair Value Price" shall mean the average of the closing prices on the principal stock exchange or over-the-counter quotation system on which the Common Stock is then listed or quoted, or if not then listed or quoted, the fair value of the Corporation's Common Stock as determined in good faith by the Board of Directors. Although Permitted Transactions do not require adjustment of a Conversion Unit, the issuance of equity and equity-linked securities in a Permitted Transaction remains subject to the vote of the Preferred Shares as provided in Section D of this Article IV. Any adjustment made pursuant to this clause (ii) shall become effective immediately upon the date of such issuance. (iii) Mergers, Consolidations, Sales of Assets etc. In case the Corporation shall be a party to any transaction (including a merger, consolidation, sale of all or substantially all of the Corporation's assets, liquidation or recapitalization of the Corporation, but excluding any transaction described in clause (i) or (ii) above) in which the previously outstanding Common Stock shall be changed into or, pursuant to the operation of law or the terms of the transaction to which the Corporation is a party, exchanged for different securities of the Corporation or common stock or other securities or interests in another Person or other property (including cash) or any combination of the foregoing, then, as a condition of the consummation of such transaction, lawful and -4- adequate provision shall be made so that each holder of Preferred Shares shall be entitled, upon conversion, to an amount per share equal to (A) the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged times (B) the number of shares of Common Stock into which such share was convertible immediately prior to the consummation of such transaction. Any adjustment made pursuant to this clause (iii) shall become effective immediately upon the consummation of such transaction. In calculating the adjustments provided in clauses (i), (ii) and (iii) above, a Conversion Unit shall include any fractional share resulting from the calculation. A "Conversion Event" includes (i) any conversion of Preferred Shares that would not cause the holder of the shares of Common Stock issued upon conversion (or any affiliate of such holder) or the Corporation to become subject to regulation as a registered holding company, or as a subsidiary of a registered holding company, under the Public Utility Holding Company Act of 1935, as amended from time to time and any successor legislation ("PUHCA") either as a result of the repeal or amendment of PUHCA, the number of shares involved or the identity of the holder of such shares and (ii) a Company Sale. A "Company Sale" includes any involuntary or voluntary liquidation, dissolution, recapitalization, winding-up or termination of the Corporation and any merger, consolidation or sale of all or substantially all of the assets of the Corporation. The holder of any Preferred Shares may exercise such holder's right to convert each such share into a Conversion Unit by surrendering for such purpose to the Corporation, at its principal office or at such other office or agency maintained by the Corporation for that purpose, a certificate or certificates representing the Preferred Shares to be converted accompanied by a written notice stating that such holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section C of this Article IV and specifying the name or names in which such holder wishes the certificate or certificates for securities included in the Conversion Unit or Units to be issued. In case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issuance of securities included in the Conversion Unit or Units in such name or names. Other than such taxes, the Corporation will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of the securities and other property then included in a Conversion Unit or Units upon conversion of Preferred Shares pursuant hereto. As promptly as practicable, and in any event within three Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), the Corporation shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable shares of Common Stock (or other securities included in the Conversion Unit or Units) to which the holder of Preferred Shares so converted shall be entitled and (ii) if less than the full number of Preferred Shares evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of such notice and such surrender of the certificate or certificates representing the -5- Preferred Shares to be converted so that the rights of the holder thereof as to the shares being converted shall cease except for the right to receive the securities and other property included in the Conversion Unit or Units in accordance herewith, and the Person entitled to receive the securities and other property included in the Conversion Unit or Units shall be treated for all purposes as having become the record holder of such securities and other property included in the Conversion Unit or Units at such time. No holder of Preferred Shares shall be prevented from converting Preferred Shares, and any conversion of Preferred Shares in accordance with the terms of this Section C of this Article IV shall be effective upon surrender, whether or not the transfer books of the Corporation for the Common Stock are closed for any purpose. The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding Preferred Shares. The Corporation shall from time to time, subject to and in accordance with the Act, increase the authorized amount of Common Stock if at any time the number of authorized shares of Common Stock remaining unissued shall not be sufficient to permit the conversion at such time of all then outstanding Preferred Shares. Whenever the number of shares of Common Stock and other property comprising a Conversion Unit into which each Preferred Share is convertible is adjusted as provided in this Section C of this Article IV, the Corporation shall promptly mail to the holders of record of the outstanding Preferred Shares at their respective addresses as the same shall appear in the Corporation's stock records a notice stating that the number of shares of Common Stock and other property comprising a Conversion Unit into which each Preferred Share is convertible has been adjusted and setting forth the new number of shares of Common Stock (or describing the new stock, securities, cash or other property) into which each Preferred Share is convertible, as a result of such adjustment, a brief statement of the facts requiring such adjustment and the computation thereof, and when such adjustment became effective. D. Voting Rights. The holders of the Preferred Shares shall have the following voting rights: (A) The holders of the then-outstanding Preferred Shares shall be entitled to elect, as a class, two (out of a total of ten) directors to the Board of Directors and to elect the replacement for any director elected by them who for any reason ceases to serve as a director. In addition, without first obtaining the consent or approval of the holders of a majority of the then-outstanding Preferred Shares, voting as a separate class, the Corporation will not (a) effect any Fundamental Transaction or (b) amend the provisions of the Articles of Incorporation of the Corporation in any manner which would alter or change the powers, preferences or special rights of the Preferred Shares or that would otherwise adversely affect the rights of the holders of the Preferred Shares. A "Fundamental Transaction" includes the following (in each case referring to a single transaction or series of related transactions): (i) the sale, lease, exchange, mortgage or other disposition (including any spin-off or split-up) of any business or assets having a fair -6- market value of 25% or more of the fair market value of the business or assets of the Corporation and its subsidiaries taken as a whole, the merger or consolidation of the Corporation with any other Person, a liquidation, dissolution or winding-up of the Corporation or any recapitalization or reclassification of the securities of the Corporation; (ii) the acquisition of any business or assets (by way of merger, acquisition of stock or assets or otherwise) or the making of capital expenditures not included in the applicable annual budget approved by the Board of Directors, in each case for a consideration or involving expenditures in excess of $50,000,000; (iii) the issuance, grant or sale, or the repurchase, of any equity securities (or any equity-linked securities or obligations) of the Corporation (or securities convertible into or exchangeable or exercisable for any such equity securities); (iv) transactions with officers, directors, stockholders and affiliates of the Corporation except (x) to the extent effectuated on terms no less favorable to the Corporation than those obtainable in an arms' length transaction with an unaffiliated Person or (y) in the case of cash compensation arrangements, which are approved by the Board of Directors (without regard to the directors elected by the holders of the Preferred Shares); (v) the removal as chief executive officer of the Corporation of the person occupying that position on the date of original issuance of the Preferred Shares (the "Initial CEO") and (vi) the appointment or removal of any person as chief executive officer of the Corporation after the removal, resignation, death or disability of the Initial CEO (the consent of the holders of the Preferred Stock as to the matters set forth in this clause (vi) not to be unreasonably withheld). (B) Except as set forth herein, or as otherwise provided by law, holders of the Preferred Shares shall have no voting rights. E. Reacquired Shares. Any Preferred Shares converted, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any Articles of Amendment creating a series of Preferred Stock or any similar stock or as otherwise required by law. F. Liquidation, Dissolution or Winding Up. Upon any involuntary or voluntary liquidation, dissolution, recapitalization, winding-up or termination of the Corporation, the assets of the Corporation available for distribution to the holders of the Corporation's capital stock shall be distributed in the following priority, with no distribution pursuant to the second priority until the first priority has been fully satisfied and no distribution pursuant to the third priority until the first and second priorities have both been fully satisfied, First, to the holders of the Preferred Shares for each Preferred Share, a liquidation preference of $1.00 per share, Second, to the holders of Common Stock, ratably, an amount equal to (i) $1.00 divided by the number of shares of Common Stock then comprising a Conversion -7- Unit, multiplied by (ii) the number of shares of Common Stock then outstanding, and Third, to the holders of the Preferred Shares and the Common Stock (ratably, on the basis of the number of shares of Common Stock then outstanding and, in the case of the Preferred Shares, the number of shares of Common Stock then comprising a Conversion Unit multiplied by the total number of Preferred Shares outstanding), all remaining assets of the Corporation available for distribution to the holders of the Corporation's capital stock. Neither the consolidation, merger or other business combination of the Corporation with or into any other Person or Persons nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation to a Person or Persons, shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section F of this Article IV. G. Redemption. The Preferred Shares are not subject to redemption at the option of the Corporation nor subject to any sinking fund or other mandatory right of redemption accruing to the holders thereof. ARTICLE V. The term of corporate existence of the Corporation shall be perpetual. ARTICLE VI. A. No Person shall own shares of Common Stock equal to or in excess of the Ownership Limit. If there is a purported Transfer or other event caused by any Person or the Corporation such that a Preferred Eligible Shareholder would own shares of Common Stock equal to or in excess of the Ownership Limit, then, that number of shares of Common Stock owned by such Preferred Eligible Shareholder by which the shares of Common Stock owned by such Preferred Eligible Shareholder would be equal to or in excess of the Ownership Limit as a result of the Transfer shall automatically be converted into that same number of shares of Zero Coupon Convertible Preferred Stock. Such conversion shall be effective on the books of the Corporation as of the close of business on the business day prior to the date of the Transfer or other event. B. If the Board of Directors shall at any time determine in good faith that a Transfer or other event has taken place in violation of this Article VI, the Board of Directors may take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, but not limited to, refusing to give effect to such Transfer or other event on the books of the Corporation or instituting proceedings to enjoin such Transfer or other event or transaction; provided, however, that any Transfers or attempted Transfers (or, in the case of events other than a Transfer, ownership) in violation of this Article VI shall be void ab initio in the case of Transfers that would cause ownership of shares of Common Stock equal to or in excess of the Ownership Limit by any Person other than a Preferred Eligible Shareholder, and in the case of ownership or Transfers that would cause ownership of shares of Common Stock equal to or in excess of the Ownership Limit by a Preferred Eligible Shareholder shall automatically result in the conversion described in Section A of this Article VI, irrespective of any action (or non-action) by the Board of Directors. -8- ARTICLE VII The private property of the shareholders of the Corporation shall be exempt from all corporate debts. ARTICLE VIII A. A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders; or (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; or (iii) for any transaction from which the director derives an improper personal benefit; or (iv) under Section 490.833, or a successor provision, of the Act. B. If, after the date these Articles of Incorporation are filed with the Iowa Secretary of State, the Act is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be deemed eliminated or limited to the fullest extent permitted by the Act, as so amended. Any repeal or modification of Section A or this Section B of this Article VIII, 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 IX A. Each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative, investigative or arbitration and whether formal or informal ("proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer or employee, of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity while serving as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification -9- rights than the Act permitted the Corporation to provide prior to such amendment), against all reasonable expenses, liability and loss (including without limitation attorneys' fees, all costs, judgments, fines, Employee Retirement Income Security Act excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director, officer or employee in his or her capacity as a director, officer or employee (and not in any other capacity in which service was or is rendered by such person while a director, officer or employee including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of (i) a written undertaking, by or on behalf of such director, officer or employee, to repay all amounts so advanced if it should be determined ultimately that such director, officer or employee is not entitled to be indemnified under this Article IX or otherwise, or (ii) a written affirmation by or on behalf of such director, officer or employee that, in such person's good faith belief, such person has met the standards of conduct set forth in the Act. B. If a claim under Section A is not paid in full by the Corporation within 30 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action that the claimant has not met the standards of conduct which make it permissible under the Act for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. The failure of the Corporation (including its Board of Directors, independent legal counsel or its shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Act, shall not be a defense to the action or create a presumption that the claimant had not met the applicable standard of conduct. C. Indemnification provided hereunder shall, in the case of the death of the person entitled to indemnification, inure to the benefit of such person's heirs, executors or other lawful representatives. The invalidity or unenforceability of any provision of this Article IX shall not affect the validity or enforceability of any other provision of this Article IX. D. Any action taken or omitted to be taken by any director, officer or employee in good faith and in compliance with or pursuant to any order, determination, approval or permission made or given by a commission, board, official or other agency of the United States or of any state or other governmental authority with respect to the property or affairs of the Corporation or any such business corporation, not-for-profit corporation, joint venture, trade association or other entity over which such commission, board, official or agency has jurisdiction or authority or purports to have jurisdiction or authority shall be presumed to be in compliance with the standard of conduct set forth in Section 490.851 (or any successor provision) of the Act whether or not it may thereafter be determined that such order, determination, approval or permission was unauthorized, erroneous, unlawful or otherwise improper. -10- 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 IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise. G. The Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Act. ARTICLE X A. As used in these Articles of Incorporation, the following terms shall have the following meanings: (i) "Affiliate" shall mean any Person or entity, directly or indirectly, controlling, controlled by or under common control with such Person or entity; (ii) "Business Day" shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in the State of New York or the State of Iowa are authorized or obligated by law or executive order to close; (iii) "Ownership Limit" shall mean with respect to any Person, ownership of 10% of the issued and outstanding Common Stock if such ownership would cause such Person to become subject to regulation as a registered holding company under PUHCA or the Corporation or any of its subsidiaries to become subject to regulation as a subsidiary of a registered holding company under PUHCA; (iv) "Person" shall mean any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a trust or other entity; (v) "Preferred Eligible Shareholder" shall mean a holder of Preferred Shares or its Affiliates; and (vi) "Transfer" shall mean any sale, assignment, pledge, hypothecation, other disposition or encumbrance, whether or not for consideration. -11- ARTICLE XI These Articles of Incorporation may be amended, repealed, changed or modified at any annual meeting of shareholders of the Corporation or at a special meeting being called for that purpose or by written consent, in compliance with the applicable statutes of the State of Iowa. -12- EX-10.3 12 file011.txt NON-QUALIFIED STOCK OPTION AGREEMENTS MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 18,750 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $18.50 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel -------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------- (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 31,250 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $19.00 per share. 4. The "Option Period" begins onMarch 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 200,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $24.7031 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 200,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $24.22 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on October 18, 2008 (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 800,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $29.0063 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 200,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $34.6906 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 200,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $29.0063 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is David L. Sokol. 2. Number of Shares. 549,277 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $35.05 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2010 (ten years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall vest and become exercisable as follows: (a) One thirty-sixth (1/36th) of the shares shall vest on each monthly anniversary of the Date of Grant; provided, however, that the Optionee is still in the Service (as defined in the Plan) of the Company on such date. (b) In the event the Optionee is terminated from employment by Company without "Cause" ( as defined in the Amended and Restated Employment Agreement dated as of May 10, 1999 by and between the Company and the Optionee, as amended (the "Employment Agreement")), by resignation by the Executive pursuant to Section 7(a)(iv) of the Employment Agreement, or by reason of death or disability, any unvested Options shall become fully vested and exercisable upon the date of such termination, subject to Section 7 hereof. (c) In addition, all outstanding Options shall, without any further action, immediately become fully vested and exercisable (i) upon approval by the Company's stockholders of (A) the dissolution of the Company, (B) a merger or consolidation of the Company where the Company is not the surviving corporation, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (C) a reverse merger in which the Company survives as an entity but in which securities possessing more than 50 percent of the total combined voting power of the Company's securities are transferred to a person or persons different from those who hold such securities immediately prior to the merger or (D) the sale or other disposition of all or substantially all of the Company's assets, (ii) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50 percent of the total combined voting power of the Company's outstanding voting securities; or (iii) a change in the composition of the Board of Directors over a period of thirty-six (36) months or less such that a majority of the Board members cease, by reason of one or more contested elections for Board membership or by one or more actions by written consent of stockholders, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by the Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. All unvested Options shall expire on the date of termination. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. -2- Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Gregory E. Abel ------------------- Name: Gregory E. Abel Title: President and Chief Operating Officer OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ David L. Sokol - ------------------ (Signature) David L. Sokol - -------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -3- EX-10.5 13 file012.txt NON-QUALIFIED STOCK OPTION AGREEMENTS MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 5,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $15.9375 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 15,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $19.00 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY:/s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 85,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $16.625 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March __, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 10,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $19.00 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 90,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $25.8188 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ------------------------ Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - -------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 40,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $24.7031 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - -------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 100,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $24.22 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on October 18, 2008 (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 100,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $29.0063 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ----------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - ------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 25,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $34.6906 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - -------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -2- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 25,000 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $29.0063 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2008 (eight years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall be fully vested and exercisable as of the Date of Grant. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - -------------------- (Signature) Gregory E. Abel - ------------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -3- MIDAMERICAN ENERGY HOLDINGS COMPANY 2000 Stock Option Plan NON-QUALIFIED STOCK OPTION AGREEMENT MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa Corporation (the "Company") pursuant to and for the purposes set forth in its 2000 Stock Option Plan (the "Plan"), hereby grants to the following named person (the "Optionee"), a non-qualified option ("Option") to purchase the number of shares of the Company's common stock, no par value ("Common Stock"), at the price per share specified below, subject to the terms and conditions hereinafter set forth: 1. The "Optionee" is Gregory E. Abel. 2. Number of Shares. 154,052 Shares of Common Stock are granted to the Optionee subject to the Vesting Schedule set forth in Section 5. 3. The "Option Exercise Price" is $35.05 per share. 4. The "Option Period" begins on March 14, 2000 ("Date of Grant") and ends on March 14, 2010 (ten years from the Date of Grant) (the "Termination Date"), unless sooner terminated as provided herein. 5. Vesting Schedule for Exercise. The Optionee's right to purchase during the Option Period the total number of shares of Common Stock granted hereby shall vest and become exercisable as follows: (a) One thirty-sixth (1/36th) of the shares shall vest on each monthly anniversary of the Date of Grant; provided, however, that the Optionee is still in the Service (as defined in the Plan) of the Company on such date. (b) In the event the Optionee is terminated from employment by Company without "Cause" ( as defined in the Amended and Restated Employment Agreement dated as of May 10, 1999 by and between the Company and the Optionee, as amended (the "Employment Agreement")), by resignation by the for "Good Reason (as defined in the Employment Agreement), or by reason of death or disability, any unvested Options shall become fully vested and exercisable upon the date of such termination, subject to Section 7 hereof. (c) In addition, all outstanding Options shall, without any further action, immediately become fully vested and exercisable (i) upon approval by the Company's stockholders of (A) the dissolution of the Company, (B) a merger or consolidation of the Company where the Company is not the surviving corporation, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (C) a reverse merger in which the Company survives as an entity but in which securities possessing more than 50 percent of the total combined voting power of the Company's securities are transferred to a person or persons different from those who hold such securities immediately prior to the merger or (D) the sale or other disposition of all or substantially all of the Company's assets, (ii) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50 percent of the total combined voting power of the Company's outstanding voting securities; or (iii) a change in the composition of the Board of Directors over a period of thirty-six (36) months or less such that a majority of the Board members cease, by reason of one or more contested elections for Board membership or by one or more actions by written consent of stockholders, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time such election or nomination was approved by the Board. 6. Manner of Exercise. Optionee may from time to time exercise this Option (to the extent vested), in whole or in part, by completion of all of the requirements set forth in the Plan. As a condition of receiving this Option, the Optionee hereby agrees that any Shares of Common Stock acquired pursuant to this Option shall be subject to the Shareholders Agreement between the Optionee and the Company, dated March 14, 2000. 7. Option Period After Termination of Employment. All vested Options held by the Optionee upon termination of employment with the Company shall remain exercisable until the Termination Date, subject to the provisions of the Shareholders Agreement. All unvested Options shall expire on the date of termination. 8. Incorporation of Plan by Reference. Except as modified or amplified by the specific terms of this Agreement, all of the terms and provisions of the Plan are incorporated by reference in this document. A copy of the Plan is attached hereto as Exhibit A. -2- Executed as of the Date of Grant. MIDAMERICAN ENERGY HOLDINGS COMPANY BY: /s/ Steven A. McArthur ---------------------- Name: Title: OPTIONEE'S Acknowledgment and Agreement: Optionee hereby acknowledges he or she has received a copy of the Plan and Shareholders Agreement, and further acknowledges that Optionee has read the terms and conditions thereof. In order for this Agreement of Grant to be effective, as of the Date of Grant, Optionee accepts and agrees to be bound by all of the terms and conditions of the Plan, this Agreement and Shareholders Agreement. Acknowledged and Agreed: OPTIONEE /s/ Gregory E. Abel - -------------------- (Signature) Gregory E. Abel - --------------- (Print Name) Lists of Exhibits: Exhibit A: 2000 Stock Option Plan Attachment -3- EX-10.7 14 file013.txt LONG-TERM INCENTIVE PARTNERSHIP PLAN EXHIBIT 10.7 MIDAMERICAN ENERGY HOLDINGS COMPANY LONG-TERM INCENTIVE PARTNERSHIP PLAN AS AMENDED AND RESTATED JANUARY 16, 2001 PLAN DOCUMENT MidAmerican Energy Holdings Company Long-Term Incentive Partnership Plan ARTICLE I - PURPOSE AND EFFECTIVE DATE 1.1 PURPOSE. The purpose of this Long-Term Incentive Partnership Plan (hereinafter, the "Plan") is to permit a select group of management employees of MidAmerican Energy Holdings Company and its subsidiaries to share in significant increases in the value of the Company realized through the efforts of these individuals. It is intended that the Plan, by providing this award and deferral opportunity (U.S. only), will assist the Company in retaining and attracting individuals of exceptional ability and will act as in incentive to align their interests with those of the Company. 1.2 EFFECTIVE DATE. The Plan shall be effective as of March 14, 2000. ARTICLE II - DEFINITIONS For the purpose of the Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 BASE SALARY. "Base Salary" means the base salary payable to a Participant with respect to employment services performed for the Company by the Participant and considered to be "wages" for purposes of federal income tax withholding during the calendar year. For purposes of the Plan, Base Salary shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company's tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code of 1986, as amended (the "Code"), or pursuant to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan or any other non-qualified plan which permits the voluntary deferral of compensation. Inclusion of any forms of compensation other than such "wages" and deferred "wages" is subject to approval of the Chairman & CEO and the President. 2.2 BENEFICIARY. "Beneficiary" means the person, persons or entity as designated by the Participant, entitled under Article VII to receive any Plan benefits payable after the Participant's death. 2.3 BOARD. "Board" means the Board of Directors of the Company or duly authorized committee thereof. 2.4 COMPANY. "Company" means MidAmerican Energy Holdings Company, a Des Moines, Iowa based corporation, and any directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any predecessor or successor to the business thereof. 1 2.5 DETERMINATION DATE. "Determination Date" means the last business day of each calendar month. 2.6 DISABILITY. "Disability" means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant's usual duties for Company. The Chairman & CEO and the President shall determine the existence of Disability, in its sole discretion, and may rely on advice from a medical examiner satisfactory to the Committee in making the determination. 2.7 INCENTIVE ACCOUNT(S). "Incentive Account(s)" means the account or accounts maintained on the books of the Company with respect to each Incentive Award and used solely to calculate the amount which may be payable to each Participant under the Plan and shall not constitute a separate fund of assets. Participants may have more than one Incentive account maintained on their behalf. 2.8 INCENTIVE AWARD(S). "Incentive Award(s)" means the award determined and allocated under the terms of the Plan. Each Incentive Award shall be designated by the year to which the award relates (the "Award Year") even though the value of the award may be determined and credited to a Participant's Incentive Account in a subsequent year. By way of example: The Year 2000 Incentive Award may relate to the performance of the Company over the calendar year 2000 (the Award Year), even though the Incentive Award will only be determinable in 2001. 2.9 INTEREST. "Interest" means the amount credited to each Participant's Incentive Accounts(s) on each Determination Date, which shall be based on the Valuation Funds chosen by the Investment Committee as provided in Section 2.16, below and in a manner consistent with Section 5.2. Such credits to a Participant's Incentive Account may be either positive or negative to reflect the increase or decrease in value of the Incentive Account in accordance with the provisions of this Plan. 2.10 INVESTMENT COMMITTEE. "Investment Committee" means the Participants of the Plan in the current Award Year. The Investment Committee shall designate the investments of the entire balance of all awards in one or more of the Valuation Funds for the sole purpose of determining the amount of Interest to be credited or debited to each Incentive Account. 2.11 NET INCOME. "Net Income" means the definition as applied under Generally Accepted Accounting Principles. The Chairman & CEO and the President may adjust net income for extraordinary and non-recurring events, when appropriate. 2.12 NOMINATION COMMITTEE. "Nomination Committee" means a group of Participants appointed by the Chairman & CEO and the President each plan year for the purposes of recommending the Initial and Performance Allocations. 2.13 PARTICIPANT. "Participant" means any employee who is eligible, pursuant to Article III, below, to participate in this Plan, and who has been so notified by the Chairman & 2 CEO and the President. Such employee shall remain a Participant in this Plan for any award that has been made until such time as all benefits payable for that specific Award Year have been paid in accordance with the provisions hereof. A Participant may have an Incentive Account and not be chosen to participate in a subsequent Award Year. In addition, a Participant may be designated as an Associate Participant under the terms of this Plan, and the rights and benefits attributable to these Associate Participants shall be those attributable to Participants under this Plan, unless clearly set forth otherwise. An Associate Participant may also be referred to as an "Associate" which term shall have the same meaning in all respect as Associate Participant. Likewise, a Participant may alternatively be referred to as a "Partner" which term shall have the same meaning in all respects as Participant. The use of the term "Partner" is not intended to, and does not convey any additional rights or responsibilities to a Participant. 2.14 PLAN. "Plan" means this Long-Term Incentive Partnership Plan as amended from time to time. 2.15 RETIREMENT. "Retirement" means the termination of employment with the Company of the Participant after attaining age fifty-five (55) and five (5) years of service. 2.16 VALUATION FUNDS. "Valuation Funds" means one or more of the independently established funds or indices that are identified and listed in Exhibit A. These Valuation Funds are used solely to calculate the Interest that is credited to each Incentive Account(s) in accordance with Article V, and does not represent, nor should it be interpreted to convey any beneficial interest on the part of the Participant in any specific asset or other property of the Company. The determination of the increase or decrease in the performance of each Valuation Fund shall be made by the Chairman & CEO and the President in their reasonable discretion by reference to the performance of such Valuation Funds. The Chairman & CEO and the President shall select the various Valuation Funds available to the Investment Committee pursuant to the Plan and shall set forth a list of these Valuation Funds attached hereto as Exhibit A, which may be amended from time to time in the discretion of the Chairman & CEO and the President. ARTICLE III - ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY AND PARTICIPATION. Eligibility to participate in the Plan shall be limited to those select key employees of Company who are designated by the Chairman & CEO and the President, from time to time. The Chairman and CEO and the President of the Company may designate certain key employees of the Company as Associate Participants to reflect their contributions to the success of the Company. Such Associate Participant may later be designated as a full Participant, in which event, the benefits due under this Plan, including any Allocations, shall be determined as set forth for a full Participant from the date specified. 3.2 PARTICIPATION. An employee's participation in the Plan for any Award Year shall be effective upon notification to the employee by the Chairman & CEO and the President. 3 ARTICLE IV - INCENTIVE AWARDS 4.1 ANNUAL AWARDS. Prior to the beginning of each year the Chairman & CEO and the President shall determine whether an Incentive Award shall be granted for the current plan year. If an Incentive Award is granted, the Chairman & CEO and the President will establish the Net Income goal. The amount of the Incentive Award shall be determined as follows: If . . . The Award Is . . . -------- ------------------ After-tax Net Income less than or equal to No contribution pre-determined goal After-tax Net Income exceeds goal by 0.01% 15% of excess - 3.25% After-tax Net Income exceeds goals by 3.251% The amount above, plus - 6.0% 25% of excess over 3.25% After-tax Net Income exceeds goals by more The amount above, plus than 6.0% 35% of excess over 6.0% The Net Income target for the subsequent year may be adjusted to add any Net Income shortfall from the current year. 4.2 ALLOCATION OF AWARDS. The amount of each Incentive Award shall be allocated among the eligible Participants in the following manner: a) Initial Allocation. The Nomination Committee shall make recommendations to the Chairman & CEO and the President to allocate seventy-five percent (75%) of the value of the Incentive Award for that year. The Chairman & CEO and the President shall either accept these recommendations or make adjustments that may increase, decrease or eliminate any allocation to any individual Participant. Such allocation (and adjustments, if any) shall be made and communicated to the Participants prior to February 15th of the Award Year, except for the initial plan year. b) Performance Allocation. The Nomination Committee shall make recommendations to the Chairman & CEO and the President as to the allocation of the remaining twenty-five percent (25%) of the Incentive Award for the Award Year among the eligible Participants. The Chairman & CEO and the President shall either accept these recommendations or make adjustments that may increase, decrease or eliminate any such remaining allocation to any individual Participant. Such allocation (and adjustments, if any) shall be made and communicated to the Participants prior to February 15th of the year following the Award Year. Any award that is not allocated to Participants will be returned to the Company as an offset to Plan expenses. 4 c) Maximum Allocation. Notwithstanding the above, the sum of the Initial and Performance Allocations made on behalf of any Participant for any single Award Year shall not exceed one hundred fifty percent (150%) of that Participant's Base Salary for that Award Year. 4.3 DETERMINATION OF ANNUAL AWARDS. The dollar value of any Incentive Award shall be determined by the Chairman and CEO and the President as soon as practical after the close of the Award Year, but in no event shall the dollar value of the Award be determined later than March 1st of the year following the Award Year. The value of a Participant's share of any Incentive Award shall be credited to a Participant's Incentive Account as of the day determined by the Chairman & CEO and the President but in no event shall the date be later than March 1st of the year following the Award Year. Interest shall be credited (or debited) on each Determination Date. Any distributions to a Participant shall reduce the Participant's Incentive Account as of the date of such distribution. 4.4 REDUCTIONS OF AWARDS. The Chairman and CEO and the President may, in their sole discretion, establish certain criteria that must be met for an Incentive Award to become effective. These criteria may include the achievement of certain safety performance goals, risk management or other goals established by the Chairman and CEO and the President. The determination of whether any applicable goals have been achieved with respect to an Incentive Award shall be determined as of the time that the dollar value of that Incentive Award is determined in Section 4.3 above. ARTICLE V - INCENTIVE ACCOUNT 5.1 ACCOUNTS. The Company shall maintain a separate bookkeeping account on behalf of each Participant in the Plan for each Incentive Award. The value of any Incentive Awards allocated to each Participant plus any Interest earned thereon shall be added to such Participant's Incentive Account. These Incentive Accounts shall be used solely to calculate the amount payable to each Participant under the Plan and shall not constitute a separate fund of assets. 5.2 TIMING OF CREDITS. The value of a Participant's share of any Incentive Award shall be credited to a Participant's Incentive Account as of the day determined by the Chairman and CEO and the President but in no event shall the date be later than March 1st of the year following the Award Year. Each Incentive Account shall be increased or decreased by the Interest credited on each Determination Date as though the balance of that Incentive Account as of the beginning of the year had been invested in the applicable Valuation Funds chosen by the Investment Committee. Any distributions to a Participant shall reduce the Participant's Incentive Account as of the date of such distribution. 5.3 VESTING OF ACCOUNTS. Each Participant shall be twenty percent (20%) vested in his or her Incentive Account at December 31st of the Award Year and an additional twenty 5 percent (20%) for each subsequent year except that the Participant shall be considered to be one hundred percent (100%) vested in the event of Retirement or in the event of termination of service as a result of a Disability or death. Participants must be employed on December 31st to vest for the year. Vesting will not be prorated if termination occurs during the year except for Retirement, Disability or death. 5.4 STATEMENT OF ACCOUNTS. The Company shall give to each Participant a statement showing the balances in the Participant's Incentive Account no less frequently than on an annual basis. ARTICLE VI - PLAN BENEFITS 6.1 NORMAL BENEFIT. The balance of each Participant's Incentive Account shall be paid no earlier than four (4) years, eleven (11) months from the beginning of the Award Year and no later than the fifth anniversary of the beginning of the Award Year. Unless modified pursuant to Section 6.3 below, such amount shall be paid in the form of a lump sum. 6.2 EARLY TERMINATION BENEFIT. In the event that a Participant terminates service with the Company prior to the fifth anniversary of an Award Year, the Participant shall receive the vested portion of the Incentive Account(s) as of the most recent Determination Date, payable in a lump sum. The amount shall be paid as soon as practical after the termination of service, but in no event later than thirty (30) days from the date of termination. 6.3 DEFERRED BENEFIT (U.S. ONLY). With respect to any Incentive Account, the Participant may elect, in a manner acceptable to the Company, to defer the receipt of certain benefits due under this Plan by filing an election to do so no later than December 15th after the third anniversary of the beginning of the Award Year relating to the Incentive Account to be deferred: a) Such election must be accepted by the Administrative Committee of the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan. b) The balance of the Incentive Account as of the fifth anniversary of the Award Year shall be transferred to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan as of that date and shall thereafter be subject to the terms and conditions of that plan; c) Such an election shall only permit the deferral of benefits payable under Section 6.1 above, and shall not defer the receipt of benefits payable under any other provision of the Plan; and d) The acceptance of such an election shall completely satisfy and discharge all obligations on the part of the Company to the Participant (and the Participant's Beneficiary) with respect to such Incentive Account, and the Participant's (and 6 Participant's Beneficiary's) rights under the Plan with respect to such Incentive Account shall terminate. By way of example: A Participant may elect to defer the receipt of his Year 2000 Incentive Account by filing an election to do so prior to December 15, 2003. If such election is in a form acceptable to the Company and the election is accepted by the Administrative Committee of the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan, the balance of the vested portion of that plan year Incentive Account as of December 31, 2004 shall be considered to be transferred to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan as of that date, and all obligations with respect to the Year 2000 Incentive Account for that Participant shall be deemed to be satisfied. 6.4 DEATH BENEFIT. In the event of the death of a Participant prior to complete payment of any Incentive Account, the Participant's Beneficiary shall receive the remaining, vested balance of the Incentive Account(s) determined as if the Participant had terminated service as of the date of death. Such amounts shall be paid in a lump sum as soon as practical after the death of the Participant, but in no event later than thirty (30) days from the date of the Participant's death. 6.5 WITHHOLDING AND PAYROLL TAXES. The Company shall withhold from any payments made pursuant to the Plan any taxes required to be withheld from such payments under law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto (U.S. only). 6.6 PAYMENT TO GUARDIAN. If a Plan benefit is payable to a minor, a person declared incompetent or a person incapable of handling the disposition of the property, the Company may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Company may require proof of incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Company from all liability with respect to such benefit. 6.7 EFFECT OF PAYMENT. The full payment of the applicable benefit under this Article VI shall completely discharge all obligations on the part of the Company to the Participant (and the Participant's Beneficiary) with respect to the operation of the Plan, and the Participant's (and Participant's Beneficiary's) rights under the Plan shall terminate. ARTICLE VII - BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time, to designate one (1) or more persons or entity as Beneficiary (both primary as well as secondary) to 7 whom benefits under the Plan shall be paid in the event of Participant's death prior to complete distribution of the Participant's Incentive Account balance. Each Beneficiary designation shall be in a written form prescribed by the Company and shall be effective only when filed with the Company during the Participant's lifetime. Designation by a married Participant to anyone other than the Participant's spouse shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located. 7.2 CHANGING BENEFICIARY. Any Beneficiary designation may be changed by an unmarried Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Company. A married Participant's Beneficiary designation may be changed by a Participant with the consent of the Participant's spouse as provided for in Section 7.1 above. The filing of a new designation shall cancel all designations previously filed. 7.3 CHANGE IN MARITAL STATUS. If the Participant's marital status changes after the Participant has designated a Beneficiary, the following shall apply: a) If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 7.1 above. b) If the Participant is unmarried at death but was married when the designation was made: i) The designation shall be void if the spouse was named as Beneficiary. ii) The designation shall remain valid if the spouse was not named and a non-spouse Beneficiary was named. c) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed in Section 7.1 above. 7.4 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designed by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: a) The Participant's surviving spouse; b) The Participant's children (including step children) in equal shares, except that if any of the children predeceases the Participant but leaves surviving issue, then such issue shall take by right of representation the share the deceased child would have taken if living; 8 c) The Participant's estate. 7.5 EFFECT OF PAYMENT. Payment to the Beneficiary shall completely discharge the Company's obligations under the Plan and the Company may require a release to that effect from the Beneficiary prior to the distribution. ARTICLE VIII - ADMINISTRATION 8.1 BINDING EFFECT OF DECISIONS. The decision or action of the Chairman & CEO and the President with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having an interest in the Plan. ARTICLE IX - CLAIMS PROCEDURE 9.1 CLAIM. Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan (hereinafter referred to as "Claimant"), or requesting information under the Plan shall present the request in writing to the Chairman & CEO and President, who shall respond in writing as soon as practical. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. 9.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of denial shall state: a) The reasons for denial, which specific reference to the Plan provisions on which the denial is based; b) A description of any additional material or information required and an explanation of why it is necessary; and c) An explanation of the Plan's claim review procedure. 9.3 FINAL DECISION. The decision on review shall normally be made within sixty (60) days after receipt of Claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. ARTICLE X - AMENDMENT AND TERMINATION OF PLAN 10.1 AMENDMENT. The Board may at any time amend the Plan by written instrument, notice of which is given to all Participants and to Beneficiary receiving payments, except that no amendment shall reduce any vested benefit or amount accrued in any Incentive Account or any deferral election as of the date such notice of the amendment is given. 9 10.2 COMPANY'S RIGHT TO TERMINATE. The Board may at any time partially or completely terminate the Plan by written instrument, notice of which is given to all Participants and to any Beneficiary receiving payments if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments would not be in the best interests of the Company provided that no such termination shall reduce any vested benefit and the amount accrued in any Incentive Account or any deferral election as of the date such notice of termination is given. 10.3 PARTIAL TERMINATION. The Board may partially terminate the Plan and if such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Incentive Awards allocated prior to the effective date of such partial termination. 10.4 PAYMENT ON TERMINATION. In the event of a complete or partial termination hereunder, the Plan shall cease to operate or as to a partial termination, the Plan shall cease only with respect to the part terminated and the Company shall distribute each Incentive Account to the appropriate Participant or Beneficiary. Payment shall be made as a lump sum within thirty (30) days of Plan termination unless deferral elections are effective, in which case payments shall be made to a Participant's (or Beneficiary's) account in such deferral plan. ARTICLE XI - MISCELLANEOUS 11.1 UNFUNDED PLAN. This plan is unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3 (2) of ERISA (as currently in effect or hereafter amended) which is not so exempt. 11.2 COMPANY OBLIGATION. The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the Company 11.3 UNSECURED GENERAL CREDITOR. Notwithstanding any other provision of this Plan, Participants and Participants' Beneficiary shall be unsecured general creditors, with no secured or preferential rights to any assets of the appropriate Company or any other party for payment of benefits under the Plan. Any property held by Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Company's obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future. 10 11.4 TRUST FUND. Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Company may establish one (1) or more trusts for the purpose of assisting in the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all Company's general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Company. 11.5 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable except only pursuant to the designated Beneficiary in the event of death or Disability or pursuant to a legal will or the laws of intestate succession. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 11.6 NOT A CONTRACT OF EMPLOYMENT. This Plan shall not constitute a contract of employment between Company and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge a Participant at any time. 11.7 PROTECTIVE PROVISIONS. A Participant will cooperate with Company by furnishing any and all information requested by Company, in order to facilitate the payment of benefits hereunder. 11.8 GOVERNING LAW. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Iowa, except as preempted by federal law. 11.9 VALIDITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 11.10 NOTICE. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Chairman & CEO and the President shall be directed to the Company's address. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in Company's records. 11 11.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity. 11.12 TAXING AUTHORITY. If a Participant is subject to a taxing authority or jurisdiction which would cause an Incentive Account to be recognized and taxed as income by that authority or jurisdiction prior to the time it would otherwise be payable under the terms of the Plan, then the provisions of the Plan, as applied to that Participant, shall be modified such that if the Participant is terminated for cause, as defined by the Chairman & CEO and the President, prior to the time an Incentive Account is payable, the Participant shall be considered zero percent (0%) vested in such award and the entire Incentive Account shall be forfeited. MidAmerican Energy Holdings Company By: /s/ Gregory E. Abel -------------------------------- Dated: April 18, 2000 ----------------------------- EX-10.50 15 file014.txt VOLUNTARY DEFERRED COMPENSATION PLAN CALENERGY COMPANY, INC. VOLUNTARY DEFERRED COMPENSATION PLAN EFFECTIVE DECEMBER 1, 1997 CALENERGY COMPANY, INC. VOLUNTARY DEFERRED COMPENSATION PLAN EFFECTIVE DECEMBER 1, 1997 ARTICLE I Definitions 1.1 As used in this Plan, the following terms shall have the meanings hereinafter set forth: "Administrator" means the Chairman and Chief Executive Officer of the Company or his delegee(s), who shall administer the Plan in accordance with ARTICLE VIII. Until otherwise designated in writing by the Chairman and Chief Executive Officer, the Company's Vice President of Human Resources and the General Counsel (acting together) shall serve as the Administrator hereunder. "Beneficiary" means any person(s) or legal entity(ies) designated by the Participant or otherwise in accordance with Section 10.6. "Board" means the Board of Directors of the Company or any duly authorized Committee thereof. "Bonus" means the bonus compensation paid by the Employer to an Eligible Employee during any Plan Year. "Change in Control" means (i) approval by the Company's stockholders of (A) the dissolution of the Company, (B) a merger or consolidation of the Company where the Company is not the surviving corporation, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (C) a reverse merger in which the Company survives as an entity but in which securities possessing more than 50 percent of the total combined voting power of the Company's securities are transferred to a person or persons different from those who hold such securities immediately prior to the merger or (D) the sale or other disposition of all or substantially all of the Company's assets; (ii) the direct or indirect acquisition by any Person or related group of Persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a Person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50 percent of the total combined voting power of the Company's outstanding voting securities; or (iii) a change in the composition of the Board over a period of thirty-six (36) months or less such that a majority of the Board members cease, by reason of one or more contested elections for Board membership or by one or more actions by written consent of stockholders, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in Clause (A) who were still in office at the time such election or nomination was approved by the Board. "Company" means CalEnergy Company, Inc., a Delaware corporation, and its successors and assigns. "Deferred Compensation Account" means an account established and maintained under the Plan to reflect deferrals made by a Participant hereunder and interest accrued thereon pursuant to the Plan. "Effective Date" means December 1, 1997. "Employer" means the Company and any subsidiary or affiliate thereof which shall be designated by the Administrator as a participating employer under the Plan. "Financial Hardship" means financial hardship to the Participant resulting from a sudden and unexpected illness, accident, liability, expense or obligation of the Participant or a dependent, a loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute a Financial Hardship will depend upon the facts of each case and will be determined by the Administrator in its sole reasonable discretion, but distributions may not be made to the extent that such Financial Hardship is or may be eliminated (i) through reimbursement or compensation by insurance or otherwise or (ii) by reasonable measures undertaken by a Participant to dispose on reasonable commercial terms of certain of the Participant's assets, to the extent the liquidation of such assets would not itself cause Financial Hardship. "Installments" means substantially equal installments payable quarterly over a period of five years, in accordance with Section 6.1. "Interest" on a Deferred Compensation Account shall have the meaning set forth in Section 4.2. "Eligible Employee" means a highly-compensated employee of the Employer who is (i) a member of a select group of senior management or highly compensated employees of the Employer and (ii) designated by the Administrator as an Eligible Employee. Such designations shall be determined annually by the Administrator in its sole discretion. "Participant" for any Plan Year means a Eligible Employee who elects to participate in the Plan in accordance with ARTICLE II. "Person" means any natural person, general partnership, limited partnership, corporation, joint venture, trust, business trust or other entity. "Plan" means the CalEnergy Company, Inc. Voluntary Deferred Compensation Plan, as embodied herein and as amended from time to time. "Plan Year" means the calendar year, except that the first Plan Year shall be the period beginning on December 1, 1997 and ending on December 31, 1997. -2- "Salary" means the base salary paid to an Eligible Employee for any Plan Year by the Employer. "Separation from Service" means termination of a Participant's employment with the Employer for any reason, unless such termination is in connection with the transfer of the Participant to another entity which also constitutes an Employer, as defined herein. Wherever any words are used herein in the masculine gender, they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form, they shall be construed as though they were also used in the plural form in all cases where they would so apply. ARTICLE II Participation 2.1 (a) Prior to the December 15 preceding a Plan Year, or such other date(s) as determined by the Administrator, each Eligible Employee selected by the Administrator for participation in the Plan in such Plan Year may irrevocably elect to participate in the Plan for the Plan Year by written notice to the Administrator, which notice must specify, subject to the provisions of Section 2.2, the amount of Salary and/or Bonus to be deferred; provided, however, that the Administrator may establish procedures and forms from time to time which are applicable to all Eligible Employees under which Eligible Employees may elect to participate in the Plan on a prospective basis as of some other date(s) specified in such procedures; further provided, however, that a Participant's election to participate in the Plan as to Salary for any Plan Year shall remain in effect for subsequent Plan Years unless revoked or changed by the Participant, prior to the December 15 preceding the Plan Year with respect to which such revocation or change is effective or unless the Participant is not selected by the Administrator for participation in the Plan in such Plan Year. Prior Plan Year elections and participations hereunder shall not be affected by the fact that a Participant is not selected by the Administrator for participation in the Plan in any subsequent year. With respect to the deferral of Salary, the irrevocable election notice for the applicable Plan Year shall specify one of the following deferral methods, elected by the Eligible Employee: (i) ratably over the Plan Year, (ii) ratably over the first six months of the Plan Year or (iii) ratably over the last six months of the Plan Year. (b) Notwithstanding paragraph (a) of this Section 2.1, (i) in the first Plan Year, an Eligible Employee may elect to begin deferrals effective for Salary or Bonus compensation received on or after December 1, 1997, provided that the Eligible Employee, within 30 days following the Effective Date, irrevocably elects to participate for the first Plan Year by written notice to the Administrator otherwise consistent with Section 2.1(a) and (ii) an Eligible Employee who is first employed by an Employer during any Plan Year and who is designated as eligible to participate in the Plan by the Administrator will have 30 days following his date of employment to elect to participate in the Plan for such Plan Year by written notice to the Administrator otherwise consistent with Section 2.1(a); provided, however, that in either case such election shall apply only to Salary and Bonus earned following the date on which the Administrator receives such written notice. -3- (c) Notwithstanding the above, upon application of any Participant and approval thereof by the Administrator, the Participant may at any time during a Plan Year, revoke, by reason of Financial Hardship, his election to participate in the Plan for such Plan Year. Upon such revocation, any amount credited to his Deferred Compensation Account for such year shall be paid to him without interest as soon as practicable thereafter. 2.2 The elections pursuant to Section 2.1 may defer any whole number percentage and/or specific dollar amount (up to 100%) of the Eligible Employee's Salary and Bonus for such Plan Year, unless the Administrator determines and establishes some other percentage and/or specific dollar amount applicable to all elections under the Plan. 2.3 A Participant ceases to be a Participant on the date of his Separation from Service. ARTICLE III Deferred Compensation Account Credits 3.1 The Administrator shall cause to be credited to each Participant's Deferred Compensation Account for a Plan year the amounts which he elected to defer in accordance with ARTICLE II as of the effective date of deferral. 3.2 Notwithstanding any provisions herein to the contrary, the Administrator in his sole discretion may suspend any and all new deferrals under the Plan for such period of time as he determines. ARTICLE IV Deferred Compensation Accounts 4.1 The Administrator shall establish and maintain a Deferred Compensation Account for each Participant. 4.2 Interest shall accrue on amounts credited (pursuant to Article III) to each Deferred Compensation Account on a daily basis beginning on the effective date of the deferral and ending on the date which such amounts are distributed to the Participant, at an annual rate equal to 9.63%, or such other reasonable rate of interest as may be established by the Administrator or his delegees on an annual basis. A statement shall be sent to each Participant as of the last day of each calendar quarter and on any distribution date reflecting such credited amounts in the Participant's Deferred Compensation Account (including all interest accrued thereon). ARTICLE V Vesting 5.1 A Participant shall at all times be fully vested in his Deferred Compensation Account. Notwithstanding anything in this Plan to the contrary, any payment due to a Participant under the Plan shall be an unconditional unsecured obligation of the Company and shall not be subject to any offset or recoupment by the Company for any amount owed by the Participant to the Company or any claims of the Company against such Participant. -4- ARTICLE VI Payment of Deferred Compensation; Withdrawals 6.1 At the time a Eligible Employee elects to become a Participant, he shall also elect in writing to the Administrator, on a form provided by the Administrator, to have his Deferred Compensation Account paid in a lump sum or in Installments. 6.2 A Participant's Deferred Compensation Account shall be paid on (or, in the case of Installments, commence to be paid on) the date of his Separation from Service. 6.3 If a Participant fails to make a timely payment election in accordance with procedures established by the Administrator and on the form provided by the Administrator, a Participant shall have the amount credited to his Deferred Compensation Account paid to him in a single lump sum on the date of his Separation from Service. 6.4 Sections 6.1 to 6.3 notwithstanding, in the event of a Change in Control, each Participant's Deferred Compensation Account shall be paid in full in a single lump sum as of the date of such Change in Control. 6.5 Plan payments shall be considered cash compensation to the Participant when paid, subject to all applicable federal, state and local income taxes and withholding. 6.6 Amounts paid under the Plan shall not be eligible for further deferral under the Plan. 6.7 If a Participant dies, his Beneficiary shall be entitled to receive, as soon as administratively practicable after the date of his death, the payment of his Deferred Compensation Account, with such payment being made in the form elected by the Participant in accordance with the provisions of Section 6.1, or as provided in Section 6.4, if applicable, less any applicable federal, state and local income taxes and withholding, if any. 6.8 Notwithstanding anything herein to the contrary, a Participant may request and receive a hardship distribution, provided the participant is able to demonstrate, to the satisfaction of the Administrator, that he has suffered a Financial Hardship. A hardship distribution request must be made on the form provided by the Administrator and is subject to the rules established by the Administrator governing hardship distributions. The amount distributed cannot exceed the lesser of (a) the Participant's Deferred Compensation Account, or (b) the amount necessary to satisfy the Participant's Financial Hardship. No distribution may be made prior to the time the Administrator approves the distribution. 6.9 Any payment made to a Participant or his Beneficiary or estate pursuant to the terms of the Plan shall constitute a complete discharge of the obligations of the Company and the Administrator with respect to such payment. -5- ARTICLE VII Funding 7.1 The Company shall not fund the amounts in any Deferred Compensation Account. The amounts in any Deferred Compensation Account shall be secured only by the Company's promise to pay such amounts from the general assets of the Company. The Company has not and is under no obligation or duty to set aside, earmark, escrow or pledge any assets of the Company for the satisfaction and payment of the Deferred Compensation Account and the Participant does not have a security interest in any assets of the Company. Notwithstanding anything in this Plan to the contrary, any payment due to a Participant under the Plan shall be an unconditional unsecured obligation of the Company and shall not be subject to any offset or recoupment by the Company for any amount owed by the Participant to the Company or any claims of the Company against such Participant. ARTICLE VIII Administration 8.1 The complete authority to control and manage the operation and administration of the Plan and the responsibility for carrying out its provisions belongs to the Administrator. The Administrator may, in his discretion, delegate to any person or persons any and all of his authority and responsibility under the Plan. 8.2 The determination of the Administrator as to any disputed questions shall, absent manifest error, be conclusive and binding on all parties, including the Participant, his Beneficiary, the Company and the Employer. 8.3 The Administrator may employ counsel and other agents and may procure such clerical, accounting, and other services as he may require in carrying out the provisions of the Plan. 8.4 The Administrator shall receive no compensation for his services as such. All expenses of administering the Plan, including but not limited to, fees of accountants and counsel, shall be paid by the Company. 8.5 The Company shall indemnify and save harmless the Administrator against all expenses and liabilities arising out of the administration of the Plan, to the fullest extent permitted by law, excepting only expenses and liabilities arising solely from his own gross negligence or willful misconduct, as determined in writing by the Board, after providing the Administrator notice and opportunity to be heard. ARTICLE IX Amendment and Termination 9.1 The Company, by action of the Administrator, may at any time or from time to time modify or amend any or all of the provisions of the Plan or may at any time terminate the Plan; provided, however, that no action taken shall adversely affect the rights of any Participant hereunder to amounts vested hereunder and which would otherwise be due and payable to such -6- Participant, calculated at the time such action is taken, unless the Participant expressly consents in writing thereto. ARTICLE X General Provisions 10.1 No Participant, Eligible Employee or other employee of the Company or any Employer shall have any right to any payment or benefit hereunder except to the extent expressly provided in the Plan. 10.2 The employment rights of any Participant shall not be enlarged, guaranteed or adversely affected by reason of any of the provisions of the Plan. 10.3 Assignment, pledge or other encumbrance of any payments or benefits under the Plan shall not be permitted or recognized and to the extent permitted by law, no such payments or benefits shall be subject to legal process or attachment for the payment of any claim of any person entitled to receive the same. 10.4 If the Administrator determines that any person to whom a payment is due hereunder is a minor or incompetent by reason of physical or mental disability, the Administrator shall have the power to cause the payments then due to such person to be made to another for the benefit of the minor or incompetent, without responsibility of the Company or the Administrator to see to the application of such payment, unless claim prior to such payment is made therefor by a duly appointed legal representative. Payments made pursuant to such power shall operate as a complete discharge of the Company and the Administrator with respect thereto. 10.5 The validity of the Plan or any of its provisions shall be determined under, and it shall be construed and administered according to, the laws of the State of Nebraska. 10.6 Each Participant may designate, in writing and on a form provided by the Administrator, any person(s) or legal entity(ies), including his estate, as his Beneficiary under the Plan; provided, however, that a Participant may designate a trust as his Beneficiary only with the prior written approval of the Administrator. A Participant may at any time revoke his designation of a Beneficiary or change his Beneficiary at any time prior to his death by filing with the Administrator the appropriate beneficiary designation form. If no person or legal entity shall be designated by a Participant as his Beneficiary or if no designated Beneficiary survives him, his Beneficiary shall be his estate. To be effective, any designation or revocation of Beneficiary must be on the appropriate form provided by the Administrator and on file with the Administrator prior to the date of the Participant's death. The provisions of the Plan shall be binding on the Participant, the Company, and their respective heirs, executors, administrators, successors and assigns. -7- 10.7 Exhibits A, B and C hereto are, respectively, the current forms established for (i) Defferal Election, (ii) Distribution Election and (iii) Change of Beneficiary. Adopted and Effective as of Adopted and Effective as of December 1, 1997 on behalf of December 1, 1997 on behalf of the CalEnergy Company, Inc. Plan Administrator By: /s/ Steven A. McArthur By: /s/ Edward F. Bazemore -------------------------- --------------------------- Steven A. McArthur Edward F. Bazemore Senior Vice President Plan Administrator By: /s/ Steven A. McArthur --------------------------- Steven A. McArthur Plan Administrator -8- FIRST AMENDMENT TO THE CALENERGY COMPANY, INC. VOLUNTARY DEFERRED COMPENSATION PLAN WHEREAS, Article IX of the CalEnergy Company, Inc. Voluntary Deferred Compensation Plan (the "Plan") authorizes the Plan Administrator to amend the Plan; and WHEREAS, the Administrator has determined to amend the Plan to (i) expand the investment alternatives to include the common stock of MidAmerican Energy Holdings Company (the "Company"), no par value per share (the "Stock"), (ii) provide that deferred amounts held under the Stock investment option shall be paid out in shares of Stock, (iii) allow for redeferrals, (iv) provide for possible shorter deferral periods, and (v) provide for registration rights with respect to the Stock investment option. NOW, THEREFORE, the Plan is hereby amended as follows: 1. The following definitions are added: ""MidAmerican" means MidAmerican Energy Holdings Company." ""Stock" means the common stock of MidAmerican, no par value per share." 2. The first sentence of Section 2.1(a) shall be amended by adding the following phrase immediately following the word "deferred" and immediately prior to the first semicolon: ",the manner in which such deferred amount shall be deemed invested, the length of the deferral period and the form of payment (lump sum or installment) for such deferred amount" 3. Section 4.2 shall be replaced with the following paragraph: "4.2 Deferred Compensation Accounts may be deemed invested in: (a) shares of Stock, (b) an interest bearing account or (c) any combination of (a) or (b) herein. Participants must select an investment alternative at the time they file their written deferral elections with the Administrator. Deferred amounts deemed invested in 4.2(a) above shall appreciate or depreciate in value until paid out in the same manner and at the same rate as that number of whole shares of Stock which could be purchased with the amount held pursuant to 4.2(a) above at the closing price for the Stock reported in The Wall Street Journal for the trading day immediately prior to the date of the deemed investment. Deferred amounts deemed invested in 4.2(a) above that equal less than a whole share of Stock shall be automatically invested in 4.2(b). Interest shall accrue on deferred amounts deemed invested in (b) on a daily basis beginning on the effective date of deferral and ending on the date on which such amounts are distributed to the Participant, at an annual rate equal to 9.52%, or such other reasonable rate of interest as may be established by the Administrator or his delegees on an annual basis. A statement shall be sent to each Participant as of the last day of each calendar quarter and on any distribution date reflecting such credited amounts in the Participant's Deferred Compensation Account (including all deemed investment income or loss accrued thereon)." 4. Section 6.2 shall be deleted and replaced with the following: "6.2 A Participant's Deferred Compensation Account shall be paid on (or, in the case of installments, commence to be paid on ) the date elected in the written deferral election filed with the Administrator." 5. Section 6.5 shall be amended by deleting the word "cash". 6. Section 6.6 shall be deleted and replaced with the following: "6.6 Notwithstanding anything herein to the contrary, upon application by a Participant, the Administrator may in its sole discretion allow for a redeferral election upon such terms and conditions that it deems appropriate to ensure that the amounts subject to redeferral are not taxable to the Participant until the time of actual distribution." 7. A new Section 6.10 shall be added as follows: "6.10 Deferred amounts held pursuant to the Stock investment option set forth in 4.2 above shall, at the time of distribution, be distributed in shares of Stock and deferred amounts held pursuant to the interest bearing account option set forth in Section 4.2(b) above shall, at the time of distribution, be distributed in cash." 8. Section 10.1 shall be amended by adding a new sentence immediately following the first sentence thereof to read as follows: "The termination of employment of any Participant for any reason shall not adversely affect such Participant's right to receive payments or other distributions pursuant to the terms of the Plan." 9. A new Article XI is added as follows: "ARTICLE XI REGISTRATION RIGHTS Promptly following the receipt by the Administrator of an election by any Participant to have deferred amounts held pursuant to the Stock investment option set forth in 4.2(a) above, the Company will use its best efforts to cause the offer and sale of the relevant deferred compensation obligations and shares of Stock to be registered with the Securities and Exchange Commission on Form S-8 pursuant to the Securities Act of 1933 as promptly as reasonably practicable." -2- IN WITNESS WHEREOF, the Administrator has caused this Amendment to be executed and effective as of August 17, 1999. /s/ Edward F. Bazemore - ------------------------------- Edward F. Bazemore /s/ Steven A. McArthur - ------------------------------- Steven A. McArthur -3- SECOND AMENDMENT TO THE CALENERGY COMPANY, INC. VOLUNTARY DEFERRED COMPENSATION PLAN WHEREAS, Article IX of the CalEnergy Company, Inc. Voluntary Deferred Compensation Plan (the "Plan") authorizes the Plan Administrator to amend the Plan; and WHEREAS, the Plan Administrator has determined to amend the Plan to remove the requirement that a participant's account be distributed upon the occurrence of a Change in Control; NOW, THEREFORE, the Plan is hereby amended as follows: Section 6.4 of the Plan is hereby deleted in its entirety. IN WITNESS WHEREOF, the Plan Administrator has caused this Amendment to be executed and effective as of March 14, 2000. /s/ David L. Sokol - ---------------------------- David L. Sokol EX-10.51 16 file015.txt EXECUTIVE VOLUNTARY DEFERRED COMPENSATION PLAN MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan Plan Document MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan ARTICLE I - PURPOSE; EFFECTIVE DATE 1.1 PURPOSE. The purpose of this Executive Voluntary Deferred Compensation Plan (hereinafter, the "Plan") is to permit a select group of management and highly compensated employees of MidAmerican Energy Holdings Company and its subsidiaries to defer the receipt of income which would otherwise become payable to them. It is intended that this Plan, by providing this deferral opportunity, will assist the in retaining and attracting individuals of exceptional ability by providing them with these benefits. 1.2 EFFECTIVE DATE. The Plan shall be effective as of July 1, 1999. ARTICLE II - DEFINITIONS For the purpose of this Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 ACCOUNT(S). "Account(s)" means the account or accounts maintained on the books of the Company used solely to calculate the amount payable to each Participant under this Plan and shall not constitute a separate fund of assets. The Accounts available for each Participant shall be identified as: a) Retirement Account; b) In-Service Account; and, c) Education Account. 2.2 ACTUARIAL EQUIVALENT. "Actuarial Equivalent" means an equivalence in value between two (2) or more forms and/or times of payment based on a determination by an actuary chosen by the Company, using sound actuarial assumptions at the time of such determination, and may be modified from time to time consistent with sound actuarial assumptions at that time. 2.3 BENEFICIARY. "Beneficiary" means the person, persons or entity as designated by the Participant, entitled under Article VI to receive any Plan benefits payable after the Participant's death. 2.4 BOARD. "Board" means the Board of Directors of the Company. 2.5 CHANGE IN CONTROL. "Change in Control" means (i) approval by the Company's stockholders of (a) the dissolution of the Company, (b) a merger or consolidation of 1 the Company where the Company is not the surviving corporation, except for a transaction the principal purpose of which is to change the state in which the Company is incorporated, (c) a reverse merger in which the Company survives as an entity but in which securities possessing more than 50 percent of the total combined voting power of the Company's securities are transferred to a person or persons different from those who hold such securities immediately prior to the merger or (d) the sale or other disposition of all or substantially all of the Company's assets; (ii) the direct or indirect acquisition by any Person or related group of Persons (other than an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a Person that directly or indirectly controls, is controlled by, or is under common control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than 50 percent of the total combined voting power of the Company's outstanding voting securities; or (iii) a change in the composition of the Board over a period of thirty-six (36) months of less such that a majority of the Board members cease, by reason of one or more contested elections for board membership or by one or more actions by written consent of stockholders, to be comprised of individuals who either (a) have been Board members continuously since the beginning of such period or (b) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (a) who were still in office at the time such election or nomination was approved by the Board. 2.6 COMMITTEE. "Committee" means the Committee appointed by the Board to administer the Plan pursuant to Article VII. 2.7 COMPANY. "Company" means MidAmerican Energy Holdings Company, a Des Moines, Iowa based corporation, and any directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any successor to the business thereof. For purposes of this Plan, MidAmerican Energy Holdings Company, and each subsidiary, affiliate and successor shall be treated as the Company with respect to its employees only. 2.8 COMPENSATION. "Compensation" means the base salary payable to and bonus or incentive compensation earned by a Participant with respect to employment services performed for the Company by the Participant and considered to be "wages" for purposes of federal income tax withholding. For purposes of this Plan only, Compensation shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company's tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code of 1986, as amended (the "Code"), or pursuant to this Plan or any other non-qualified plan which permits the voluntary deferral of compensation. Inclusion of any other forms of compensation is subject to Committee Approval. 2.9 DEFERRAL COMMITMENT. "Deferral Commitment" means a commitment made by a Participant to defer a portion of Compensation as set forth in Article III. The Deferral Commitment shall apply to each payment of salary and/or bonus payable to a 2 Participant, and shall specify the Account or Accounts to which the Compensation deferred shall be allocated. Such allocation shall be made in whole percentages and shall be made in a form acceptable to the Committee. A Deferral Commitment shall remain in effect until amended or revoked as provided under Section 3.2(b), below. 2.10 DEFERRAL PERIOD. "Deferral Period" means each calendar year, except that the initial Deferral Period shall be July 1, 1999 through and including December 31, 1999. 2.11 DETERMINATION DATE. "Determination Date" means the last day of each calendar month. 2.12 DISABILITY. "Disability" means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant's usual duties for Company. The Committee shall determine the existence of Disability, in its sole discretion, and may rely on advice from a medical examiner satisfactory to the Committee in making the determination. 2.13 DISCRETIONARY CONTRIBUTION. "Discretionary Contribution" means the Company contribution credited to a Participant's Account(s) under Section 4.4, below. 2.14 EARNINGS. "Earnings" means the amount credited to a Participant's Account(s) on each Determination Date, which shall be based on the Valuation Funds chosen by the Participant as provided in Section 2.21, below and in a manner consistent with Section 4.3, below. Such credits to a Participant's Account may be either positive or negative to reflect the increase or decrease in value of the Account in accordance with the provisions of this Plan. 2.15 FINANCIAL HARDSHIP. "Financial Hardship" means a severe financial hardship of the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Financial Hardship shall be determined based upon such standards as are, from time to time, established by the Committee, and such determination shall be in the sole discretion of the Committee. 2.16 FORM OF PAYMENT DESIGNATION. "Form of Payment Designation" means the form prescribed by the Committee and completed by the Participant, indicating the chosen form of payment for benefits payable from each Account under this Plan, as elected by the Participant. 2.17 401(k) PLAN. "401(k) Plan" means the MidAmerican Energy Company Retirement Savings Plan, or any other successor defined contribution plan maintained by the Company that qualifies under Section 401(a) of the Code and satisfies the requirements of Section 401(k) of the Code. 3 2.18 PARTICIPANT. "Participant" means any employee who is eligible, pursuant to Section 3.1, below, to participate in this Plan, and who has elected to defer Compensation under this Plan in accordance with Article III, below. Such employee shall remain a Participant in this Plan for the period of deferral and until such time as all benefits payable under this Plan have been paid in accordance with the provisions hereof. 2.19 PLAN. "Plan" means the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan as amended from time to time. 2.20 RETIREMENT. "Retirement" means the termination of employment with the Company of the Participant after attaining age fifty-five (55). 2.21 VALUATION FUNDS. "Valuation Funds" means one or more of the independently established funds or indices that are identified and listed by the Committee. These Valuation Funds are used solely to calculate the Earnings that are credited to each Participant's Account(s) in accordance with Article IV, below, and does not represent, nor should it be interpreted to convey any beneficial interest on the part of the Participant in any asset or other property of the Company. The determination of the increase or decrease in the performance of each Valuation Fund shall be made by the Committee in its reasonable discretion. The Committee shall select the various Valuation Funds available to the Participants with respect to this Plan and shall set forth a list of these Valuation Funds attached hereto as Exhibit A, which may be amended from time to time in the discretion of the Committee. ARTICLE III - ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY AND PARTICIPATION. a) Eligibility. Eligibility to participate in the Plan shall be limited to those select key employees of Company who are designated by management, from time to time, and approved by the Committee. b) Participation. An employee's participation in the Plan shall be effective upon notification to the employee by the Committee of eligibility to participate, and completion and submission of a Deferral Commitment, Distribution Election, Allocation Form, and Beneficiary Designation to the Committee no later than thirty (30) days prior to the beginning of the Deferral Period. c) First-Year Participation. When an individual first becomes eligible to participate during a Deferral Period, a Deferral Commitment may be submitted to the Committee within thirty (30) days after the Committee notifies the individual of eligibility to participate. Such Deferral Commitment will be effective only with regard to Compensation earned and payable following submission of the Deferral commitment to the Committee. 4 3.2 FORM OF DEFERRAL. A Participant may elect a Deferral Commitment as follows: a) Form of Deferral Commitment. A Deferral Commitment shall be made with respect to each payment of salary and/or bonus payable by the Company to a Participant during the Deferral Period, and shall designate the portion of each deferral that shall be allocated among the various Accounts. The Participant shall set forth the amount to be deferred as a full percentage of salary and/or bonus (the Participant may designate a different percentage of salary and bonus that is to be deferred under this Plan). Salary Deferral Commitments shall be made in roughly equal amounts over the calendar year. In addition, the Deferral Commitment shall specify the Participant's initial allocation of the amounts deferred into each Account among the various available Valuation Funds. b) Period of Commitment. Once a Participant has made a Deferral Commitment, that Commitment shall remain in effect for that Deferral Period and shall remain in effect for all future Deferral Periods unless revoked or amended in writing by the Participant and delivered to the Committee no later than thirty (30) days prior to the beginning of a subsequent Deferral Period. 3.3 LIMITATIONS ON DEFERRAL COMMITMENTS. The following limitations shall apply to a Deferral Commitment, subject to amendment by the Committee upon providing written notice to all Participants: a) Maximum. The maximum amount of each payment of base salary that may be deferred shall be 50 percent (50%), and the maximum amount of each payment of bonus or incentive compensation that may be deferred shall be 100 percent (100%) less applicable taxes. b) Minimum. The minimum amount of each payment of base salary that may be deferred shall be 1 percent (1%), and the minimum amount of each payment of bonus or incentive compensation that may be deferred shall be 1 percent (1%). 3.4 COMMITMENT LIMITED BY TERMINATION. If a Participant terminates employment with Company prior to the end of the Deferral Period, the Deferral Period shall end as of the date of termination. 3.5 MODIFICATION OF DEFERRAL COMMITMENT. Except as provided in Section 5.5 below, a Deferral Commitment shall be irrevocable by the Participant during a Deferral Period. 3.6 CHANGE IN EMPLOYMENT STATUS. If the Committee determines that a Participant's employment performance is no longer at a level that warrants reward through participation in this Plan, but does not terminate the Participant's employment with Company, the Participant's existing Deferral Commitment shall terminate at the end of the Deferral Period, and no new Deferral Commitment may be made by such Participant after notice of such determination is given by the Board, unless the Participant later satisfies the requirements of (ss.)3.1, above. If the Committee, in its sole 5 discretion, determines that the Participant no longer qualifies as a member of a select group of management or highly compensated employees, as determined in accordance with the Employee Retirement Income Security Act of 1974, as amended, the Committee may, in its sole discretion terminate any Deferral Commitment for that year, prohibit the Participant from making any future Deferral Commitments and/or distribute the Participant's Account Balances in accordance with Article V of this Plan as if the Participant had terminated employment with the Company as of that time. ARTICLE IV - DEFERRED COMPENSATION ACCOUNT 4.1 ACCOUNTS. The Compensation deferred by a Participant under the Plan, any Discretionary Contributions and Earnings shall be credited to the Participant's Account(s). Separate accounts may be maintained to reflect the different Accounts chosen by the Participant, and the Participant shall designate the portion of each deferral that will be credited to each Account as set forth in Section 3.2(a), above. These Accounts shall be used solely to calculate the amount payable to each Participant under this Plan and shall not constitute a separate fund of assets. 4.2 TIMING OF CREDITS; WITHHOLDING. A Participant's deferred Compensation shall be credited to each Account designated by the Participant on the 15th day of each month or the last business day of each month consistent with normal payroll processing. Bonus Compensation will be credited when it would normally be payable to the participant. Any Discretionary Contributions shall be credited to the appropriate Account(s) as provided by the Committee. Any withholding of taxes or other amounts with respect to deferred Compensation that is required by local, state or federal law shall be withheld from the Participant's corresponding non-deferred portion of the Compensation to the maximum extent possible, and any remaining amount shall reduce the amount credited to the Participant's Account in a manner specified by the Committee. 4.3 VALUATION FUNDS. A Participant shall designate, at a time and in a manner acceptable to the Committee, one or more Valuation Funds for each Account for the sole purpose of determining the amount of Earnings to be credited or debited to such Account. Such election shall designate the portion of each deferral of Compensation made into each Account that shall be allocated among the available Valuation Fund(s), and such election shall apply to each succeeding deferral of Compensation until such time as the Participant shall file a new election with the Committee. Upon notice to the Committee, the Participant may also reallocate the balance in each Valuation Fund among the other available Valuation Funds as of the next succeeding Determination Date, but in no event shall such re-allocation occur more frequently than monthly. 4.4 DISCRETIONARY CONTRIBUTIONS. Company may make Discretionary Contributions to a Participant's Account. Discretionary Contributions shall be credited at such times and in such amounts as recommended by the Committee and approved by the Compensation Committee of the Board, or the Board in its sole discretion shall determine. Unless the Committee specifies otherwise, such Discretionary Contribution 6 shall be allocated among the various Accounts in the same proportion as set forth in section 4.1, above. 4.5 DETERMINATION OF ACCOUNTS. Each Participant's Account as of each Determination Date shall consist of the balance of the Account as of the immediately preceding Determination Date, adjusted as follows: a) New Deferrals. Each Account shall be increased by any deferred Compensation credited since such prior Determination Date in the proportion chosen by the Participant. b) Discretionary Contributions. Each Account shall be increased by any Discretionary Contributions credited since such prior Determination Date in the same proportion chosen by the Participant with respect to new deferrals as set forth above. c) Distributions. Each Account shall be reduced by the amount of each benefit payment made from that Account since the prior Determination Date. Distributions shall be deemed to have been made proportionally from each of the Valuation Funds maintained within such Account based on the proportion that such Valuation Fund bears to the sum of all Valuation Funds maintained within such Account for that Participant as of the Determination Date immediately preceding the date of payment. d) Earnings. Each Account shall be increased or decreased by the Earnings credited to such Account since such Determination Date, as though the balance of that Account as of the beginning of the current month had been invested in the applicable Valuation Funds chosen by the Participant. 4.6 VESTING OF ACCOUNTS. Each Participant shall be one hundred percent (100%) vested at all times in the amount of Compensation elected to be deferred under this Plan and Earnings thereon, except that the Committee may provide that the amount of any Discretionary Contribution and Earnings thereon shall become vested as determined by the Compensation Committee of the Board. 4.7 STATEMENT OF ACCOUNTS. The Committee shall give to each Participant a statement showing the balances in the Participant's Account on a quarterly basis. ARTICLE V - PLAN BENEFITS 5.1 RETIREMENT ACCOUNT. The Participant's Retirement Account shall be distributed to the Participant upon the termination of employment with the Company. Benefits under this section shall be payable as soon as administratively practical after termination of employment. The form of benefit payment shall be that form selected by the Participant pursuant to Section 5.6, below, except that if the Participant terminates employment with the Company prior to Retirement, the full amount of the Retirement Account shall be paid in a lump sum payable as soon as administratively practical. 7 5.2 IN-SERVICE ACCOUNT. The Participant's In-Service Account shall be distributed to the Participant upon the date chosen by the Participant in the first Deferral Commitment which designated a portion of the Compensation deferred be allocated to the In-Service Account. The form of benefit payment shall be that form selected by the Participant pursuant to Section 5.6, below. However, if the Participant terminates employment with the Company prior to the date so chosen by the Participant, the In-Service Account shall be added to the Retirement Account as of the date of termination of service and shall be paid in accordance with the provisions of Section 5.1 above. 5.3 EDUCATIONAL ACCOUNT. The Participant's Educational Account shall be distributed to the Participant upon the date chosen by the Participant in the first Deferral Commitment which designated a portion of the Compensation deferred be allocated to the Educational Account. The balance of that Account shall be distributed to the Participant in four (40 annual installments; the annual payment amount shall be equal to the balance of the Account immediately prior to the payment, multiplied by a fraction, the numerator of which is one (1) and the denominator of which commences at four (4) and is reduced by one (1) in each succeeding year. However, if the Participant terminates employment with the Company prior to the date so chosen by the Participant, the Educational Account shall be added to the Retirement Account as of the date of termination of service and shall be paid in accordance with the provisions of Section 5.1, above. 5.4 DEATH BENEFIT. Upon the death of a Participant prior to the commencement of benefits under this Plan from any Account, Company shall pay to the Participant's beneficiary an amount equal to the Account balance in that Account in a manner chosen by the Participant in the most recent Deferral Commitment. In the event of the death of the Participant after the commencement of benefits under this Plan from any Account, the benefits from that Account(s) shall be paid to the Participant's designated Beneficiary from that Account at the same time in the same manner as if the Participant had survived. 5.5 HARDSHIP DISTRIBUTIONS. Upon a finding that a Participant has suffered a Financial Hardship or Disability, the Committee may, in its sole discretion, amend the existing Deferral Commitment, or make distributions from any or all of the Participant's Accounts. The amount of such distribution shall be limited to the amount reasonably necessary to meet the Participant's needs resulting from the Financial Hardship or Disability, and will not exceed the Participant's Account balances. If payment is made due to Financial Hardship, the Participant's deferrals under this Plan shall cease for the period of the Financial Hardship or Disability and for twelve (12) months thereafter. Any resumption of the Participant's deferrals under the Plan after such twelve (12) month period shall be made only at the election of the Participant in accordance with Article III herein. 5.6 FORM OF PAYMENT. Unless otherwise specified in paragraphs 5.2 or 5.3, the benefits payable from any Account under this Plan shall be paid in the form of benefit as provided below, and specified by the Participant in the Form of Payment Designation. 8 The most recently submitted Form of Payment Designation shall be effective for the entire account balance unless amended in writing by the Participant and delivered to the Committee. If, at the time payment of benefits under this Plan become due and payable, the Participant's most recent election as to the form of payment was made within one (1) year of such payment, then the most recent election made by the Participant more than one year period to the time of payment shall be used to determine the form of payment. The permitted forms of benefit payments are: a) A lump sum amount which is equal to the Account balance; and, b) Annual installments for a period of up to ten (10) years where the annual payment shall be equal to the balance of the Account immediately prior to the payment, multiplied by a fraction, the numerator of which is one (1) and the denominator of which commences at the number of annual payments initially chosen and is reduced by one (1) in each succeeding year. Earnings on the unpaid balance shall be based on the most recent allocation among the available Valuation Funds chosen by the Participant, made in accordance with Section 4.3, above. 5.7 SMALL ACCOUNT. If the total of a Participant's unpaid Account balances as of the Participant's Retirement is less than $50,000, the remaining unpaid, Accounts(s) may be paid in a lump sum at the discretion of the Committee, notwithstanding any election by the Participant to the contrary. 5.8 WITHHOLDING; PAYROLL TAXES. Company shall withhold from any payment made pursuant to this Plan any taxes required to be withheld from such payments under local, state or federal law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto. 5.9 PAYMENT TO GUARDIAN. If a Plan benefit is payable to a minor or a person declared incompetent or to a person incapable of handling the disposition of the property, the Committee may direct payment to the guardian, legal representative or person having the care and custody of such minor, incompetent or person. The Committee may require proof of incompetency, minority, incapacity or guardianship as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Committee and Company from all liability with respect to such benefit. 5.10 EFFECT OF PAYMENT. The full payment of the applicable benefit under this Article V shall completely discharge all obligations on the part of the Company to the Participant (and the Participant's Beneficiary) with respect to the operation of this Plan, and the Participant's (and Participant's Beneficiary's) rights under this Plan shall terminate. ARTICLE VI - BENEFITICIARY DESIGNATION 6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right, at any time, to designate one (1) or more persons or entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant's death prior to 9 complete distribution of the Participant's Account balance. Each Beneficiary designation shall be in a written form prescribed by the Committee and shall be effective only when filed with the Committee during the Participant's lifetime. Designation by a married Participant to the Participant's spouse of less than a fifty percent (50%) interest in the benefit due shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located. 6.2 CHANGING BENEFICIARY. Any Beneficiary designation may be changed by an unmarried Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Committee. A married Participant's Beneficiary designation may be changed by a Participant with the consent of the Participant's spouse as provided for in Section 6.1 above. The filing of a new designation shall cancel all designations previously filed. 6.3 CHANGE IN MARITAL STATUS. If the Participant's marital status changes after the Participant has designated a Beneficiary, the following shall apply: a) If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 6.1 above. b) If the Participant is unmarried at death but was married when the designation was made: i) The designation shall be void if the spouse was named as Beneficiary. ii) The designation shall remain valid if the spouse was not named and a non-spouse Beneficiary was named. c) If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed in Section 6.1 above. 6.4 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: a) The Participant's surviving spouse; b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves surviving issue, then such issue shall take by right of representation the share the deceased child would have taken if living; c) The Participant's estate. 6.5 EFFECT OF PAYMENT. Payment to the Beneficiary shall completely discharge the Company's obligations under this Plan. 10 ARTICLE VII - ADMINISTRATION 7.1 COMMITTEE; DUTIES. This Plan shall be administered by the Committee, which shall consist of not less than three (3) persons appointed by the Board, except after a Change in Control as provided in Section 7.5 below. The Committee shall have the authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration. A majority vote of the Committee member shall control any decision. Members of the Committee may be Participants under this Plan. 7.2 AGENTS. The Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company. 7.3 BINDING EFFECT OF DECISIONS. The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan. 7.4 INDEMNITY OF COMMITTEE. The Company shall indemnify and hold harmless the members of the Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such member's service on the Committee, except in the case of gross negligence or willful misconduct. 7.5 ELECTION OF COMMITTEE AFTER CHANGE IN CONTROL. After a Change in Control, vacancies on the Committee shall be filled by majority vote of the remaining Committee members and Committee members may be removed only by such a vote. If no Committee members remain, a new Committee shall be elected by majority vote of the Participants in the Plan immediately preceding such Change in Control. No amendment shall be made to Article VII or other Plan provisions regarding Committee authority with respect to the Plan without prior approval by the Committee. ARTICLE VIII - CLAIMS PROCEDURE 8.1 CLAIM. Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan (hereinafter referred to as "Claimant"), or requesting information under the Plan shall present the request in writing to the Committee, which shall respond in writing as soon as practicable. 8.2 DENIAL OF CLAIM. If the claim or request is denied, the written notice of denial shall state: 11 a) The reasons for denial, which specific reference to the Plan provisions on which the denial is based; b) A description of any additional material or information required and an explanation of why it is necessary; and c) An explanation of the Plan's claim review procedure. 8.3 REVIEW OF CLAIM. Any Claimant whose claim or request is denied or who has not received a response within sixty (60) days may request a review by notice given in writing to the Committee. Such request must be made within sixty (60) days after receipt by the Claimant of the written notice of denial, or in the event Claimant has not received a response sixty (60) days after receipt by the Committee of Claimant's claim or request. The claim or request shall be reviewed by the Committee which may, but shall not be required to, grant the Claimant a hearing. On review, the Claimant may have representation, examine pertinent documents, and submit issues and comments in writing. 8.4 FINAL DECISION. The decision on review shall normally be made within sixty (60) days after the Committee's receipt of Claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. ARTICLE IX - AMENDMENT AND TERMINATION OF PLAN 9.1 AMENDMENT. The Board may at any time amend the Plan by written instrument, notice of which is given to all Participants and to Beneficiary receiving installment payments, except that no amendment shall reduce the amount accrued in any Account as of the date such notice of the amendment is given. 9.2 COMPANY'S RIGHT TO TERMINATE. The Board may at any time partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder would not be in the best interests of Company. a) PARTIAL TERMINATION. The Board may partially terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments. If such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Deferral Commitments entered into prior to the effective date of such partial termination. b) COMPLETE TERMINATION. The Board may completely terminate the Plan by instructing the Committee not to accept any additional Deferral Commitments, and by terminating all ongoing Deferral Commitments. In the event of complete termination, the Plan shall cease to operate and Company shall distribute each 12 Account to the appropriate Participant. Payment shall be made as a lump sum within ninety (90) days of plan termination. ARTICLE X - MISCELANEOUS 10.1 UNFUNDED PLAN. This plan is unfounded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3 (2) of ERISA (as currently in effect or hereafter amended) which is not so exempt. 10.2 COMPANY OBLIGATION. The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the appropriate Company with respect to the deferred Compensation receivable from, and contributions by, that Company and shall not be an obligation of any other company, including any other subsidiary, affiliate or subsidiary. 10.3 UNSECURED GENERAL CREDITOR. Notwithstanding any other provision of this Plan, Participants and Participants' Beneficiary shall be unsecured general creditors, with no secured or preferential rights to any assets of the appropriate Company or any other party for payment of benefits under this Plan. Any property held by Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. Company's obligation under the Plan shall be an unfounded and unsecured promise to pay money in the future. 10.4 TRUST FUND. Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, Company may establish one (1) or more trusts, with such trustees as the Board may approve, for the purpose of assisting in the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all Company's general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of Company. 10.5 NONASSIGNABILITY. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights 13 to which are, expressly declared to be unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 10.6 NOT A CONTRACT OF EMPLOYMENT. This Plan shall not constitute a contract of employment between Company and the Participant. Nothing in this Plan shall give a Participant the right to be retained in the service of Company or to interfere with the right of the Company to discipline or discharge a Participant at any time. 10.7 PROTECTIVE PROVISIONS. A Participant will cooperate with Company by furnishing any and all information requested by Company, in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as Company may deem necessary and taking such other action as may be requested by Company. 10.8 GOVERNING LAW. The provisions of this Plan shall be construed and interpreted according to the laws of the State of Iowa, except as preempted by federal law. 10.9 VALIDITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 10.10 NOTICE. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Committee shall be directed to the company's address. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in Company's records. 10.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of Company, and successors of any such corporation or other business entity. 14 EX-10.52 17 file016.txt AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10.52 FIRST AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS MIDAMERICAN ENERGY COMPANY AMENDED AND RESTATED AS OF MAY 10, 1999 MIDAMERICAN ENERGY COMPANY FIRST AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS CONTENTS
Page I. ESTABLISHMENT.................................................................................................1 II. PURPOSE .....................................................................................................1 III. CONSTRUCTION................................................................................................1 Section 3.1. Definitions................................................................................1 Section 3.2. Gender and Number..........................................................................6 Section 3.3. Severability...............................................................................6 IV. ADMINISTRATION...............................................................................................6 Section 4.1. The Committee..............................................................................6 Section 4.2. Authority of the Committee.................................................................6 Section 4.3. Decisions Binding..........................................................................7 Section 4.4. Terms of Participation.....................................................................7 V. ELIGIBILITY AND PARTICIPATION.................................................................................7 Section 5.1. Participation..............................................................................7 Section 5.2. No Employment Guarantee....................................................................8 VI. BENEFITS ....................................................................................................8 Section 6.1. Benefits Upon Normal Retirement............................................................8 Section 6.2. Benefits Upon Early Retirement.............................................................8 Section 6.3. Benefits Upon Disability...................................................................8 Section 6.4. Benefits Upon Death........................................................................8 Section 6.5. Forfeiture Upon Termination for Cause.....................................................10 Section 6.6. General Payout Restrictions...............................................................10 Section 6.7. General Release...........................................................................10 VII. INDIVIDUAL ACCOUNTS AND THE RABBI TRUST....................................................................10 Section 7.1. Establishment of a Rabbi Trust............................................................10 Section 7.2. Causing the Trust to Become Irrevocable...................................................10 Section 7.3. Payment of Benefits from the Trust........................................................10 VIII. BENEFICIARY DESIGNATION...................................................................................11 Section 8.1. Designation of Beneficiary................................................................11 Section 8.2. Payment to a Participant's Estate..........................................................11 IX. MISCELLANEOUS...............................................................................................11 Page Section 9.1. Unfunded Plan.............................................................................11 Section 9.2. Withholding...............................................................................11 Section 9.3. Costs of the Plan.........................................................................12 Section 9.4. Nontransferability........................................................................12 Section 9.5. Successors ...............................................................................12 Section 9.6. Address of Participant or Beneficiary.....................................................12 Section 9.7. Applicable Law............................................................................12
MIDAMERICAN ENERGY COMPANY FIRST AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT PLAN FOR DESIGNATED OFFICERS I. ESTABLISHMENT MidAmerican Energy Company, an Iowa corporation (the "Company"), and an indirect wholly owned subsidiary of MidAmerican Energy Holdings Company ("Holdings"), hereby adopts the Company's First Amended and Restated Supplemental Retirement Plan for Designated Officers (the "Plan"), effective as of May 10, 1999. The Plan is an amendment and restatement of the Supplemental Retirement for Designated Officers, which was adopted on January 1, 1996, as previously amended through March 12, 1999. II. PURPOSE The purpose of the Plan is to enable the Company, Holdings and their Subsidiaries to attract, retain, and motivate persons of outstanding competence, and to provide appropriate supplemental retirement and survivor benefits to Designated Officers of the Company, Holdings and their Subsidiaries. III. CONSTRUCTION Section 3.1. Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Cause" means, unless otherwise defined in a Participant's employment agreement, a Participant's discharge from the employment of the Company, Holdings or any Subsidiary because such Participant willfully engages in conduct, or lack thereof, that is demonstrably and materially injurious to the Company, Holdings or any Subsidiary or their business reputation or financial structure. Determination of "Cause" shall be made by the Committee in the exercise of good faith and reasonable judgment. (c) "Change in Control" means either: (i) The closing date of the restructuring of the Company as a result of merger, consolidation, takeover or reorganization unless at least sixty percent (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 Board; or (ii) The occurrence of any other event that is designated as being a "Change in Control" by a majority vote of the directors of the Incumbent Board who are not also employees of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Committee" means an Administrative Committee comprised of Company employees selected by the President of the Company and approved by the Board to administer the Plan pursuant to Article IV herein. (f) "Company" means MidAmerican Energy Company. (g) "Designated Officer" means an officer of the Company, Holdings or any Subsidiary who has been approved by the Board or the Committee, as applicable, to participate in the Plan. (h) "Disability" means a Termination of Services resulting from a total disability of a Participant, as a result of a medically determinable physical or mental impairment which renders such Participant unable to engage in any substantial gainful employment, and which can be expected to be of indefinite duration. Such Disability shall be determined by the Committee in the exercise of good faith and reasonable judgment in reliance on competent medical advice from one or more qualified individuals selected by the Committee. (i) "Disability Benefit" means, for such Participant, the Normal Retirement Supplemental Benefit or Early Retirement Supplemental Benefit, computed as though the Participant is deemed to have continued in employment during the period of disability and incurred a Termination of Services on the date he or she elects to begin receiving benefits hereunder. (j) "Early Retirement Total Benefit" means a Normal Retirement Total Benefit reducing the 65% in the formula in Section 3.l(q) at the rate of one percentage point for each full and one percentage point for each fraction of a year that, on the Participants Early Retirement Date, such Participant's age is less than sixty-five (65) years (i.e., 60% at age 60, 55% at age 55). (k) "Early Retirement" means, for each Participant, the commencement of benefits after Termination of Services of such Participant other than because of -2- death or Cause, but prior to such Participant reaching Normal Retirement Age. (l) "Early Retirement Date" means the first day of the month chosen by the Participant for commencement of the Early Retirement Supplement Benefit, which, in general, shall not be earlier than the first day of the month following the Participant's attainment of age fifty-five (55), provided that the Board or the Committee, as applicable, may allow for an earlier Early Retirement Date in its discretion on a Participant-by-Participant basis. (m) "Early Retirement Supplemental Benefit" (see subsection (r) below). (n) "Effective Date" means January 1, 1996. (o) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor thereto. (p) "Incumbent Board" means the members of the Board on August 1, 1995. For this purpose, an individual who becomes a member of the Board subsequent to August 1, 1995 and who has been nominated for election by the Company's shareholders by resolution adopted by a vote of at least two-thirds of the directors then comprising the Incumbent Board at a duly convened meeting thereof shall be deemed to be a member of the Incumbent Board. (q) "Normal Retirement Total Benefit" means the annual benefit provided under the Plan on a Participant's Normal Retirement Date, in the amount of sixty-five percent (65%) of such Participant's Total Cash Compensation in effect immediately prior to such Termination of Services, times a fraction, the numerator being the number of years (including fractions of a year) of participation in this Plan (or participation in a similar supplemental retirement plan of a Predecessor Company) as of the date of Termination of Services, and the denominator being the number of years of participation if the Participant had remained employed to age 55 (the factor shall not exceed 1.0). The Board or the Committee, as applicable, shall have the authority to grant the crediting of service with a former employer of a Participant in the calculation of such Participant's number of years of participation in the Plan or to provide other credit for service on a case by case basis. -3- (r) "Normal Retirement Supplemental Benefit" and "Early Retirement Supplemental Benefit", respectively, mean the Normal Retirement Total Benefit or Early Retirement Total Benefit, as applicable, reduced by the sum of: (i) the annual benefits provided to such Participant under a Tax Qualified Pension Plan (determined as if the Participant elected a joint and 2/3 survivor benefit under such plan and beginning on the same date that payments begin under this Plan); (ii) benefits under Iowa-Illinois Gas and Electric Company Supplemental Retirement Plan, the Iowa Resources Inc. and Subsidiaries Supplemental Retirement Income Plan and the Midwest Resources Supplemental Retirement Plan, after converting such benefits to an actuarially equivalent amount, as determined by the Committee in the exercise of good faith and reasonable judgment; and (iii) tax qualified defined benefit pension type retirement plan benefits payable to such Participant by other employers of such Participant if service with such other employers is credited as service under the Tax Qualified Pension Plan, after converting such benefits to an actuarially equivalent amount, as determined by the Committee in the exercise of good faith and reasonable judgment; provided, however, that unless otherwise provided in a Participant's employment agreement, a Participant's Normal Retirement Supplemental Benefit and Early Retirement Supplemental Benefit may not exceed $1 million per year. An Early Retirement Supplemental Benefit will not be available to any Participant whose Termination of Services occurs prior to being credited with five (5) Years of Service unless otherwise provided in a Participant's employment agreement. (s) "Normal Retirement Age" means, for each Participant, the attainment of age sixty-five (65) years. (t) "Normal Retirement Date" means the first day of the month in which a Participant reaches Normal Retirement Age. (u) "Participant" means a Designated Officer of the Company, Holdings or any Subsidiary who has been approved by the Board or the Committee, as -4- applicable, to participate in the Plan, and any retired individual who has a vested accrued benefit under the Plan as specified in Article V. (v) "Plan Year" means the calendar year beginning January 1 and ending December 31. (w) "Predecessor Company" means CalEnergy Company, Inc., MidWest Resources Inc., Iowa-Illinois Gas and Electric Company, Midwest Energy Company, Iowa Resources Inc., any subsidiaries of any of these companies and any member of the same controlled group of corporations of any of these companies. (x) "Rabbi Trust" means a grantor trust, within the meaning of Sections 671-678 of the Code, established by the Company for the benefit of the Participants, both active and retired, and the Participants' designated beneficiaries, as specified in Article VIII. (y) "Spouse" means a husband or wife as licensed in marriage by the state. (z) "Subsidiary" means a company as to which Holdings or the Company directly or indirectly holds securities representing at least 50% of the total voting power of all voting securities. (aa) "Survivor's Benefit" means the benefit payable to a Participant's surviving Spouse, designated beneficiary or estate under the Plan as specified in Section 6.6 in the event of such Participant's death. (bb) "Tax Qualified Pension Plan" shall mean the tax qualified defined benefit plan, cash balance plan and money purchase pension plan, if any, maintained by the Company, Holdings or any Subsidiary, but shall not include any profit sharing plans, employee stock ownership plans or qualified salary reduction or cash or deferred plan. (cc) "Termination of Services" means the severing of a Participant's employment with the Company, Holdings or any Subsidiary for any reason. (dd) "Total Cash Compensation" means (i) the highest amount payable to a Participant by the Company, Holdings or any Subsidiary (or a Predecessor Company) as monthly base salary during the five years immediately prior to termination of services (including the year in which termination occurs) multiplied by twelve, plus (ii) the average of the Participant's Awards during the most recent three -5- year period under the Company's Key Employee Annual Incentive Plan or its successor plan(s), or bonus awards under a similar annual incentive bonus program for executives of Holdings, a Subsidiary or a Predecessor Company, plus (iii) the prior three-year average annual amount of any other special, additional or non-recurring bonus awards or other compensation, but only if such awards or compensation are (A) required to be included in Total Cash Compensation under a Participant's employment agreement or (B) approved by the Committee for inclusion in Total Cash Compensation as set forth in written notice to a Participant. Monthly base salary shall include amounts deferred under any (ss.) 401(k) plans, (ss.) 125 cafeteria plans, nonqualified deferred compensation plans or similar arrangements. If less than three years of bonus awards have been made for the Participation during the most recent three year period prior to termination of employment, the average of the number of bonus awards actually made during such three year period shall be used. (ee) "Year of Service" or "Years of Service" means each full twelve months of service with the Company, Holdings, a Subsidiary or a Predecessor Company. Section 3.2. Gender and Number. Except when otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular; and the singular shall include the plural. Section 3.3. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan; and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. IV. ADMINISTRATION Section 4.1. The Committee. The Plan shall be administered by the Committee which shall be selected by the Board, and unless the Board otherwise directs in writing, the Committee shall possess, in addition to any powers specifically vested in the Committee, any or all of the powers vested in the Board hereunder. The Committee may delegate the responsibility of performing ministerial acts to such administrative agents as it deems advisable or desirable to carry out the purpose of the Plan. Section 4.2. Authority of the Committee. The Committee shall have the power to construe and interpret the Plan and any agreement or instrument entered into hereunder, to prescribe, amend, or waive rules and regulations for the -6- Plan's administration; and to make any other determination which may be necessary or advisable for the Plan's administration. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent reasonable to effect its purpose. The Committee shall have full discretion to administer the Plan as it sees fit. All decisions of the Committee shall be final and binding absent manifest error. The Company may elect to insure the lives of Participants; in such case, Participants must agree to undergo physical examinations and otherwise cooperate in obtaining such insurance as a condition precedent to participation in the Plan. Any such life insurance policies shall be owned by and be considered a general asset of the Company. Subject to Section 7.2, no Participant or beneficiary shall have any rights to or interest in or shall be entitled to any benefits under such policies. Section 4.3. Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan, and all related orders or resolutions of the Board shall be final, conclusive, and binding on all persons, including the Company, its shareholders, employees, the Participants and their estates and designated beneficiaries. The Board or the Committee, as applicable, shall have the full power to amend or terminate the Plan at any time; provided that no such amendment or termination shall adversely affect the vested or accrued rights of any Participant under the Plan without such Participant's written consent. Section 4.4. Terms of Participation. The Board or Committee, as applicable, may establish terms of participation in the Plan for any Participant which may differ from the specific terms of the Plan and which may be more favorable than the terms applicable to Participants generally. Without limitation, the Board or the Committee, as applicable, may establish a minimum annual benefit or death benefit for any Participant, on a case-by-case basis, which annual benefit or death benefit may be greater than the annual benefit or death benefit to which such Participant would otherwise be entitled under the benefit formulas set forth in the Plan. V. ELIGIBILITY AND PARTICIPATION Section 5.1. Participation. Upon approval by the Board or the Committee, as applicable, Designated Officers shall automatically become Participants under the Plan. Retired -7- individuals who have a vested accrued benefit under the Plan will also be considered to be Participants. Section 5.2. No Employment Guarantee. Neither this Plan nor any action taken hereunder shall be construed as giving a Participant the right to be retained as an employee of the Company, Holdings or any Subsidiary for any period. VI. BENEFITS Section 6.1. Benefits Upon Normal Retirement. Unless a Participant has elected Early Retirement as provided in Section 6.2 below, upon a Participant reaching Normal Retirement Age, the Company shall pay to such Participant, as compensation for services rendered prior to such date, his or her Normal Retirement Supplemental Benefit in equal monthly installments commencing on the Normal Retirement Date, or, if later, the first day of the month then following Termination of Services, and continuing on the first day of each month thereafter during the lifetime of such Participant. Section 6.2. Benefits Upon Early Retirement. Upon a Participant's Early Retirement (as chosen by the Participant), and following Termination of Services, the Company shall pay to the Participant, as compensation for services rendered prior to such date, his or her Early Retirement Supplemental Benefit in equal monthly installments commencing on the Participant's Early Retirement Date, and, in all cases, continuing on the first day of each month thereafter during the lifetime of such Participant. Section 6.3. Benefits Upon Disability. Upon a Participant's election to begin receiving benefits hereunder following Termination of Services for Disability, the Company shall begin payment to the Participant (but no earlier than his or her Early Retirement Date), as compensation for services rendered prior to such date, his or her Disability Benefit in equal monthly installments commencing on the first day of the month selected by the Participant and continuing on the first day of each month thereafter during the lifetime of such Participant. Section 6.4. Benefits Upon Death. Upon a Participant's death, the Company shall pay to such Participant's designated beneficiary or estate, as appropriate, the following Survivor's Benefit; (a) Death Prior to Commencement of Benefits. If a Participant dies prior to commencement of the payment of any benefit hereunder, the Company shall pay to such Participant's designated beneficiary or estate a Survivor's Benefit equal to the Normal Retirement -8- Supplemental Benefit (without application of the percentage reduction based upon years of participation prior to age 55) in one hundred eighty (180) equal monthly installments commencing on the first date of the month following such date of death and receipt of a death certificate by the Company, and continuing on the first day of each month thereafter until the one hundred eighty (180) payments have been made. (b) Death After Commencement of Benefits. If a Participant dies after commencement of the payment of any benefit hereunder, the Company shall pay to the Participant's surviving Spouse a Survivor's Benefit commencing on the first day of the month following such date of death and receipt of a death certificate by the Company and continuing on the first day of each month thereafter for the remaining lifetime of the surviving Spouse. The Survivor's Benefit means a benefit equal to two-thirds of the Normal Retirement Supplemental Benefit, Early Retirement Supplemental Benefit or Disability Benefit, as applicable, that the Participant was receiving immediately prior to death, except that the total Survivor's Benefit shall be limited to fifty percent (50%) of the total benefit based upon an actuarial calculation at the time benefits commence. (c) Payment by the Company of the benefit in Section 6.4(a) or (b) shall relieve the Company of the obligation to pay a Normal Retirement Supplemental Benefit, an Early Retirement Supplemental Benefit, a Disability Benefit, or any other benefit which the Participant might have otherwise received under the Plan. (d) In the event a Participant dies without a surviving Spouse, after commencement of the payment of any benefits hereunder, the Company shall pay to such Participant's designated beneficiary or estate a Survivor's Benefit equal to the Normal Retirement Supplemental Benefit, Early Retirement Supplemental Benefit or Disability Benefit, as applicable, that the Participant was receiving immediately prior to death such that a total of one hundred eighty (180) equal monthly installments is paid to the Participant and such Participant's designated beneficiary or estate. The Survivor's Benefit portion shall commence on the first day of the month following such date of death and receipt of a death certificate by the Company, and continue on the first day of each month thereafter until a total of one hundred eighty (180) payments have been made. -9- Section 6.5. Forfeiture Upon Termination for Cause. Unless otherwise provided in a Participant's employment agreement or otherwise provided by the Committee in writing to a Participant, upon a Participant's Termination of Services for Cause, such Participant shall immediately forfeit all rights and benefits provided under the Plan, and the Company shall have no further obligation to such Participant under the Plan. Section 6.6. General Payout Restrictions. No benefits shall be paid under this Plan prior to the actual Termination of Services of a Participant. Section 6.7. General Release. Unless otherwise provided in a Participant's employment agreement, the Committee in its discretion may require a Participant to execute a general release of claims, in such form as the Company may prescribe, as a condition to the payment of benefits hereunder. VII. INDIVIDUAL ACCOUNTS AND THE RABBI TRUST Section 7.1. Establishment of a Rabbi Trust. After the Effective Date, the Company shall be authorized, but shall not be required, to establish a revocable Rabbi Trust for the benefit of the Participants, both active and retired. Any such Rabbi Trust shall have an independent trustee, selected by the Company, and, it shall contain restrictions on the Company's ability to amend or terminate any of the terms thereof after the Rabbi Trust shall become irrevocable as provided in Section 7.2. All assets held in the Rabbi Trust (while revocable or irrevocable) shall at all times be specifically subject to the claims of the Company's general creditors in the event of bankruptcy or insolvency; such terms shall be specifically defined within the provisions of the Rabbi Trust, along with a required procedure for notifying the Trustee of any such bankruptcy or insolvency. Section 7.2. Causing the Trust to Become Irrevocable. The instrument establishing any such Rabbi Trust shall provide that the Rabbi Trust shall be revocable until the occurrence of either of the following: (i) A Change in Control; or (ii) A majority vote by the Incumbent Board to make the Rabbi Trust irrevocable. Section 7.3. Payment of Benefits from the Trust. The Company shall be primarily obligated to pay all benefits of Participants under the Plan, whether the Rabbi Trust is revocable or irrevocable at the time. In the event the -10- Company fails to fulfill any such obligation hereunder in a timely manner, the Trustee shall be empowered, under the terms of the Rabbi Trust, to either cash in any related life insurance policies or to borrow against the policies, to the extent necessary to pay past due benefits directly from the Trust. VIII. BENEFICIARY DESIGNATION Section 8.1. Designation of Beneficiary. Each Participant shall be entitled to designate one or more beneficiaries by filing a signed, written notice of such designation with the Committee, in a form as the Committee may prescribe. A Participant may revoke or modify a beneficiary designation at any time by filing a new beneficiary designation form with the Committee. Section 8.2. Payment to a Participant's Estate. A Participant's beneficiary designation shall be deemed automatically revoked in the event all designated beneficiaries predecease such Participant or, if the sole beneficiary is such Participant's Spouse, in the event of dissolution of marriage. In such event, or in the event a Participant does not designate a beneficiary, the benefits under Sections 6.5(a) and 6.5(d) shall be paid to such Participant's estate. IX. MISCELLANEOUS Section 9.1. Unfunded Plan. This Plan is intended to be an unfunded plan maintained primarily to provide benefits to a "select group of management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA and, therefore, is further intended to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Committee may terminate the Plan for any or all Participants in order to achieve and maintain this intended result, provided that previously accrued benefits hereunder shall not be reduced or otherwise adversely affected without the written consent of the affected Participants. Section 9.2. Withholding. The Company shall have the right to require Participants to remit to the Company an amount sufficient to satisfy Federal, state, and local tax withholding requirements, or to deduct from any or all payments made pursuant to the Plan amounts sufficient to satisfy such tax withholding requirements. In the event any FICA, FUTA, Social Security, Medicare or any similar taxes become due on benefits (or the value of such benefits) accrued under this Plan at any time prior to the actual payment of benefits under this Plan, the Company shall be authorized to withhold from the regular salary of such Participant the amount of any such tax payable by the -11- Participant. Withholding shall take place during the same calendar year in which the taxes on such benefits become due, or at such time as may be required by Internal Revenue Service regulations. Section 9.3. Costs of the Plan. All costs of implementing and administering the Plan shall be borne by the Company. Section 9.4. Nontransferability. Neither the Participants nor any designated beneficiary shall have the right to sell, assign, transfer, or otherwise convey the right to receive any payment hereunder; nor shall any such payment be subject to attachment, garnishment, levy, pledge, bankruptcy, or any other manner or kind of execution in connection with any claim against the Participants or any designated beneficiary thereof. Section 9.5. Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the direct or indirect result of a merger, consolidation, or reorganization involving the Company or the purchase or other acquisition of all or substantially all of the business and/or assets of the Company. Section 9.6. Address of Participant or Beneficiary. Each Participant shall keep the Company apprised of his or her current address and that of any designated beneficiary during his or her participation in the Plan. Upon the death of a Participant, any beneficiaries entitled to receive benefit payment under the Plan shall keep the Company apprised of their current address until the entire amount to be distributed has been paid. Section 9.7. Applicable Law. To the extent not preempted by Federal law, the Plan shall be governed by and construed in accordance with the laws of the state of Iowa. -12- EX-10.63 18 file017.txt SHARE SALE AGREEMENT CONFORMED COPY Dated 6 August 2001 NPOWER YORKSHIRE LIMITED INNOGY HOLDINGS PLC CE ELECTRIC UK PLC AND NORTHERN ELECTRIC PLC SHARE SALE AGREEMENT - relating to - the sale of 94.75% of the issued share capital of Yorkshire Power Group Limited LINKLATERS One Silk Street London EC2Y 8HQ Telephone: (44-20) 7456 2000 Facsimile: (44-20) 7456 2222 Ref: IAR SHARE SALE AGREEMENT THIS AGREEMENT is made on 6 August 2001 BETWEEN: (1) NPOWER YORKSHIRE LIMITED registered in England and Wales with registered number 3937808 and whose registered office is at Windmill Hill Business Park, Whitehill Way, Swindon, Wiltshire SN5 6PB (INNOGY); (2) INNOGY HOLDINGS PLC registered in England and Wales with registered number 3987817 and whose registered office is at Windmill Hill Business Park, Whitehill Way, Swindon, Wiltshire SN5 6PB (the INNOGY Guarantor); (3) CE ELECTRIC UK PLC registered in England and Wales with registered number 3271033 having its registered office at Carliol House, Market Street, Newcastle NE1 6NE (NORTHERN); and (4) NORTHERN ELECTRIC PLC registered in England and Wales with registered number 2366942 having its registered office at Carliol House, Market Street, Newcastle NE1 6NE (NE PLC). IT IS AGREED as follows: INTERPRETATION In this Agreement, including its Schedules, the headings shall not affect its interpretation and, unless the context otherwise requires, the provisions in this Clause 1 apply: 1.1 Definitions AGREED TERMS means, in relation to any document, such document in the terms agreed between the parties and signed by Northern or Northern's Solicitors, on the one hand, and Innogy or Innogy's Solicitors, on the other hand, in each case for the purposes of identification, and which are attached as an annexure to this Agreement as that document may be amended by agreement in writing between Innogy and Northern from time to time for any reason, including to take account of any changes between the date of this Agreement and Completion; AMBAC means Ambac Insurance UK Limited; AMBAC BONDS means the (pound)200 million bonds @ 7.25% due 2022 issued by CE Electric UK Funding Company and guaranteed by Ambac; ASSIGNMENT AGREEMENT means the assignment and assumption of expenses agreement in the agreed terms between the Innogy Guarantor, Yorkshire Capital Trust (the TRUST) and NE plc pursuant to which NE plc will assume and receive all of the rights and obligations of the Innogy Guarantor under the Agreement for Expenses and Liabilities dated 1 June (as amended) between the Innogy Guarantor and the Trust; ASSUMED FACILITIES means each of the credit facilities provided pursuant to: (a) Norddeutsche Landesbank Girozentrale, London Branch's facility letter dated 11 April 2000 to YEG; (b) The Toronto-Dominion Bank's facility letter dated 22 May 1992 to YEG; (c) Banco di Napoli S.p.A, London Branch's facility letter dated 21 October 1999 to YEG; 2 (d) KBC Bank N.V., London Branch's facility letter dated 4 September 2000 to YEG; (e) Midland Bank plc's (HSBC) facility letter dated 27 August 1999 to YEG; and (f) YEG's overdraft with National Westminster Bank plc referred to in a letter from National Westminster Bank plc dated 28 October 1999; ASSUMED YORKSHIRE DEBT means indebtedness in respect of moneys borrowed or raised pursuant to the following: (a) (pound)200 million bonds @ 9.25% due 2020 issued by YEG plc; (b) (pound)200 million bonds @ 7.25% due 2028 issued by Yorkshire Power Finance Limited; (c) (pound)155 million Reset Notes due 2020 issued by Yorkshire Power Finance 2 Limited; (d) $275 million Junior Subordinate Debentures @ 8.08% due 2038 issued by Yorkshire Power Finance Limited; (e) $300 million series B notes @ 6.496% due 2008 issued by Yorkshire Power Finance Limited; and (f) Retained Company Intra-Group Loans; together with the associated liabilities and obligations of the Sale Companies in connection with such debt. ASSUMED YORKSHIRE SWAPS means the swaps entered into under: (a) in relation to the (pound)155 million Reset Notes due 2020 issued by Yorkshire Power Finance 2 Limited held by Yorkshire Power Pass-Through Asset Trust 2001: (i) ISDA Master Agreement and Schedule thereto dated 1 February 2000 between UBS AG, London Branch and the Bank of New York (acting as Trustee for Yorkshire Power Pass-Through Asset Trust 2000-1) and (i) related Confirmation dated 9 February 2000 (Option 1 - UBS Call Option with Trust); and (ii) related Confirmation dated 9 February 2000 (Swap 1 - Sterling to US Dollar Swap between UBS and Trust, reference: YPF2 PATS 2000-1 Sterling-Dollar Swap); and (ii) ISDA Master Agreement and Schedule thereto dated 1 February 2000 between UBS AG, London Branch and Yorkshire Power Finance 2 Limited and related confirmation dated 9 February 2000 (Option 2 - Company Call Option with UBS reference: YPF2 Call Option); (b) in relation to the $275 million Junior Subordinated Debentures 8.08% due 2038 issued by Yorkshire Power Finance Limited: (i) ISDA Master Agreement and Schedule thereto dated 22 July 1997 between Yorkshire Power Group Limited and National Westminster Bank PLC and related Confirmation dated 9 June 1998 (Amended Reference: NYO 3073); and (ii) ISDA Master Agreement and schedule thereto dated 15 August 1997 between Yorkshire Power Group Limited and Nationsbank N.A. and related Confirmation dated 20 March 2000 (Ref: IRP736525/311425-LI998a); 3 AUDITED ACCOUNTS means the audited consolidated group accounts of Yorkshire and its subsidiary undertakings for the financial period ended on the Balance Sheet Date; BALANCE SHEET DATE means 31 December 2000; BASE RATE has the meaning set out in Clause 8.3; BIG FIVE means KPMG Audit Plc, Ernst & Young, PricewaterhouseCoopers, Andersen and Deloitte; BORROWINGS means: (a) money borrowed or raised and debit balances at banks; (b) any bond, note, loan stock, debenture or similar debt instrument; (c) acceptance credit facilities and documentary credit facilities; (d) receivables sold or discounted (otherwise than on a non-recourse basis); (e) finance leases and hire purchase contracts; and (f) any swap, hedging or similar treasury instrument taking the mark to market valuation of the relevant instrument; BUSINESS means (a) the Northern Sale Business in relation to the sale of the Northern Sale Business pursuant to the Northern Electricity Business Sale Agreement and the Northern Non-Electricity Business Sale Agreement and (b) the Yorkshire Sale Business in relation to the sale of the Yorkshire Shares; BUSINESS DAY means a day on which banks are open for business in England (excluding Saturdays, Sundays and public holidays); CAA 2001 means Capital Allowances Act 2001; CHAPS means clearing houses automated payment systems; COMPETENT AUTHORITY means any legal person (including any government department, authority or agency), including the EC Commission and Ofgem having regulatory powers and/or authority at law and/or any court of law or tribunal; COMPLETION means the completion of the sale and purchase of the Yorkshire Shares pursuant to this Agreement; COMPLETION AMOUNT has the meaning set out in Clause 3.1; COMPLETION DATE means the date on which Completion occurs; CONFIDENTIAL INFORMATION means business, technical, financial, operational, administrative, staff management, marketing and economic information, the identities of customers and all other information of a secret and/or proprietary nature but shall not include such information which is in, or which comes into the public domain or a party's possession other than as a result of (i) a breach of any obligations imposed by this Agreement or (ii) a breach of any other duty of confidentiality relating to that information; CONFIDENTIALITY AGREEMENT means the agreement between the Innogy Guarantor and NE plc dated 15 March 2001 as to the confidentiality of information exchanged between the Innogy Guarantor and NE plc; CONNECTED COMPANY has the meaning set out in Clause 13.4; 4 DEED OF GUARANTEE AND INDEMNITY means the deed of guarantee and indemnity between, among others, the Innogy Guarantor and NE plc in the agreed terms; DEED OF WARRANTY means the deed of warranty dated today between NE plc, NEAGL and Npower Northern Limited; DISCLOSURE LETTER means the letter of even date with this Agreement from Innogy to Northern disclosing: (a) information constituting exceptions to the Warranties; and (b) details of other matters referred to in this Agreement; DRAFT POST-CLOSING STATEMENT has the meaning given to that term in Schedule 7; ELECTRIC LINE has the same meaning as in Section 64 of The Electricity Act 1989; ENCUMBRANCE means any claim, charge, mortgage, security, lien, option, equity, power of sale, hypothecation or other third party right; ENVIRONMENT has the meaning set out in paragraph 2.1.9 of Part A of Schedule 2; ENVIRONMENTAL LAW has the meaning set out in paragraph 2.1.9 of Part A of Schedule 2; ESPS means the Electricity Supply Pensions Scheme; ESTIMATED YORKSHIRE CASH AND WORKING CAPITAL STATEMENT has the meaning given to that term in Schedule 7; ESTIMATED YORKSHIRE NET CASH AND WORKING CAPITAL has the meaning given to that term in Schedule 7; FTA means the Fair Trading Act 1973; GROUP means, in respect of any company, the company, its parent undertaking and any subsidiary undertaking of that company or of its parent undertaking; INFORMATION TECHNOLOGY means computer systems, communications systems, software and hardware owned by or licensed to any Sale Company; INNOGY PRICE MATRIX has the meaning set out in Clause 5.4; INNOGY GROUP means the Innogy Guarantor and its subsidiary undertakings (excluding Sale Companies to be sold pursuant to this Agreement); INNOGY'S SOLICITORS means Linklaters of One Silk Street, London EC2Y 8HQ; INTELLECTUAL PROPERTY means trade marks, service marks, trade names, logos, get-up, patents, inventions (whether patentable or not), registered and unregistered design rights, utility models, copyright, semi-conductor topography rights, domain names, database rights and all other similar proprietary rights and the goodwill attaching to them which may subsist in any part of the world (including Know-how) including, where such rights are obtained or enhanced by registration, any registration of such rights and applications and rights to apply for such registrations; KNOW-HOW means all material know-how, trade secrets and confidential industrial and commercial information and techniques in any form (including paper, electronically stored data, magnetic media, film and microfilm) including without limitation drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions, market forecasts, lists and particulars of customers and 5 suppliers, sales targets, sales statistics, price, discounts, margins, tenders, price sensitive information and any information derived from them; LONG-STOP DATE means midnight on 31 December 2001 or such later date as the parties may agree in writing; LOSSES means all losses, liabilities, damages, costs (including, without limitation, reasonable legal costs), charges, expenses, actions, proceedings, claims and demands; MATERIAL PROPERTIES means the properties briefly described in Part A of Schedule 3 and MATERIAL PROPERTY means any of them and includes every part of each of them; NEAGL means Northern Electric & Gas Limited; NET CASH has the meaning given to that term in Schedule 7; NETTING AGREEMENT means the agreement of the date herewith between, inter alia, Northern, NE plc, NEAGL, Innogy and the Innogy Guarantor with respect to the netting of consideration payable by Northern hereunder and by Npower Northern Limited under the Northern Electricity Business Sale Agreement and the Northern Non-Electricity Business Sale Agreement; NON-ASSUMED YORKSHIRE BONDS means: (i) $350 million series B senior notes due 2003 issued by Yorkshire Power Finance Limited; and (ii) (pound)150 million 8 5/8% bonds due 2005 issued by YEG plc; NON-ASSUMED YORKSHIRE SWAPS means any transactions, other than the Assumed Yorkshire Swaps, which have been entered into by any Sale Company and the relevant swap counterparty and which is a rate swap transaction, basis swap, forward rate transaction, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction of a treasury nature; NON-RETAINED INTER-COMPANY LOANS means all loans or other indebtedness (including any Borrowings) between any Sale Company and any company in the Vendor's Group company referred to in Part 1 of Schedule 1 or in Schedule 2 of the Yorkshire Hiveout Agreement, including: (a) overdraft facility provided by YEG to Scarcroft Investments Limited dated 27 March 2000; (b) overdraft facility provided by YEG to Yeleco 29 Limited dated 27 March 2000; (c) overdraft facility provided by YEG to YE Gas Limited dated 6 August 1999 (as amended); (d) inter-company loan between Yorkshire Electric Power Limited and YEG dated 27 March 2000; (e) inter-company loan between Scarcroft Leasing (September) Limited and YEG dated 27 March 2000; and (f) inter-company loan agreement between Yorkshire Energy Limited and YEG dated 27 March 2000. NORTHERN BONDS means: 6 (a) (pound)100 million 8.875% bonds due 2020 issued by Northern Electric Finance plc; (b) (pound)100 million 8.625% bonds due 2005 issued by Northern Electric Finance plc; and (c) the Ambac Bonds. NORTHERN DATA ROOM has the meaning set out in Disclosure Letter (as defined in the Deed of Warranty); NORTHERN ELECTRICITY BUSINESS SALE AGREEMENT means the agreement dated today between the Npower Northern Limited and NE plc for the sale and purchase of the electricity assets of the Northern Sale Business and certain metering assets of NE plc; NORTHERN NON-ELECTRICITY BUSINESS SALE AGREEMENT means the agreement dated today between Npower Northern Limited and NEAGL and others for the sale and purchase of the non-electricity assets of the Northern Sale Business; NORTHERN GROUP or NORTHERN GROUP COMPANIES means NE plc, its parent undertaking and any subsidiary undertaking of that company or of its parent undertaking and NORTHERN GROUP COMPANY means any of them; NORTHERN SALE BUSINESS means the business of Northern to be acquired pursuant to the Northern Electricity Business Sale Agreement and the business of NEAGL and certain other assets to be acquired pursuant to the Northern Non-Electricity Business Sale Agreement; NORTHERN SENIOR EMPLOYEE has the meaning set out in the Northern Non-Electricity Business Sale Agreement; NORTHERN'S SOLICITORS means Herbert Smith of Exchange House, Primrose Street, London EC2A 2HS; NORTHERN TRANSFER SCHEME means a transfer scheme for the transfer and separation of, inter alia, the Tariff Supply Business (as defined in the Northern Electricity Business Sale Agreement) to the Successor Supply Company (as defined in the Northern Electricity Business Sale Agreement) (to the extent not already transferred under the Northern Electricity Business Sale Agreement) as agreed between the parties after the date hereof or as may be required to be made by the Secretary of State for Trade and Industry under the Utilities Act 2000; NORTHERN WARRANTIES means the warranties and representations given by, inter alia, NE plc and NEAGL contained in the Deed of Warranty; OFGEM means the Office of Gas and Electricity Markets; PAYMENT ACCOUNT DETAILS means, in relation to any relevant payment to be made under or pursuant to this Agreement, the name, account number, sort code, account location and other details specified by the payee and necessary to effect payment to the payee in accordance with this Agreement; PERSON means any person, company, firm, partnership, association or body corporate; PLANNING ACTS means the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Hazardous Substances) Act 1990, the Planning (Consequential Provisions) Act 1990 and the Planning and Compensation Act 1991; PROPERTIES means: 7 (a) the Material Properties; and (b) the Secondary Substations; PURCHASER means: (a) Npower Northern Limited in relation to the purchase of the Northern Sale Business; and (b) Northern in relation to the purchase of the Yorkshire Shares; RECEIVABLES AGREEMENT means the amended and restated receivables purchase agreement dated 16th October 2000 and made between (1) Northern Electric Plc (2) Cragside Limited (3) Mont Blanc Capital Corp. and (4) ING Barings (U.S.) Capital Markets LLC; REGULATION means Council Regulations (EEC) No. 4064/89 (as amended by Regulation (EC) 1310/97; REPORTING ACCOUNTANTS means a firm of Chartered Accountants which is one of the Big Five, independent to Northern and Innogy, to be agreed between Northern and Innogy within seven days of a notice by one to the other requiring such agreement and failing such, agreement means a firm of Chartered Accountants which is nominated as a result of the application of either of them by or on behalf of the President for the time being of the Institute of Chartered Accountants in England and Wales; RESTRICTED ACTIVITY means a business operating in the United Kingdom which is competitive with the Northern Sale Business, in relation to the Northern Sale Business, or the Yorkshire Sale Business, in relation to the Yorkshire Sale Business; RETAINED COMPANY INTRA-GROUP LOANS means loans or other indebtedness between Sale Companies, including; (a) inter-company loan agreement between Yorkshire Power Group Limited and Yorkshire Holdings plc dated 11 September 1997 relating to loan dated 23 February 1997; (b) promissory note between Yorkshire Power Group Limited and Yorkshire Power Finance Limited dated 9 June 1998 (as amended); (c) promissory note between Yorkshire Power Group Limited and Yorkshire Power Finance Limited for $298,050,000 dated 25 February 1998; (d) (pound)143,500,000 notes due 2019 issued by Yorkshire Power Group Limited to Yorkshire Power Finance 2 Limited; (e) inter-company loan agreement between Yorkshire Power Finance Limited and Yorkshire Power Group Limited dated 4 February 1998; (f) promissory note between Yorkshire Electricity Group plc and Yorkshire Power Finance 2 Limited dated 16 February 2000; (g) inter-company loan agreement between Yorkshire Power Finance 2 Limited and Yorkshire Electricity Group plc dated 16 February 2000; (h) inter-company loan agreement between Yorkshire Power Finance Limited and Yorkshire Electricity Group plc dated 3 February 1998; and 8 (i) inter-company loan agreement between Yorkshire Power Finance Limited and Yorkshire Electricity Group plc dated 20 December 1999; SALE COMPANIES means Yorkshire and the Yorkshire Subsidiaries and SALE COMPANY means any of them; SECONDARY SUBSTATIONS means all of the substations (other than the principal substations listed in Part A of Schedule 3) which are at the date of this Agreement used for the Yorkshire Sale Business; SENIOR EMPLOYEE means (i) a Northern Senior Employee in relation to the sale of the Northern Sale Business and (ii) a Yorkshire Senior Employee in relation to the Yorkshire Warranties and the sale of the Yorkshire Shares; SHARE AMOUNT has the meaning set out in Clause 3.1; SHAREHOLDERS AGREEMENT DEED OF ADHERENCE means the deed of adherence to the Yorkshire Shareholders Agreement in the agreed terms to be entered into between Xcel Energy International, Inc, Northern, Yorkshire, Innogy and the Innogy Guarantor; STERLING BONDS means the (pound)200 million bonds @ 9.25% due 2020 issued by YEG plc and the (pound)200 million bonds @ 7.25 % due 2028 issued by Yorkshire Power Finance Limited; TAXATION has the meaning given to that term in the Tax Deed of Covenant; TAX DEED OF COVENANT means the deed of covenant against Taxation in the agreed terms to be entered into at Completion; TAXES ACT means the Income and Corporation Taxes Act 1988; TCGA 1992 means the Taxation of Chargeable Gains Act 1992; TRANSFER NOTICE INCORPORATING THE TAG ALONG NOTICE means the transfer notice incorporating the tag along notice to be agreed between the parties and to be given by Innogy to Xcel Energy International, Inc. pursuant to Clauses 6 and 11 of the Yorkshire Shareholders Agreement; VAT means United Kingdom Value Added Tax; VATA means Value Added Tax Act 1994; VENDOR means: (a) Innogy in relation to the sale of the Yorkshire Shares; and (b) Northern and NEAGL in relation to the sale of the Northern Sale Business; VENDOR INTELLECTUAL PROPERTY means all rights and interests held by the Sale Companies (whether as owner, licensee or otherwise) in Intellectual Property; VENDOR'S GROUP means the Vendor its parent undertaking or any subsidiary undertaking of the Vendor or of its parent undertaking (excluding Sale Companies to be sold by the Vendor pursuant to this Agreement); WARRANTIES means the warranties and representations given by Innogy contained in Part A of Schedule 2; WORKING CAPITAL has the meaning given to that term in Schedule 7; WORKING CAPITAL DETERMINATION DATE has the meaning given to that term in Schedule 7; 9 XCEL OPTION AGREEMENT means the agreement in agreed terms between Innogy and Northern in relation to the 23,100,001 Ordinary Shares of (pound)1 each in the capital of Yorkshire held, as at the date of this Agreement, by Xcel Energy International, Inc; YEG means Yorkshire Electricity Group plc; YORKSHIRE means Yorkshire Power Group Limited, details of which are contained in Part 1 of Schedule 1; YORKSHIRE CASH AND WORKING CAPITAL STATEMENT has the meaning given to that term in Schedule 7; YORKSHIRE HIVEOUT AGREEMENT means the agreement for the intra group sale of the Yorkshire electricity supply business assets and other assets dated 1 August 2001 between YEG plc and Npower Yorkshire Limited (as amended); YORKSHIRE NET CASH AND WORKING CAPITAL has the meaning given to that term in Schedule 7; YORKSHIRE SALE BUSINESS means the entire business carried on by the Sale Companies; YORKSHIRE SHAREHOLDERS AGREEMENT means the shareholders agreement relating to Yorkshire dated 26 February 2001 between Innogy, the Innogy Guarantor, Xcel Energy Inc, Xcel Energy International, Inc and Yorkshire; YORKSHIRE SENIOR EMPLOYEE means an employee of a Sale Company who is in receipt of an annual basic salary (on the basis of full-time employment) in excess of (pound)56,000; YORKSHIRE SHARES means 416,900,001 Ordinary Shares of(pound)1 each in the capital of Yorkshire, being 94.75 per cent. of the issued share capital of Yorkshire; YORKSHIRE SUBSIDIARIES means the subsidiary undertakings Yorkshire brief details of which are set out in Part 2 of Schedule 1; and YORKSHIRE TRANSFER SCHEME means a transfer scheme for the transfer and separation of, inter alia, the Tariff Supply Business (as defined in the Yorkshire Hiveout Agreement) to the Successor Supply Company (as defined in the Yorkshire Hiveout Agreement) (to the extent not already transferred under the Yorkshire Hiveout Agreement) as agreed between the parties after the date hereof or as may be required to be made by the Secretary of State for Trade and Industry under the Utilities Act. 1.2 Subordinate Legislation Any reference to a statutory provision shall include any subordinate legislation made from time to time under that provision; 1.3 Modification etc. of Statutes Any reference to a statutory provision: 1.3.1 shall include such provision as from time to time modified or re-enacted or consolidated whether before or after the date of this Agreement so far as such modification, re-enactment or consolidation applies or is capable of applying to any transactions entered into under this Agreement on or prior to Completion; and 1.3.2 (so far as any liability thereunder may exist or can arise) shall include also any past statutory provision (as from time to time modified, re-enacted or consolidated) which such provision has directly or indirectly replaced; 1.4 Companies Act 1985 10 The terms PARENT UNDERTAKING and SUBSIDIARY UNDERTAKING and WHOLLY-OWNED SUBSIDIARY shall have the same meanings in this Agreement as their respective definitions in the Companies Act 1985 as amended; 1.5 Interpretation Act 1978 The Interpretation Act 1978 shall apply to this Agreement in the same way as it applies to an enactment; 1.6 Accounts Any reference to "ACCOUNTS" shall include the directors' and auditors' reports, relevant balance sheets and profit and loss accounts and related notes together with all documents which are or would be required by law to be annexed to the accounts of the company concerned to be laid before that company in general meeting in respect of the accounting reference period in question; 1.7 References References to this Agreement shall include any Schedules to it and references to Clauses and Schedules are to Clauses of, and Schedules to, this Agreement; 1.8 Singular/Plural References in this Agreement (including the definitions in Clause 1.1) to the singular include the plural and vice versa; 1.9 Information Any reference to books, records or other information means books, records or other information in any form including paper, electronically stored data, magnetic media, film and microfilm; 1.10 Indemnity on an After-Tax Basis Where any indemnity contained in this Agreement is expressed to be ON AN AFTER TAX BASIS, then in calculating the liability of the indemnifying party, there shall be taken into account, having regard to the time value of money: 1.10.1 the amount by which any liability to Taxation of the party to be indemnified (or any member of the Innogy Group (in the event of Innogy being such party) or the Northern Group (in the event of Northern being such party)) is actually reduced or extinguished as a result of the matter giving rise to the indemnity claim; and 1.10.2 the amount by which any liability to Taxation of the party to be indemnified (or any member of the Innogy Group (in the event of Innogy being such party) or the Northern Group (in the event of Northern being such party)) is actually increased as a result of the payment by the indemnifying party in respect of the matter giving rise to the indemnity claim; and 1.11 Awareness Any Warranty which is qualified as being made SO FAR AS INNOGY IS AWARE or TO THE BEST OF THE KNOWLEDGE, INFORMATION AND BELIEF OF INNOGY means so far as Innogy is aware or to the best of Innogy's knowledge, information and belief, as the case may be, having made all reasonable enquiries. REASONABLE ENQUIRIES for this purpose means those enquiries made of those persons identified in the Disclosure Letter (including any supplemental enquiries arising therefrom that it would be reasonable to make); and 11 1.12 Headings 1.12.1 Headings shall be ignored in construing this Agreement. 1.12.2 Mentioning anything after "include" or "including" does not limit what else might be included. 2. AGREEMENT TO BUY AND SELL SHARES 2.1 Sale and Purchase of Yorkshire Shares Innogy agrees to sell and Northern agrees to purchase the Yorkshire Shares free from all encumbrances and together with all rights and advantages now and hereafter attaching thereto. 3. CONSIDERATION 3.1 Purchase Price The consideration for the purchase of the Yorkshire Shares shall be equal to: (a) the cash sum of 57.207962 pence for each Yorkshire Share making an aggregate amount of (pound)238,500,000 (the SHARE AMOUNT) plus (b) an amount equal to the Estimated Yorkshire Net Cash and Working Capital (the Share Amount plus the Estimated Yorkshire Net Cash and Working Capital together being referred to herein as the COMPLETION AMOUNT); and the Completion Amount shall be paid to Innogy on Completion (subject to adjustment as expressly provided for in Clause 8 of this Agreement and subject to the Netting Agreement). 3.2 Payment Details Wherever in this Agreement provision is made for the payment of cash by one party to another, such payment shall be made in pounds sterling and shall be effected by crediting the account specified in the Payment Account Details of the party or entity entitled to the payment by way of CHAPS on or before the due date for payment unless the payee by notice to the payer, not later than three Business Days prior to the due date for payment, elects to be paid by banker's draft drawn on any international bank reasonably acceptable to the payer and having an office in London. Payment of such sum shall be a good discharge to the payer of its obligation to make such payment. 4. CONDITIONS 4.1 Conditions Precedent The agreement for the sale and purchase of the Yorkshire Shares contained in Clause 2 is conditional upon (and accordingly beneficial ownership in the Yorkshire Shares will not pass until) satisfaction of the following conditions, or their satisfaction subject only to Completion of this Agreement: 4.1.1 to the extent the transactions contemplated by this Agreement fall within the scope of the EC Merger Regulation, the EC Commission: (a) taking a decision under Article 6(1)(b) of the Regulation that the transaction hereby contemplated does not raise serious doubts as to its compatibility with the Common Market, any conditions attached to the EC Commission's 12 decision of compatibility being in form and substance satisfactory to Northern (or the EC Commission allowing its jurisdiction to lapse by allowing the time limit for opening proceedings under Article 6(1)(c) of the Regulation to expire without opening proceedings in respect of the transaction and accordingly the transaction being deemed compatible with the Common Market); or (b) declaring, if the EC Commission has initiated proceedings pursuant to Article 6(1)(c) of the Regulation, that the transaction hereby contemplated is compatible with the Common Market, any conditions attached to the Commission's decision of compatibility being in form and substance satisfactory to Northern (or that the Commission has allowed its jurisdiction to lapse by failing to take a decision on compatibility with the Common Market within the time limit prescribed by the Regulation following the opening of proceedings and accordingly the transaction, pursuant to Article 10(6) of the Regulation, is deemed to be compatible with the Common Market); or (c) referring the transaction hereby contemplated to the national authorities of the United Kingdom under Article 9 of the Regulation; in each case, any application of the provisions of Articles 81 and 82 EC Treaty (ex Articles 85 and 86) and/or the Regulation by the EC Commission in the course of its consideration of the transaction resulting in the imposition of no conditions, or only of conditions satisfactory in form and substance to Northern; or 4.1.2 either: (a) receipt of a notice in a form reasonably satisfactory to Northern and Innogy of a confirmation from Xcel Energy International Inc. that it will not exercise any rights pursuant to the Yorkshire Shareholders Agreement to purchase the Yorkshire Shares; or (b) the expiry of the Preemption Offer Period (as defined in the Yorkshire Shareholders Agreement), following issue of the Transfer Notice incorporating the Tag Along Notice, without acceptances having been received for all of the Yorkshire Shares; 4.1.3 either (a) the Sale Companies obligations in respect of the redemption of the Non-Assumed Yorkshire Bonds having been satisfied in full in accordance with the terms and conditions of such bonds having fully discharged such Non-Assumed Yorkshire Bonds; or (b) (a) the Sale Companies having irrevocably deposited with the relevant paying agent funds sufficient to fully discharge such Non-Assumed Yorkshire Bonds and (b) irrevocable notice of redemption of such Non-Assumed Yorkshire Bonds having been given and (c) irrevocable instructions to the relevant paying agents having been given to pay such funds to the bondholders or the relevant trustee in accordance with the terms of such bonds; 4.1.4 the trustees of the Northern Bonds and in the case of the Ambac Bonds, Ambac (and/or the trustee of the Ambac bonds, as appropriate) and/or (in each case) any independent financial adviser appointed under the documents relating to such bonds: 13 (a) having issued or agreed to issue any approvals or certifications under the relevant bond documents; and/or (b) having agreed all documentation required to amend the relevant bond documents; in each case, as may be required in connection with the sale of the Northern Sale Business; 4.1.5 the Sale Companies having reduced their aggregate Borrowings to below (pound)10 million (without any other liability on the part of the Sale Companies in respect of such Borrowings other than in relation to the retained Borrowings below (pound)10,000,000); 4.1.6 Yorkshire holding (by way of deposit in a bank account) the cash sum of not less than(pound)180 million. 4.2 Responsibility for Satisfaction 4.2.1 Northern hereby undertakes to use all reasonable endeavours to ensure the satisfaction of the conditions set out in Clauses 4.1.1 and 4.1.4 and Innogy hereby undertakes to use all reasonable endeavours to ensure the satisfaction of the conditions set out in Clauses 4.1.2, 4.1.3, 4.1.5 and 4.1.6, in each case on or before the Long-Stop Date. 4.2.2 Without prejudice to the foregoing, each of the parties agrees that it shall, upon a request from the other, promptly co-operate with and provide all necessary information reasonably required by the other party or by any Competent Authority or any government, governmental, supranational or trade agency, court or other regulatory body, or any other third party in respect of all requests and enquiries in connection with this Agreement and the arrangements relating thereto (including, in relation to the satisfaction of the condition precedent set out in Clause 4.1) from any such Competent Authority or government, governmental, supranational or trade agency, court or other regulatory body and Innogy shall use its reasonable endeavours to procure that the Sale Companies do so). 4.2.3 If the EC Commission decides to initiate proceedings pursuant to Article 6(1)(c) of the Regulation in relation to the transaction or matters arising therefrom, each of the parties undertakes to use its reasonable endeavours to persuade the EC Commission to issue a decision declaring the transaction compatible with the Common Market without any conditions or obligations attaching thereto (subject to the Purchaser indemnifying the Vendor in respect of any costs or expenses incurred to third parties in connection with fulfilling its obligations hereunder). 4.2.4 The Purchaser shall file with the EC Commission the Form CO required under the Regulation as soon as reasonably practicable and (provided the Vendor has provided all relevant information in respect of the Sale Companies or the Vendor required for the Form CO) in any event no later than ten Business Days after the date of this Agreement and shall consult with the Vendor and the Vendor's Solicitors on the content of the Form CO prior to its submission to the EC Commission. 4.3 Satisfaction 14 4.3.1 Northern shall give notice to Innogy of the satisfaction of the conditions set out in Clauses 4.1.1 and 4.1.4, and Innogy shall give notice to Northern of the satisfaction of the conditions set out in Clauses 4.1.2, and 4.1.3, 4.1.5 and 4.1.6 in each case within two Business Days of becoming aware of the same. 4.3.2 Northern in its sole discretion may waive satisfaction of any of the conditions set out in Clause 4.1 (other than clause 4.1.2) by written notice to the Vendor. 4.4 Break-fee 4.4.1 (a) If any of the conditions contained in Clause 4.1.4 are not satisfied by the Long-Stop Date, then this Agreement shall (save for Clauses 12 and 13) terminate and Northern shall pay to Innogy within three Business Days of the Long-Stop Date an amount in cash of (pound)20 million. (b) If the condition contained in Clause 4.1.1 is not satisfied by the Long-Stop Date, then this Agreement shall (save for Clauses 12 and 13) terminate and, if the only reason for such non-satisfaction relates to a request for any disposal, undertaking or other action related to activities not carried on by Mid-American Energy Holding Company and its subsidiaries and affiliates, (and all other conditions contained in Clause 4.1 have been satisfied) Northern shall pay Innogy within three Business Days of the Long-Stop Date an amount in cash of(pound)5 million; and, if the reason for such non-satisfaction relates to a request for any disposal, undertaking or other action related to activities of Mid-American Energy Holding Company and its subsidiaries and affiliates, Northern (and all other conditions contained in Clause 4.1 have been satisfied) shall pay Innogy within three Business Days of the Long-Stop Date an amount in cash of(pound)10 million, provided always that, if on the Long-Stop Date the condition in Clause 4.1.1 remains unsatisfied and also the condition in Clause 4.1.4 remains unsatisfied, then notwithstanding the previous of 4.4.1(b), the amount payable by Northern shall be the relevant amount referred to in Clause 4.4.1(a) (and not the amount referred to in Clause 4.4.1(b)). 4.4.2 If any of the conditions contained in Clause, 4.1.2, 4.1.3, 4.1.5 or 4.1.6 are not satisfied by the Long-Stop Date, then this Agreement shall terminate (save for Clauses 12 and 13) and Innogy shall pay to Northern within three Business Days of the Long-Stop Date an amount in cash of (pound)20 million. 4.5 Covenant 4.5.1 Innogy covenants to Northern that all amounts outstanding and owed by Innogy to Xcel International Inc. under Clauses 10.6 or 10.7 of the Yorkshire Shareholders Agreement as at Completion will be paid in full by Completion and any further sums payable under such Clauses following Completion will be paid by Innogy in accordance with the terms of such Clauses. 4.5.2 Innogy covenants to Northern that it will procure that Borrowings of the Sale Companies (other than in respect of the Assumed Yorkshire Debt and the Assumed Yorkshire Swaps) are, prior to Completion, reduced to below(pound)10 million (without any other liability on the part of any Sale Companies in respect of such Borrowings other than in relation to the retained Borrowings) and all of the Non-Retained Inter-Company Loans are repaid in full (without any further liability on the part of any of the 15 Sale Companies in respect of such Loans) and on or prior to Completion Innogy shall provide Northern with such information as Northern may reasonably require to show that Innogy has complied with its obligations under this Clause. 4.5.3 Innogy covenants to Northern that it will procure that all Non-Assumed Yorkshire Swaps are closed out and settled prior to Completion (without any further liability on the part of the Sale Companies in respect of such Swaps) and on or prior to Completion Innogy shall provide Northern with such information as Northern may reasonably require to show that Innogy has complied with its obligations under this Clause. Without prejudice to any liability for failure to close out and settle all Non-Assumed Yorkshire Swaps, if after Completion Northern becomes aware that there were any Non-Assumed Yorkshire Swaps in existence at Completion (and which have not been already taken into account in the Working Capital adjustment), Northern shall be entitled within five Business Days of Northern becoming aware of such Swaps to close out and settle such Non-Assumed Yorkshire Swaps and, if such Non-Assumed Yorkshire Swaps are so closed-out and settled with any payment due to any Sale Company, Northern shall account to Innogy for such monies and if the close-out and settlement results in any Sale Company making a payment to any third party which results in the Sale Company making a payment or having any other liability to a third party, Innogy shall forthwith on demand indemnify the relevant Sale Company in respect thereof or, at the option of Northern, pay such amounts directly to Northern or as Northern may direct. 4.5.4 Innogy covenants to Northern to procure that the Sale Companies will keep in place and not cancel the Assumed Facilities. 4.5.5 Innogy covenants to Northern that it will procure that, on or prior to Completion, all intra-group contracts between the Innogy Group and any of the Sale Companies entered into between 3 April and Completion, other than contracts entered into in the ordinary course of business and the Yorkshire Hiveout Agreement and agreements entered into pursuant to the Yorkshire Hiveout Agreement shall be terminated. 5. ACTION PENDING COMPLETION 5.1 Mutual Undertakings Subject to Clauses 5.2 to 5.5 below each of Innogy (in relation to the Sale Companies) and the Northern Guarantor (in relation to the Northern Sale Business) shall procure that: 5.1.1 in the case of Innogy, no Sale Company shall and, in the case of NE plc, no Northern Group Company shall in relation to the Northern Sale Business: (i) incur any expenditure on capital account exceeding (pound)100,000 in relation to the Northern Sale Business, (pound)200,000 in relation to the Sale Companies (exclusive of VAT) in the case of any single item or (pound)1 million in relation to the Northern Sale Business, (pound)2 million in relation to the Sale Companies (exclusive of VAT) in aggregate, in both cases other than any such expenditure details of which are set out in Schedule 8; or (ii) sell or dispose of or purchase or agree to sell or dispose of or purchase or grant any option or right of pre-emption in respect of any asset or any interest in any asset for a consideration in excess of (pound)100,000 in relation to the 16 Northern Sale Business, (pound)200,000 in relation to the Sale Companies (exclusive of VAT) or create any encumbrance over any material part of its assets (other than pursuant to the existing financing of the Sale Companies, details of which are set out in Schedule 8); or (iii) create or raise any debt or borrow any money or make any payments (except payments in the ordinary course of business including pursuant to existing contractual commitments) in each case except as described in Schedule 8 or between Sale Companies; or (iv) enter into: (a) (save as provided in Clause 5.1.1 (ix) in respect of any additional employee) any contracts, transactions or commitments outside the ordinary course of business or which are not on arms-length commercial terms; or (b) except for contracts entered into in accordance with Clause 5.5, any contracts, transactions or commitments which are (i) not capable of being terminated without compensation at any time in the case of Yorkshire with three months' notice or less and in the case of Northern Group Company with three months' notice or less or (ii) which involve or may involve total annual expenditure in excess of (x)(pound)250,000 in relation to the Northern Sale Business, (pound)500,000 in relation to the Sale Companies, in each case in the case of any single contract, transaction or commitment or (y)(pound)1 million in relation to the Northern Sale Business,(pound)2 million in relation to the Sale Companies, in aggregate (in each case exclusive of VAT) in each case other than those details of which are contained in Schedule 8; provided that nothing in this subparagraph (iv) shall prevent any Sale Company or Northern Group Company from entering into connection agreements, use of system agreements and quotations and other agreements where in each case it is obliged to do so pursuant to its licence or any other legal or regulatory requirement and any contracts in relation thereto or contracts in relation to the routine repair, replacement, reinforcement, maintenance and new connections of the distribution network; or (v) substantially amend the terms of any existing contracts or agreements involving revenue or expenditure in excess of (pound)100,000 per annum (exclusive of VAT) in relation to the Northern Sale Business or (pound)200,000 per annum (exclusive of VAT) in relation to the Sale Companies; or (vi) in the case of the Yorkshire Sale Companies declare, make or pay any dividend or other distribution other than (a) to another Sale Company or (b) to meet interest payments in respect of the existing financing arrangements of any Sale Company or (c) any stock dividend or other similar distribution as described in Schedule 8; or (vii) grant, issue or redeem any mortgage, charge, debenture or other security or give any guarantee or indemnity (other than in the ordinary course); or 17 (viii) make any change in the material terms and conditions of employment of any of its directors or Senior Employees or any material change to the terms and conditions or rates of pay pursuant to any collective agreement affecting more than 100 employees in aggregate; or (ix) terminate the employment of any Senior Employee (save for gross misconduct) or make an offer of employment to any additional employee (unless on either a fixed term contract of less than one year's duration or a contract with a notice period of less than three months), save as required by the terms of this agreement or as required by the terms of any agreement existing at the date of this agreement as described in Schedule 8; or (x) announce or agree any redundancies or redundancy terms in relation to more than 35 employees in aggregate during the period to which this covenant applies; or (xi) in respect of any employees of the Sale Companies (in the case of the Sale Companies) or in respect of any employees of the Northern Sale Business (in the case of any Northern Group Company), initiate any alterations to pension scheme contributions and rules (save in relation to the introduction of bulk transfer provisions to Northern's Scheme), or initiate any increase in the pension benefits or reduction in member contributions; or (xii) introduce any new share incentive, share option, profit sharing, bonus or other incentive scheme or vary in any way the terms of any such scheme as it currently operates, including any variation to performance targets, objectives, quanta of payment or any variation to the identities of participants; or (xiii) enter into or settle any litigation which is material to the Sale Companies or the Northern Sale Business, as the case may be; or (xiv) permit any of its insurances to lapse or knowingly do any thing which would make any policy of insurance void or voidable or fail to notify any material insurance claim of which such Sale Company or Northern Group Company as the case may be, has become aware, in accordance with the provisions of the relevant policy or settle any such claim materially below the amount claimed; or (xv) create, issue, purchase or redeem any class of share or loan capital; or (xvi) manage its debtors and creditors otherwise than substantially in accordance with the current practice of the Sale Companies or the Northern Sale Companies as the case may be; or (xviii) in the case of any Northern Group Company, alter any published tariffs that apply to any date after Completion in relation to the supply of electricity or gas or other consumer products where (i) a Northern Group Company has sole discretion on pricing and (ii) where such products are sold directly by a Northern Group Company to residential customers, small or medium enterprise customers or any customer of any Northern Group Company which accounts for one per cent. or more of the turnover of the Northern Sale Business; or 18 (xix) terminate any contracts or agreements with sales agents (and in the event that any such contracts are to lapse, expire or otherwise terminate under their terms, to notify NE plc (in the case of Innogy) or Innogy (in the case of NE plc) as far in advance as reasonably practicable prior to such termination or expiry and at the other party's cost take such action as the other party may reasonably require in relation to the same) or appoint any new or enter into any further contracts with sales agents; or (xx) terminate any contracts or agreements involving revenue or expenditure in excess of (pound)100,000 per annum (exclusive of VAT) in relation to the Northern Sale Business or (pound)200,000 per annum (exclusive of VAT) in relation to the Sale Companies (other than where such contracts or agreements lapse, expire or otherwise terminate under their terms); or (xxi) make any changes in its accounting policies other than as required by law or any relevant accounting body; or (xxii) in the case of the Sale Companies, make any alterations to its memorandum or articles of association or acquire any shares in any other company; or (xxiii) give any undertakings to any Competent Authority or agree with any Competent Authority or consent to the adoption by any Competent Authority of any additions, deletions, amendments or modifications to the terms or conditions of any licence which licence is material to the Sale Companies taken as a whole or the Northern Sale Business taken as a whole; or (xxiv) not sell, dispose or agree to sell or dispose any of the shares (or any interest in any of the shares) in any of the Sale Companies; or (xxv) implement any material new advertising or marketing campaigns in respect of the Business; or (xxvi) in the case of the Sale Companies make any amendment to the terms of the Yorkshire Hiveout Agreement or the Agency Agreement (as defined in the Yorkshire Hiveout Agreement); or (xxvii) agree, conditionally or otherwise, to do any of the foregoing. 5.1.2 subject to the restrictions contained in Clause 5.1.1 above and in subparagraphs 5.1.3, 5.1.4 and 5.1.5 below, each Northern Group Company and the Sale Company shall carry on its Business in the ordinary course and in particular, no Northern Group Company nor any Sale Company will enter into any contract (a) for the supply of electricity or gas to industrial and/or commercial customers or (b) in the case of the Sale Companies for the provision of external contracting services, in each case which is, in the opinion of the management of the relevant entity acting reasonably entered into on the basis of a loss making transaction; 5.1.3 Innogy in relation to the Sale Companies shall procure that no member of the Innogy Group shall, before Completion: (i) dispose of any interest in the Yorkshire Shares or grant any option or right of pre-emption over, or mortgage, charge or otherwise encumber the Yorkshire Shares or any of them; or (ii) except as required by law permit any Sale Company to pass any resolution in general meeting; or 19 (iii) liquidate any Sale Company or dispose of any shares in any Sale Company; 5.1.4 so far as permitted by law and subject to Clauses 13.2 and 13.3 the other party and its agents will, upon reasonable notice and during normal working hours, be allowed reasonable access to, and, where reasonably practicable to take copies of, the books and records of each Sale Company, or of each Northern Group Company to the extent such books and records relate to the Northern Sale Business, as the case may be, subject to such access not interfering with the carrying on of the business of any Sale Company or of the Northern Sale Business, as the case may be or the business of the relevant party allowing access or any member of its Group; 5.1.5 so far as permitted by law and subject to Clauses 13.2 and 13.3 each party will consult, and, in the case of Innogy, will cause the relevant Sale Companies to consult, and in the case of Northern will cause the relevant Northern Group Companies to consult with one or more of the other party's representatives with respect to any action between the date of this agreement and Completion which may materially affect the business of the relevant Sale Company or Northern Sale Business. Such party will provide, and will cause the relevant Yorkshire Sale Company, or Northern Group Company as the case may be to provide to such representatives such information as the other party's representatives may reasonably request for this purpose; 5.1.6 Innogy shall consult with NE plc and NE plc shall consult with Innogy before making arrangements under Clause 14(5) of Innogy's Scheme and Northern's Scheme respectively to deal with any surpluses disclosed in Innogy's Scheme and Northern's Scheme respectively by the actuarial valuations as at 31 March 2001 in relation to whether and how those arrangements would affect Yorkshire Scheme Relevant Employees and Northern Scheme Relevant Employees respectively; 5.1.7 NE plc shall consult with Innogy in relation to renewal of the Northern Group's insurance policies to the extent that such policies relate to the Northern Sale Business and take into account the reasonable requirements of Innogy in relation to such insurance renewal to the extent they require Northern to maintain in all material respects the existing scope and level of insurance cover which applies to the Northern Sale Business as at the date hereof; and 5.1.8 Innogy undertakes to provide that as soon as practicable and in any event no later than 10 August 2001, additional information to the extent required to comply with the Warranties in respect of each of the Telecom Employees as defined in the Disclosure Letter. 5.2 Consent Innogy may permit a Sale Company to do any of the matters set out in Clauses 5.1 or 5.5 with the prior written consent of Northern. Northern may permit a Northern Group Company to do any of the matters set out in Clauses 5.1 or 5.5 with the prior written consent of Innogy. 5.3 Compliance with laws etc. Consent shall not be required (i) in respect of actions taken to comply with any legal, licence or regulatory requirements or (ii) where Innogy or NE plc as the case may be can demonstrate that it was necessary for it to take the relevant action without the prior consent of the other 20 party due to emergency operational requirements which would have caused significant operational difficulties if not remedied before it was practicable to consult with and obtain the consent of the other party and Clauses 5.1 and 5.5 shall not apply in the circumstances set out in this Clause. 5.4 Innogy Price Matrices Prior to the date of this agreement the Innogy Guarantor shall provide NE plc with matrices of prices in accordance with standard practice in the gas and electricity industries, and in a format and manner agreed by Northern and Innogy, setting out prices at which the Innogy Guarantor would be willing for the period of this agreement, up to and including September 2003, to sell wholesale (i) electricity and (ii) gas to the Northern Sale Business (the INNOGY PRICE MATRIX). Further, Innogy shall provide NE plc with a matrix of supplier Balancing Service Use of System (BSUoS) costs prior to the date of this agreement and in a format and manner agreed by Northern and Innogy. Innogy shall be entitled to alter the Innogy Price Matrices prospectively on any business day if any such alterations are in accordance with standard industry practice in the gas and electricity industries. Alterations to any Innogy price matrix are not to apply retrospectively. 5.5 Trading Contracts Provided that the Innogy Guarantor has provided the Innogy Price Matrix (or, if any alterations are made to the Innogy Price Matrix in accordance with Clause 5.4, the Innogy Price Matrix so altered) to Northern (to the address for notices set out in Clause 13.12.1 and via fax to Neil Middleton at Northern (fax number 0191 210 2159), and subject to Clauses 5.2 and 5.3, Northern shall procure that none of the Group Companies operating the Northern Sale Business shall in the period from the date of this agreement and before Completion: 5.5.1 enter into any option, forward contract or other commitment to purchase wholesale electricity or gas which is not intended in the reasonable judgement of Northern, to cover its expected demand; or 5.5.2 purchase or enter into any option, forward contract or other commitment to purchase wholesale electricity or gas at prices above those in the most recent Innogy Price Matrix (a "EXCLUDED PURCHASE COMMITMENT") provided that on any date on which Northern notifies Andrew Butterworth and Graeme Iles at Innogy (fax number: 01793 892061) that Northern wishes to enter into any Excluded Purchase Commitment, and Innogy is unwilling to enter into such Excluded Purchase Commitment at prices indicated in the then current Innogy Price Matrix and for the volumes which Northern so notifies Innogy, then Northern shall be permitted to do any of the foregoing on such date at such prices and for the volumes notified by Northern to Innogy ; or 5.5.3 sell or enter into any option, forward contract or other commitment to sell wholesale electricity or gas at prices below those in the most recent Innogy Price Matrix (an "EXCLUDED SALE COMMITMENT") provided that on any date on which Northern notifies Andrew Butterworth and Graeme Iles at Innogy (fax number: 01793 892 061) that Northern wishes to enter into any Excluded Sale Commitment, and Innogy is unwilling to enter into such Excluded Sale Commitment at the prices indicated in the then current Innogy Price Matrix and for the volumes which Northern so notifies Innogy, then Northern shall be permitted to do any of the foregoing on such date at such prices and for the volumes notified by Northern to Innogy; or 21 5.5.4 enter into any electricity spill contract other than in respect of the Viking power plant located at Seal Sands, Teesside in substantially the form set out in Document 8.2.7 in the Black Data Room, Provided that nothing in this Clause 5.5 shall prevent NE plc or NEAGL (or any other company in the Northern Group) from entering into any forward contract or other commitment to purchase wholesale electricity or gas to trade out of speculative positions existing as at the date of this agreement. 5.6 Electricity Spot Trading Northern shall use all reasonable endeavours to balance daily forecast demand and purchase contract requirements to within plus or minus 5 percent of forecast demand. Northern and Innogy shall on a day ahead basis review their requirements for short term balancing trades and where possible, and to the extent that both Northern and Innogy agree, conclude trades with each other to balance Northern's position. 5.7 Transfer Notice Innogy shall send the Transfer Notice incorporating the Tag Along Notice to Yorkshire as soon as reasonably practicable following the execution of this Agreement. 5.8 Northern shall use reasonable endeavours to procure all balancing on a daily average basis is within a mean tolerance of plus or minus 4 per cent of actual demand. 5.9 Northern shall procure that the non-pool generator spill agreements contained at document 8.5.12 to 8.5.19 (inclusive) in the Northern Data Room shall not be amended to any material extent from the proposals as set out in the Northern Data Room with respect to such contracts. 5.10 Northern shall observe and perform the TPL Realignment Document (as contained at document 8.3.10 in the Black Data Room) in all material respects in accordance with its terms and using the same practices as conducted in relation thereto prior to the date of this Agreement. 5.11 Northern shall not, with Innogy's consent, engage in any further development or investment in respect of the proposed data centre at Team Valley, Gateshead. 6. COMPLETION 6.1 Date and Place Subject to Clause 4, Completion shall take place at the offices of Innogy's Solicitors in Brussels two Business Days following fulfilment or waiver of the conditions set out in Clause 4.1 (or such later time as the parties may agree). 6.2 Simultaneous Completion Innogy shall not be obliged to sell, and Northern shall not be obliged to purchase, the Yorkshire Shares unless NE plc and NPower Northern Limited simultaneously complete the sale and purchase of the Northern Sale Business and the NEAGL Sale Business pursuant to the Northern Business Sale Agreement. 6.3 Northern's Obligations on Completion 22 On Completion, Northern shall procure that its obligations as set out in Schedule 5 are fulfilled. 6.4 Innogy's Obligations on Completion On Completion, Innogy shall procure that its obligations as set out in Schedule 5 are fulfilled. 6.5 Payment of Price Against compliance with the foregoing provisions, and subject to the Netting Agreement, Northern shall pay Innogy the Completion Amount. 6.6 Right to Terminate If the foregoing provisions of this Clause are not complied with in all material respects by Innogy or Northern by or on the date set for Completion, then Innogy (in the case of non-compliance by Northern) or Northern (in the case of non-compliance by Innogy) shall be entitled (in addition to and without prejudice to all other rights or remedies available to it including the right to claim damages) by written notice to the other party served on such date: 6.6.1 to effect Completion so far as practicable having regard to the defaults which have occurred; or 6.6.2 to fix a new date for Completion (not being more than 20 Business Days after the agreed date for Completion) in which case the foregoing provisions of this Clause 6.6 shall apply to Completion as so deferred but provided such deferral may only occur once, and if the other party continues to be unable to comply with the foregoing provisions of this Clause, the party able to comply shall be entitled (in addition to and without prejudice to all other rights or remedies available to it including the right to claim damages) by written notice served on the other party to terminate this Agreement without liability on its part. 6.7 Termination of VAT Group Registration 6.7.1 As soon as reasonably practicable after the date of this Agreement, Innogy shall procure that (if one has not already been made) an application shall be made to H.M. Customs & Excise pursuant to Section 43B of the VATA 1994 for the exclusion of each Sale Company from the bodies treated as members of the same VAT group as Innogy for the purposes of Section 43 of the VATA 1994 (the VENDOR VAT GROUP) and for such exclusion to take effect on Completion or, if H.M. Customs & Excise do not permit this, at the earliest date following Completion permitted by Section 43B. 6.7.2 Pending the taking effect of such application and for so long thereafter as may be necessary, each of Innogy and Northern shall procure that such information (if applicable) is provided to the other as may be required to enable the continuing representative member of the Vendor VAT Group to make all the returns required of it in respect of the Vendor VAT Group. 6.7.3 When the exclusion takes effect after Completion, Innogy and Northern shall procure that such payments shall be made between such representative member and the Sale Companies as may be appropriate to ensure that the resulting position as between such companies is as close as possible to the position which would have obtained if such application or applications had taken effect on the date of Completion. 23 6.8 Back to Back Agreement Innogy will use reasonable endeavours to procure that at Completion, AEP Resources Inc. will enter into an agreement with Northern or a member of the Northern Group nominated by Northern (a "NOMINEE"), in form satisfactory to such parties acting reasonably, under which AEP Resources Inc. will undertake to exercise all its rights under any documents to which it is a party in respect of the $275 million Junior Subordinated Debentures at 8.08% issued by Yorkshire Power Finance Limited as agent and trustee for Northern (or such nominee) and act in accordance with the directions of Northern (or such nominee) subject to AEP Resources Inc. being indemnified by Northern (or such nominee) in respect of any actions taken by it pursuant to such directions. 6.9 Transfer Scheme Following Completion, Northern shall not make and shall procure that no member of the Northern Group shall make or agree any amendment to the Yorkshire Transfer Scheme which is material to the Yorkshire supply business sold pursuant to the Yorkshire Hiveout Agreement without the consent of Innogy (such consent not to be unreasonably delayed), save as may be required by the Secretary of State for Trade and Industry. 7. WARRANTIES 7.1 Incorporation of Schedule 2 7.1.1 Innogy warrants and represents to Northern in the terms set out in Schedule 2 (Part A) subject only to: (i) any matter which is fairly disclosed in the Disclosure Letter and any matter provided for under the terms of this Agreement; and (ii) any matter or thing hereafter done or omitted to be done pursuant to this Agreement or otherwise at the request in writing or with the approval in writing of the Purchaser. 7.1.2 Save as expressly otherwise provided, the Warranties shall be separate and independent and shall not be limited by reference to any other paragraph of the said Schedule or by anything in this Agreement or the Tax Deed of Covenant. 7.1.3 The only Warranties given in respect of the Properties are those set out in paragraph 2.5 of Part A of Schedule 2 and for the purposes of Schedule 2 only "assets" does not include the Properties. The only Warranties given in respect of the Environment or Environmental Law are those set out in paragraph 2.1.9 of Part A of Schedule 2. 7.2 Limitation of Liability The provisions of Schedule 6 shall apply. 7.3 Effect of Completion The Warranties and all other provisions of this Agreement and the Tax Deed of Covenant insofar as the same shall not have been performed at Completion shall not be extinguished or affected by Completion, or by any other event or matter whatsoever (including any satisfaction and/or waiver of any condition contained in Clause 4.1), except by a specific and duly authorised written waiver or release by the Purchaser. 7.4 Right of Termination 24 If prior to Completion, any event (or events) shall occur which would result in any of the Northern Warranties (in the case of Northern) or the Innogy Warranties (in the case of Innogy) being untrue or misleading as if they had been given again at Completion which individually (or in aggregate) results in or is reasonably likely to result in a deterioration of 20 percent of the enterprise value of the Northern Sale Business or the Sale Companies in each case as a whole compared with the enterprise value of such Business or Companies (as the case may be) as a whole as at the date of this Agreement (such deterioration being a deterioration of (pound)94,400,000 in the case of the Northern Sale Business and of (pound)200,800,000 in the case of the Sale Companies), ignoring for this purpose any event (or events) affecting or likely to affect generally all persons carrying on similar businesses in the United Kingdom, then Northern (in the event such deterioration occurs in relation to the Sale Companies) and the Innogy Guarantor (in the event such deterioration occurs in relation to the Northern Sale Business) shall be entitled by notice in writing to the Innogy Guarantor or Northern respectively to terminate this Agreement; but the occurrence of such an event (or events) shall not give rise to any right to damages or compensation. If Northern and the Innogy Guarantor are unable to agree within 5 Business Days from the date of service of written notice by Northern or the Innogy Guarantor (as the case may be) in accordance with this Clause 7.4 that such event or events has resulted in or would be reasonably likely to result in a deterioration of 20 per cent of the enterprise value (as described above), either Northern or Innogy may call for an independent expert, jointly appointed by the parties (the "EXPERT"), to determine whether such a deterioration has occurred or would be reasonably likely to occur and the Expert shall make such determination (but shall not address whether such deterioration arose as a result of a breach of warranty) within 10 Business Days from the date of the referral to him. If Northern and the Innogy Guarantor are unable to agree upon the Expert within 5 business days from the date either Northern or the Innogy Guarantor calls for an independent expert, then the Expert shall be appointed by the President for the time being of the Institute of Chartered Accountants in England and Wales on the application of either Northern or the Innogy Guarantor. The Expert shall act as an expert and not as an arbitrator and his decision shall (in the absence of manifest error) be final and binding on the parties. The fees and expenses of the Expert shall be borne by Northern and the Innogy Guarantor in equal shares unless the Expert otherwise determines. 7.5 Waiver Save in the case of fraud, Innogy undertakes to Northern not to make or pursue any claim against any Sale Company or its respective officers, employees or agents in connection with assisting Innogy in giving the Warranties, preparing the Disclosure Letter and/or entering into this Agreement and the documents entered into pursuant to this Agreement. 7.6 Northern Warranties Each of Northern and NE plc warrants and represents to Innogy in the terms set out in Parts B and D respectively of Schedule 2. 7.7 Whole Agreement 7.7.1 Except as otherwise expressly contemplated by this Agreement or agreed in writing between the parties, this Agreement and the Tax Deed of Covenant contains the whole agreement between the parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract. Each of Northern and NE plc acknowledges that it has not been 25 induced to enter this Agreement by and, so far as is permitted by law (and except in the case of fraud), hereby waives any remedy in respect of (and acknowledges that no other party nor any of their agents, officers or employees have given), any warranties, representations, indemnities, undertakings or other statements whatsoever (written or oral) not incorporated into this Agreement or the Tax Deed of Covenant or any agreement expressly contemplated by this Agreement. 7.7.2 So far as is permitted by law (and except in case of fraud), each of the parties agree and acknowledge that the only right and remedy which shall be available to it in connection with or arising out of or related to any of the statements contained in the Warranties shall be damages in contract for breach of this Agreement and not rescission of this Agreement, nor damages in tort or under statute (whether under the Misrepresentation Act 1967 or otherwise), nor any other remedy. 7.7.3 Each party to this Agreement confirms that it has received independent legal advice relating to all the matters provided for in this Agreement, including the provisions of this Clause, and agrees, having considered the terms of this Clause and the Agreement as a whole, that the provisions of this Clause are fair and reasonable. 7.7.4 In this Clause 7.7, the term THIS AGREEMENT includes the Disclosure Letter and all documents entered into pursuant to this Agreement by Northern and/or Innogy and/or the Innogy Guarantor and/or NE plc. 8. ADJUSTMENTS TO COMPLETION AMOUNT 8.1 Net Cash and Working Capital Statements 8.1.1 Innogy, shall, at least ten Business Days prior to (but not more than 20 Business Days prior to) the Completion Date, draw up and deliver to Northern an Estimated Yorkshire Cash and Working Capital Statement showing Innogy's then best good faith estimate as to the projected amount of Yorkshire Net Cash and Working Capital as of the Completion Date. 8.1.2 Northern shall, within 60 days following Completion, draw up a Draft Post-Closing Statement to determine the Yorkshire Net Cash and Working Capital and the Yorkshire Cash and Working Capital Statement in accordance with the provisions set out in Schedule 7. 8.2 Adjustment to the Completion Amount If the Yorkshire Net Cash and Working Capital exceeds the Estimated Yorkshire Net Cash and Working Capital, then Northern shall pay to Innogy, in immediately available funds, an additional amount equal to the whole of the surplus of the Yorkshire Net Cash and Working Capital above the Estimated Yorkshire Net Cash and Working Capital. If the Estimated Yorkshire Net Cash and Working Capital exceeds the Yorkshire Net Cash and Working Capital, then Innogy shall pay to Northern, in immediately available funds, an additional amount equal to the whole of the deficit of the Yorkshire Net Cash and Working Capital to the Estimated Yorkshire Net Cash and Working Capital, in either case such payments to be made, subject to Clause 8.3, on the day falling 10 Business Days after the Working Capital Determination Date. Any payment under this Clause 8.2, shall constitute an adjustment to the Completion Amount. 8.3 Net Interest 26 Any payment by way of an adjustment to the Completion Amount pursuant to Clauses 8.2 shall include interest thereon calculated from the date of Completion to the date of payment at the base rate from time to time of National Westminster Bank PLC (the BASE RATE). Such interest shall accrue day to day on the adjustment amount payable and, for the avoidance of doubt, interest shall not be compounded. 9. PENSIONS The provisions of Schedule 4 shall have effect 10. GUARANTEES 10.1 Release of Innogy Guarantees Northern shall use all reasonable endeavours to procure that following Completion Innogy and/or any member of the Innogy Group is released from any guarantees and indemnities given by it in respect of the obligations of any Sale Company details of which are notified to the Northern and, pending such release, Northern shall indemnify Innogy or the member of the Innogy Group against all liabilities under those guarantees and indemnities provided that Northern shall have no liability to Innogy under this sub-Clause to the extent that any such guarantee contains any obligations on Innogy which extend beyond a guarantee or indemnity of obligations of any Sale Company or which extend the liability of Innogy beyond the liability which the relevant Sale Company has in respect of such obligation. 10.2 Release of the Company Guarantees Innogy shall procure that on Completion, or as soon as reasonably practicable following Completion, each Sale Company is released from all guarantees and indemnities given by it in respect of obligations of Innogy and/or any member of the Innogy Group and pending such release, Innogy shall indemnify the relevant Sale Company against all liabilities under those guarantees and indemnities. 11. RESTRICTIONS 11.1 Restrictions Each Vendor covenants with the Purchaser for itself and in the case of Northern as trustee for each Sale Company that it shall not and shall procure that no member of the Vendor's Group shall: 11.1.1 for a period of two years from Completion, directly or indirectly induce or attempt to induce any director or Senior Employee to leave his or her employment, provided that the placing of an advertisement of a post available to a member of the public generally and the recruitment of a person through an employment agency shall not constitute a breach of this Clause 11 provided that the Vendor does not encourage or advise such agency to approach any such Senior Employee; or 11.1.2 for a period of five years from Completion, make use of or (except as required by law or any competent regulatory body or stock exchange or to any tax authority in connection with its tax affairs) disclose or divulge to any third party any Confidential Information of a secret or confidential nature relating to the Business acquired by the Purchaser; or 11.1.3 subject to Clause 11.2, for a period of one year from Completion, carry on a Restricted Activity or canvass, or solicit orders for services or goods similar to those 27 being provided by any Sale Company or Northern Group Company (as the case may be) at Completion from any person, firm or company who has within one year prior to Completion been a customer of any Sale Company or Northern Group Company (as the case may be) in connection with the Business. 11.2 Nothing in Clause 11.1.3 shall prevent or restrict: 11.2.1 any Northern Group Company or any Sale Company from acquiring any group of companies (the "ACQUIRED Group") in respect of which any company or companies in that group carry on an electricity or gas supply business and, from such acquisition, the carrying on of such businesses in the same manner provided that such company or companies do not solicit orders for services or goods similar to those being provided by any Northern Group Company at Completion in connection with the Business from any person, firm or company who has within 1 year prior to Completion been a customer of any Northern Group Company in connection with the Business unless such person, firm or company was already a customer of the supply business of the Acquired Group; or 11.2.2 the carrying on in the wholesale market of the oil and gas and generation businesses carried on by companies in the Northern Group, including Northern Electric Generation Limited and CalEnergy Gas Limited. 11.3 Independence Each of the restrictions in each paragraph or subClauses above shall be enforceable independently of each of the others and its validity shall not be affected if any of the others is invalid. 11.4 Validity If any of those restrictions is void but would be valid if some part of the restrictions were deleted the restriction in question shall apply with such modification as may be necessary to make it valid. 11.5 Scope of protection Each of Innogy and Northern acknowledges that the above provisions of this Clause are no more extensive than is reasonable to protect the other as the purchaser of the Northern Sale Business and the Yorkshire Shares respectively. 12. GUARANTEE 12.1 Innogy Guarantee The Innogy Guarantor hereby guarantees to Northern the due and punctual performance and observance by Innogy of all its obligations, commitments, undertakings and warranties under or pursuant to this Agreement and the Tax Deed of Covenant (the INNOGY GUARANTEED OBLIGATIONS). The liability of the Innogy Guarantor under this Clause shall not be released or diminished by any variation of the terms of the Innogy Guaranteed Obligations, or any forbearance, neglect or delay in seeking performance of the Innogy Guaranteed Obligations or any granting of time for such performance. 12.2 Vendor's Default 28 If and whenever Innogy defaults in the performance of any of the Innogy Guaranteed Obligations the Innogy Guarantor shall forthwith upon demand unconditionally perform (or procure performance of) and satisfy (or procure the satisfaction of) the Innogy Guaranteed Obligations in regard to which such default has been made in the manner prescribed by this Agreement and so that the same benefits shall be conferred on Northern as it would have received if the Innogy Guaranteed Obligations had been duly performed and satisfied by Innogy (as the case may be). 12.3 Continuing Guarantee The guarantee in Clause 12.1 is to be a continuing guarantee and accordingly is to remain in force until all the Innogy Guaranteed Obligations shall have been performed or satisfied. This guarantee is in addition to and without prejudice to and not in substitution for any rights or security which Northern may now or hereafter have or hold for the performance and observance of the Innogy Guaranteed Obligations. 12.4 Legal limitations etc. As a separate and independent stipulation the Innogy Guarantor agrees that any of the Innogy Guaranteed Obligations (including, without limitation, any moneys payable) which may not be enforceable against or recoverable from Innogy by reason of any legal limitation, disability or incapacity on or of Innogy or any other fact or circumstance (other than any limitation imposed by this Agreement) shall nevertheless be enforceable against and recoverable from the Innogy Guarantor. 12.5 Warranties The Innogy Guarantor warrants and represents to Northern in the terms set out in Part B of Schedule 2. 12.6 Northern Guarantee NE plc hereby guarantees to Innogy the due and punctual performance and observance by Northern of all its obligations, commitments, undertakings and warranties under or pursuant to this Agreement (the NE PLC GUARANTEED OBLIGATIONS). The liability of NE plc under this Clause shall not be released or diminished by any variation of the terms of the NE plc Guaranteed Obligations, or any forbearance, neglect or delay in seeking performance of the NE plc Guaranteed Obligations or any granting of time for such performance. 12.7 Vendor's Default If and whenever Northern defaults in the performance of any of the NE plc Guaranteed Obligations NE plc shall forthwith upon demand unconditionally perform (or procure performance of) and satisfy (or procure the satisfaction of) the NE plc Guaranteed Obligations in regard to which such default has been made in the manner prescribed by this Agreement and so that the same benefits shall be conferred on Innogy as it would have received if the NE plc Guaranteed Obligations had been duly performed and satisfied by NE plc (as the case may be). 12.8 Continuing Guarantee The guarantee in Clause 12.6 is to be a continuing guarantee and accordingly is to remain in force until all NE plc Guaranteed Obligations shall have been performed or satisfied. This guarantee is in addition to an without prejudice to and not in substitution for any rights or 29 security which Innogy may now or hereafter have or hold for the performance and observance of the NE plc Guaranteed Obligations. 12.9 Legal limitations etc. As a separate and independent stipulation NE plc agrees that any of the NE plc Guaranteed Obligations (including, any moneys payable) which may not be enforceable against or recoverable from Northern by reason of any legal limitation, disability or incapacity on or of NE plc or any other fact or circumstance (other than any limitation imposed by this Agreement) shall nevertheless be enforceable against and recoverable from the Innogy Guarantor. 12.10 Warranties NE plc warrants and represents to Innogy in the terms set out in Part C of Schedule 2. 13. OTHER PROVISIONS 13.1 Release, indulgence etc. Any liability to any party under this Agreement may in whole or in part be released, compounded or compromised or time or indulgence given by that party in its absolute discretion without in any way prejudicing or affecting its rights against the other under the same or a like liability. 13.2 Confidentiality 13.2.1 The parties acknowledge that the Confidentiality Agreement shall cease to have any force or effect from Completion. 13.2.2 Subject to Clause 13.2.4, Innogy shall (and shall procure that other members of its Group shall) treat as confidential and not disclose or use any information received or obtained as a result of entering into this Agreement or the Northern Electricity Business Sale Agreement or the Northern Non-Electricity Business Sale Agreement (or any agreement entered into pursuant to any such Agreement) which relates to: (a) the provisions of this Agreement and any agreement entered into pursuant to this Agreement; or (b) the negotiations relating to this Agreement (and such other agreements); (c) Northern's business, financial or other affairs. 13.2.3 Subject to Clause 13.2.4, Northern shall (and shall procure that other members of its Group shall) treat as confidential and not disclose or use any information received or obtained as a result of entering into this Agreement or the Northern Electricity Business Sale Agreement or the Northern Non-Electricity Business Sale Agreement (or any agreement entered into pursuant to any such Agreement) which relates to: (a) the provisions of this Agreement and any agreement entered into pursuant to this Agreement; or (b) the negotiations relating to this Agreement (and such other agreements); (c) Innogy's business, financial or other affairs. 13.2.4 Neither Clause 13.2.2 or 13.2.3 shall prohibit disclosure or use of any information if and to the extent: 30 (a) the disclosure or use is required by law, any regulatory body or the rules and regulations of any recognised stock exchange; (b) the disclosure or use is required for the purpose of any judicial proceedings arising out of this Agreement or any other agreement entered into under or pursuant to this Agreement or the disclosure is reasonably required to be made to a Taxation authority in connection with the Taxation affairs of the disclosing party; (c) the disclosure is made to professional advisers of the Purchaser or the Vendors on terms that such professional advisers undertake to comply with the provisions of Clause 13.2.2 or 13.2.3 in respect of such information as if they were a party to this Agreement; (d) the information becomes publicly available (other than by breach of the Confidentiality Agreement or of this Agreement); (e) the other party has given prior written approval to the disclosure or use; (f) the information is independently developed after Completion, provided that prior to disclosure or use of any information pursuant to Clause 13.2.4 (i), (ii) (except in the case of disclosure to a Taxation authority) or (iii), the party concerned shall promptly notify the other party of such requirement with a view to providing the other party with the opportunity to contest such disclosure or use or otherwise to agree the timing and content of such disclosure or use. 13.3 Announcements No announcement or circular in connection with the existence or the subject matter of this Agreement shall be made or issued by or on behalf of any party without the prior written approval of the other parties hereto. This shall not affect any announcement or circular required by law or any regulatory body or the rules of any recognised stock exchange but the party with an obligation to make an announcement or issue a circular shall consult with the other party/parties insofar as is reasonably practicable before complying with such an obligation. 13.4 Successors And Assigns 13.4.1 Subject to Clause 13.4.2 this Agreement is personal to the parties to it. Accordingly, no party may, without the prior written consent of the others, assign the benefit of all or any of the other's obligations under this Agreement, or any benefit arising under or out of this Agreement. 13.4.2 Except as otherwise expressly provided in this Agreement, any party may, without the consent of the others, assign to a connected company the benefit of all or any of the other parties' obligations under this Agreement provided that: (i) if the assignee ceases to be a connected company of the relevant party, the benefit of those obligations shall be reassigned to the relevant party or a connected party of the relevant party; and (ii) the assignee shall not be entitled to receive under this Clause any greater amount than that to which the relevant assignor would have been entitled. 31 For the purposes of this sub-Clause a CONNECTED COMPANY is, in relation to the Innogy Guarantor and Innogy, the Innogy Guarantor and any wholly-owned subsidiary of the Innogy Guarantor and, in relation to Northern and NE plc, NE plc and any wholly-owed subsidiary of NE plc. 13.5 Third Party Rights A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement. 13.6 Further Assurance At any time after the date of this Agreement either party shall and shall use reasonable endeavours to procure that any necessary third party shall at the cost of the other party execute such documents and do such acts and things as the other party may reasonably require for the purpose of giving to the other party the full benefit of all the provisions of this Agreement. 13.7 Variation etc. No variation of this Agreement shall be effective unless in writing and signed by or on behalf of each of the parties to this Agreement. 13.8 Time of the Essence Any time, date or period referred to in any provision of this Agreement may be extended by mutual agreement between the parties but any time, date or period so extended time shall be of the essence. 13.9 Costs Each party shall bear all legal, accountancy and other costs and expenses incurred by it in connection with this Agreement and all agreements and transactions contemplated by this Agreement (and, in the case of Innogy, by any of the Sale Companies prior to Completion in relation to the Hiveout Agreement). 13.10 Interest If any party defaults in the payment when due of any sum payable under this Agreement (whether determined by agreement or pursuant to an order of a court or otherwise) the liability of such party (as the case may be) shall be increased to include a payment of interest on such sum (subject to deduction or withholding of Taxation as appropriate) from the date when such payment is due until the date of actual payment (as well after as before judgement) at a rate per annum of two per cent above the base rate from time to time of National Westminster Bank PLC. Such interest shall accrue from day to day. 13.11 Withholdings and Deductions 13.11.1 All sums payable under this Agreement shall be paid free and clear of all deductions or withholdings whatsoever save only as provided in this Agreement or as may be required by law and without abatement or set-off (whether equitable or otherwise) save only as provided in this Agreement. If any deductions or withholdings are required by law the party making the payment shall (except in the case of payments of interest) be obliged to pay the other party such sums as will, after such deduction or withholding has been made, leave the other party with the same amounts as it 32 would have been entitled to receive in the absence of any such requirement to make a deduction or withholding provided that, if either party shall have assigned the benefit in whole or in part of this Agreement in accordance with the provisions of Clause 13.4, the liability of the other party under this Clause 13.11.1 shall be limited to that (if any) which it would have been had no such assignment taken place. 13.11.2 If the party receiving the payment under this Agreement receives a credit for or refund of any Taxation or other monies payable by it or similar benefit by reason of any deduction or withholding for or on account of Taxation or any other matter then it shall reimburse to the other party such part of such additional payments paid to it pursuant to Clause 13.11.1 above as the party receiving the payment certifies to the other party will leave it (after such reimbursement) in no better or worse position than it would have been if the other party had not been required to make such deduction or withholding. 13.12 Notices 13.12.1 Any notice or other communication requiring to be given or served under or in connection with this Agreement shall be in writing and shall be sufficiently given or served if delivered or sent: In the case of Innogy or the Innogy Guarantor to: Windmill Hill Business Park Whitehill Way Swindon Wiltshire SN5 6PB Fax: 01793 892631 Attention: The Company Secretary In the case of Northern or NE plc to: Carliol House Market Street Newcastle NE1 6NE Fax: 0191 210 2409 Attention: Company Secretary (or such other representative or address in the United Kingdom as either party may by notice in writing to the other party expressly substitute). 13.12.2 Any such notice or other communication shall be delivered by hand or sent by courier, fax or prepaid first class post. If sent by hand or courier such notice or communication shall be deemed to have been given or served at the time of despatch, in case of service in the United Kingdom, or on the following Business Day, in the case of international service. If sent by fax such notice or communication shall be deemed to have been given or served at the time of despatch provided a suitable confirmation of such delivery is received by the sender of such fax and a copy of the fax containing such notice or communication (together with such confirmation) is sent by post as soon as practicable thereafter. If sent by post such notice or communication shall be deemed to have been received two Business Days from the 33 time of posting, in the case of inland mail in the United Kingdom, or four Business Days from the time of posting, in the case of international mail. Notices sent by post shall also be transmitted by fax. Any notice received after 5.00 pm on a Business Day at the place of receipt will be deemed effective at 9.00 am on the following Business Day. 13.13 Severance If at any time any term or provision hereof is or becomes illegal, invalid or unenforceable, in whole or in part, under the law of any jurisdiction or any enactment or rule of law, such term or provision or part shall to that extent be deemed not to form part of this Agreement but the legality, validity or enforceability of any other term or provision of this Agreement (including under the law of any other jurisdiction) shall not in any way be affected or impaired thereby. 13.14 Counterparts This Agreement may be executed in any number of counterparts each of which shall be deemed an original, but all the counterparts shall together constitute one and the same instrument. 13.15 Governing Law and Submission to Jurisdiction This Agreement and, save as expressly referred to therein, the documents to be entered into pursuant to it shall be governed by and construed in accordance with English law and the parties irrevocably agree that the Courts of England shall have exclusive jurisdiction to settle any claims or disputes which may arise out of or in connection with this Agreement and such documents and each party irrevocably submits to the jurisdiction of the Courts of England for such purpose. 13.16 Reduction in Consideration Any payment made for the breach of any Warranties or any other breach of this Agreement (or any agreement entered into pursuant to this Agreement) or under the Tax Deed of Covenant or pursuant to any indemnity hereunder shall be treated as an adjustment to the consideration paid by Northern for the Yorkshire Shares under this Agreement and the consideration paid shall be deemed to have been reduced by the amount of such payment. IN WITNESS whereof this Agreement has been duly executed the day and year first before written. SIGNED by Caroline Farebrother /s/ C FAREBROTHER as attorney for and on behalf of NPOWER YORKSHIRE LIMITED in the presence of: 34 SIGNED by Steve Fletcher as /s/ S P FLETCHER attorney for and on behalf of INNOGY HOLDINGS PLC in the presence of: SIGNED by James Stallmeyer /s/ JAMES STALLMEYER for and on behalf of CE ELECTRIC UK PLC in the presence of: SIGNED by James Stallmeyer as /s/ JAMES STALLMEYER attorney for and on behalf of NORTHERN ELECTRIC PLC in the presence of: 35 EX-12.1 19 file018.txt COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 MIDAMERICAN ENERGY HOLDINGS COMPANY COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
MIDAMERICAN ENERGY HOLDINGS COMPANY ------------------------------------------------------------------------------ TWELVE MONTHS MARCH 14, 2000 JANUARY 1, 2000 TWELVE MONTHS ENDED THROUGH THROUGH ENDED DECEMBER 31, 2001 DECEMBER 31, 2000 MARCH 13, 2000 DECEMBER 31, 1999 Income before minority interest $ 253,820 $ 165,927 $ 60,162 $ 263,594 Add (Deduct): Provision for income taxes 250,064 53,277 31,008 93,475 Interest expense 499,263 396,773 101,330 496,578 Less interest capitalized (86,469) (85,369) (15,516) (70,405) Amortization of deferred financing and bank fees 20,529 18,310 4,075 18,181 ----------------- ------------------ ---------------- ----------------- 683,387 382,991 120,897 537,829 ----------------- ------------------ ---------------- ----------------- EARNINGS AVAILABLE FOR FIXED CHARGES 937,207 548,918 181,059 801,423 ----------------- ------------------ ---------------- ----------------- Fixed Charges: Interest expense 499,263 396,773 101,330 496,578 Amortization of deferred financing and bank fees 20,529 18,310 4,075 18,181 ----------------- ------------------ ---------------- ----------------- TOTAL FIXED CHARGES 519,792 415,083 105,405 514,759 ----------------- ------------------ ---------------- ----------------- RATIO OF EARNINGS TO FIXED CHARGES 1.8 1.3 1.7 1.6 ================= ================== ================ ================= MIDAMERICAN ENERGY HOLDINGS COMPANY ------------------------------------------------------------------------------- TWELVE MONTHS TWELVE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED DECEMBER 31, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 2002 SEPTEMBER 30, 2001 Income before minority interest $ 178,788 $ 97,816 $ 411,966 $ 206,641 Add (Deduct): Provision for income taxes 93,265 99,044 80,226 296,088 Interest expense 406,084 296,364 462,998 362,163 Less interest capitalized (58,792) (45,059) (24,128) (72,010) Amortization of deferred financing and bank fees 21,723 33,792 32,589 15,542 ----------------- ------------------ ---------------- ----------------- 462,280 384,141 551,685 601,783 ----------------- ------------------ ---------------- ----------------- EARNINGS AVAILABLE FOR FIXED CHARGES 641,068 481,957 963,651 808,424 ----------------- ------------------ ---------------- ----------------- Fixed Charges: Interest expense 406,084 296,364 462,998 362,163 Amortization of deferred financing and bank fees 21,723 33,792 32,589 15,542 ----------------- ------------------ ---------------- ----------------- TOTAL FIXED CHARGES 427,807 330,156 495,587 377,705 ----------------- ------------------ ---------------- ----------------- RATIO OF EARNINGS TO FIXED CHARGES 1.5 1.5 1.9 2.1 ================= ================== ================ =================
EX-15.1 20 file019.txt AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS AWARENESS LETTER OF INDEPENDENT ACCOUNTANTS MidAmerican Energy Holdings Company Des Moines, Iowa We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of MidAmerican Energy Holdings Company and subsidiaries for the periods ended September 30, 2002 and 2001, as indicated in our report dated November 8, 2002; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which was included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, is being used in this Registration Statement. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Des Moines, Iowa December 6, 2002 EX-21.1 21 file020.txt SUBSIDIARIES OF THE REGISTRANT Subsidiaries and Joint Ventures of MidAmerican Energy Holdings Company o American Pacific Finance Company (d/b/a Illinois American Pacific Finance Company) o American Pacific Finance Company II o Big Spring Pipeline Company o BioClean Fuels Inc. o CalEnergy BCF, Inc. o CalEnergy Capital Trust o CalEnergy Capital Trust II o CalEnergy Capital Trust III o CalEnergy Capital Trust IV o CalEnergy Capital Trust V o CalEnergy Capital Trust VI o CalEnergy Company, Inc. o CalEnergy Generation Operating Company o CalEnergy Holdings Inc. o CalEnergy Imperial Valley Company, Inc. o CalEnergy International, Inc. o CalEnergy International Ltd. o CalEnergy International Services, Inc. o CalEnergy Investments C.V. o CalEnergy Minerals LLC o CalEnergy Minerals Development LLC o CalEnergy Operating Corporation o CalEnergy Pacific Holdings Corp. o CalEnergy U.K. Inc. o California Energy Development Corporation o California Energy Management Company o California Energy Yuma Corporation o CBE Engineering Co. o CE Administrative Services, Inc. o CE Argo Energy, Inc. o CE Argo Power LLC o CE Asia Ltd. o CE Bali Ltd. o CE (Bermuda) Financing Ltd. o CE Casecnan Ltd. o CE Casecnan Water and Energy Company, Inc. o CE Cebu Geothermal Power Company, Inc. o CE Electric (NY), Inc. o CE Electric UK Funding Company o CE Electric UK Holdings o CE Electric UK Limited o CE Electric, Inc. 1 o CE Exploration Company o CE Generation, LLC o CE Geothermal, Inc. o CE Geothermal, LLC o CE Indonesia Geothermal, Inc. o CE Indonesia Ltd. o CE Insurance Services Limited o CE International (Bermuda) Ltd. o CE International Investments, Inc. o CE Latin America Ltd. o CE Luzon Geothermal Power Company, Inc. o CE Mahanagdong II, Inc. o CE Mahanagdong Ltd. o CE Obsidian Energy LLC o CE Obsidian Holding LLC o CE Overseas Ltd. o CE Philippines II, Inc. o CE Philippines Ltd. o CE Power, Inc. o CE Power, LLC o CE Resources, LLC o CE Salton Sea Inc. o CE Singapore Ltd. o CE/TA LLC o CE Texas Energy LLC o CE Texas Fuel, LLC o CE Texas Gas, L.P. o CE Texas Pipeline, LLC o CE Texas Power, LLC o CE Texas Resources, LLC o CE Turbo LLC o CEABC Co. o CEXYZ Co. o Conejo Energy Company o Cordova Energy Company LLC o Cordova Funding Corporation o Del Ranch, L.P. o Desert Valley Company o Elmore, L.P. o Falcon Power Operating Company o Falcon Seaboard Oil Company o Falcon Seaboard Pipeline Corporation o Falcon Seaboard Power Corporation, Inc. o Fish Lake Power LLC o Fox Energy Company LLC o FSRI Holdings, Inc. 2 o Gilbert/CBE Indonesia L.L.C. o Gilbert/CBE L.P. o HomeServices of America, Inc. o Imperial Magma LLC o Intermountain Geothermal Company o IPP Co. o IPP Co. LLC o Kern River Funding Corporation o Kern River Gas Transmission Company o KR Acquisition 1, LLC o KR Acquisition 2, LLC o KR Holding, LLC o Leathers, L.P. o Magma Generating Company I o Magma Generating Company II o Magma GEO o Magma Land Company I o Magma Netherlands B.V. o Magma Power Company o MEHC Investment, Inc. o MHC Inc. o MidAmerican Capital Trust I o MidAmerican Energy Company o MidAmerican Energy Foundation o MidAmerican Energy Machining Services LLC o MidAmerican Funding, LLC o MidAmerican Transmission, LLC o Niguel Energy Company o NNGC Acquisition, LLC o NorCon Holdings, Inc. o NorCon Power Partners, L.P. o Norming Investments B.V. o North Country Gas Pipeline Corporation o Northern Aurora, Inc. o Northern Consolidated Power, Inc. o Northern Electric plc o Northern Natural Gas Company o Ormoc Cebu Ltd. o Power Resources, Ltd. o Quad Cities Energy Company o Salton Sea Brine Processing, L.P. o Salton Sea Funding Corporation o Salton Sea Minerals Corp. o Salton Sea Power Company o Salton Sea Power Generation L.P. o Salton Sea Power LLC 3 o Salton Sea Royalty LLC o San Felipe Energy Company o Saranac Energy Company, Inc. o Saranac Power Partners, L.P. o SECI Holdings, Inc. o Slupo I B.V. o Tongonan Power Investment, Inc. o Visayas Geothermal Power Company o VPC Geothermal LLC o Vulcan Power Company o Vulcan/BN Geothermal Power Company o Yuma Cogeneration Associates o MEC Construction Services Co. o MidAmerican Capital Company o MidAmerican Services Company o Midwest Capital Group, Inc. o CBEC Railway Inc. o MidAmerican Energy Funding Corporation o MidAmerican Energy Financing I o CalEnergy Gas Limited o CalEnergy Gas (Australia) Limited o CalEnergy Gas (Holdings) Limited o CalEnergy Gas (Pipelines) Limited o CalEnergy Gas (Polska) Sp. z.o.o. o CalEnergy Gas (UK) Limited o CalEnergy Power (Polska) Sp. z.o.o. o CalEnergy Resources Limited o CE Electric (Ireland) Limited o CE UK Gas Holdings Limited o Integrated Utility Services Limited o Electralink Limited o Northern Electric & Gas Limited o Northern Electric Distribution Limited o Northern Electric Finance plc o Northern Electric Genco Limited o Northern Electric Generation Limited o Northern Electric Generation (Peaking) Limited 4 o Northern Electric Generation (TPL) Limited o Northern Electric Insurance Services Limited o Northern Electric (Overseas Holdings) Limited o Northern Electric Properties Limited o Northern Electric Retail Limited o Northern Electric Supply Limited o Northern Electric Training Limited o Northern Infocom Limited o Northern Metering Systems Limited o Northern Transport Finance Limited o Ryhope Road Developments Limited o Stamfordham Road Developments Limited o YEDL Limited o Yorkshire Cayman Holding Ltd. o Yorkshire Electricity Distribution Plc o Yorkshire Electricity Distribution Services Ltd. o Yorkshire Electricity Group Plc. o Yorkshire Holdings Plc o Yorkshire Power Finance Ltd. o Yorkshire Power Finance 2 Ltd. o Yorkshire Power Group Limited o YPG Holdings LLC o Cimmred Leasing Company o DCCO Inc. o InterCoast Capital Company o InterCoast Energy Company o InterCoast Global Management, Inc. o InterCoast Power Company o InterCoast Power Marketing Company o InterCoast Sierra Power Company o IWG Co. 8 o MHC Investment Company o MidAmerican Rail Inc. o MWR Capital Inc. o TTP, Inc. of South Dakota o Dakota Dunes Development Company o Midwest Gas Company o Two Rivers Inc. 5 o Arizona Home Services, LLC o California Title Co. o Capitol Intermediary Company o Capitol Land Exchange, Inc. o Capitol Title Company o Carol Jones Company o Carol Jones Properties, Ltd. o CBSHOME Real Estate Company o Cendant Home Funding-Nebraska, L.L.C. o Champion Realty, Inc. o Chancellor Mortgage Services, Inc. o Chancellor Title Services, Inc. o Community Mortgage Company (50%) o Edina Corporate Services, Inc. o Edina Financial Services, Inc. o Edina Realty, Inc. o Edina Realty of Wisconsin, Inc. o Edina Realty Foundation o Edina Realty Franchise Associates, Inc. o Edina Realty Insurance Agency, Inc. o Edina Realty Mortgage, LLC o Edina Realty Title, Inc. o Edina Realty Title, Inc. d/b/a Semonin Title, Inc. o First Realty, Ltd. o For Rent, Inc. o HMSV Financial Services, Inc. o HMSV Technologies Inc. o HomeServices of California, Inc. o HomeServices Lending, LLC o IMO Co., Inc. o Iowa Realty Co., Inc. o Iowa Realty Foundation o Iowa Realty Insurance Agency, Inc. o Iowa Title Company o Iowa Title Linn County, LLC o Iowa Title Linn County II,LLC o InsuranceSouth LLC o J. D. Reece Mortgage Company o Jenny Pruitt & Associates, Inc. o Jenny Pruitt Insurance Services, Inc. o J.P.&A., Inc. o JRHBW Realty, Inc. d/b/a RealtySouth, Inc. o Kansas City Title, Inc. 6 o Kentucky Residential Referral Services, LLC o Lincoln Federal JV, LLC (40%) o Link-Help, LLC (50%) o Long Title Agency, Inc. o Meridian Title Services, LLC o MidAmerican Commercial Real Estate Services, Inc. o Midland Escrow Services, Inc. o MortgageSouth, LLC o MRSCT, Inc. o Nebraska Land Title and Abstract Company o Paul Semonin Company o Pickford Golden State Member, LLC o Pickford Holdings, LLC o Pickford North County, LP o Pickford Real Estate, Inc. d/b/a Prudential California Realty o Pickford Realty Ltd. o Pickford Services Company o Plaza Financial Services, LLC o Plaza Mortgage Services, LLC o Professional Referral Organization, Inc. o Property I.D. Golden State, LLC o Prudential California Realty o Real Estate Links, LLC o Real Estate Referral Network, Inc. o Reece and Nichols Alliance, Inc. o Reece & Nichols Realtors, Inc. o RHL Referral Company, LLC o Roy H. Long Realty Co., Inc. o Select Relocation Services, Inc. o Semonin Mortgage Services, Inc. o Service Mortgage Group, LLC o Southwest Relocation, LLC o The Chancellor Group, Inc. o The Referral Company o Title Information Services, LLC o TitleSouth, LLC o Trinity Mortgage Affiliates o Trinity Mortgage Partners, Inc. o United Settlement Services, LC o Woods Bros. Insurance Co. o Woods Bros. Real Estate Group, Inc. o Woods Bros. Realty, Inc. o Woods Lots, Inc. 7 o Kings Road Developments Limited o Northgate Park Associates* (through Midwest Capital Group) o Selectusonline o Vehicle Lease and Service Limited o Viking Power Limited o Edge Technologies, Inc. (through MidAmerican Capital 9.75%) o Electra Brands Limited (through Northern Electric 20%) o ElectraLink Limited (through CE Electric UK plc 14.49%) o Electricity Pensions Trustee Limited (through Northern Electric 4.3%) o Emerald BioAgriculture Corp. (through MidAmerican Capital 2.47%) o ESN Holdings Limited (through Northern Electric 3.72%) o Micro-Generation Technology Fund, LLC (through MidAmerican Capital 25%) o MRA Service Company Limited (through Northern Electric 1.78%) o Non-Fossil Purchasing Agency Holdings (through Northern Electric 8.33%) o Racom Corporation (through MidAmerican Capital 6.1%) o REC Collect Limited (through Northern Electric 25%) o St. Clements Services Limited (through Northern Electric 10%) o Teesside Power Limited (through Northern Electric 15.4%) o Utech Venture Capital Corporation (through MidAmerican Capital 10.4%) 8 EX-23.2 22 file021.txt CONSENT OF DELOITTE & TOUCHE INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of MidAmerican Energy Holdings Company on Form S-4 of our report dated January 17, 2002 (March 27, 2002 as to Notes 20.A. and 21 and August 2, 2002 as to Note 23) (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the Company's change in its accounting policy for major maintenance, overhaul, and well workover costs), relating to the consolidated financial statements appearing in the Prospectus, which is part of this Registration Statement, and the financial statement schedules appearing elsewhere in this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Des Moines, Iowa December 6, 2002 EX-25.1 23 file022.txt STATEMENT ON FORM T-1 OF ELIGIBILITY = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = FORM T-1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ] --------------------------- THE BANK OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-5160382 (State of incorporation (I.R.S. employer if not a U.S. national bank) identification no.) One Wall Street, New York, N.Y. 10286 (Address of principal executive offices) (Zip code) --------------------------- MidAmerican Energy Holdings Company (Exact name of obligor as specified in its charter) Iowa 94-2213782 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 666 Grand Avenue 50309 Des Moines, Iowa (Zip code) (Address of principal executive offices) --------------------------- 4.625% Senior Notes due 2007 5.875% Senior Notes due 2012 (Title of the indenture securities) = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. - -------------------------------------------------------------------------------- Name Address - -------------------------------------------------------------------------------- Superintendent of Banks of the State of 2 Rector Street, New York, N.Y. New York 10006, and Albany, N.Y. 12203 Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045 Federal Deposit Insurance Corporation Washington, D.C. 20429 New York Clearing House Association New York, New York 10005 (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. None. 16. LIST OF EXHIBITS. EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17 C.F.R. 229.10(d). 1. A copy of the Organization Certificate of The Bank of New York (formerly Irving Trust Company) as now in effect, which contains the authority to commence business and a grant of powers to exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.) 4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 33-31019.) 6. The consent of the Trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 33-44051.) -2- 7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. -3- SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 21st day of November, 2002. THE BANK OF NEW YORK By: /S/ MARY LAGUMINA ----------------------------- Name: MARY LAGUMINA Title: VICE PRESIDENT -4- EXHIBIT 7 - -------------------------------------------------------------------------------- Consolidated Report of Condition of THE BANK OF NEW YORK of One Wall Street, New York, N.Y. 10286 And Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 2002, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. Dollar Amounts In Thousands ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin.. $2,850,111 Interest-bearing balances........................... 6,917,898 Securities: Held-to-maturity securities......................... 1,201,319 Available-for-sale securities....................... 13,227,788 Federal funds sold in domestic offices................. 1,748,562 Securities purchased under agreements to resell ............................................. 808,241 Loans and lease financing receivables: Loans and leases held for sale...................... 974,505 Loans and leases, net of unearned income .......................................... 36,544,957 LESS: Allowance for loan and lease losses .................................... 578,710 Loans and leases, net of unearned income and allowance ............................ 35,966,247 Trading Assets......................................... 6,292,280 Premises and fixed assets (including capitalized leases) ................................ 860,071 Other real estate owned................................ 660 Investments in unconsolidated subsidiaries and associated companies ........................... 272,214 Customers' liability to this bank on acceptances outstanding ............................ 467,259 Intangible assets...................................... Goodwill............................................ 1,804,922 Other intangible assets............................. 70,679 Other assets........................................... 4,639,158 ----------- Total assets........................................... $78,101,914 =========== LIABILITIES Deposits: In domestic offices................................. $29,456,619 Noninterest-bearing ................................ 11,393,028 Interest-bearing ................................... 18,063,591 In foreign offices, Edge and Agreement subsidiaries, and IBFs .......................... 26,667,608 Noninterest-bearing ................................ 297,347 Interest-bearing ................................... 26,370,261 Federal funds purchased in domestic offices............ 1,422,522 Securities sold under agreements to repurchase......... 466,965 Trading liabilities.................................... 2,946,403 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) .............. 1,844,526 Bank's liability on acceptances executed and oustanding ......................................... 469,319 Subordinated notes and debentures...................... 1,840,000 Other liabilities...................................... 5,998,479 ----------- Total liabilities...................................... $71,112,441 =========== Minority interest in consolidated subsidiaries ....................................... 500,154 EQUITY CAPITAL Perpetual preferred stock and related surplus ......... 0 Common stock........................................... 1,135,284 Surplus................................................ 1,055,509 Retained earnings...................................... 4,244,963 Accumulated other comprehensive income......... (53,563) Other equity capital components..................... 0 - ---------------------------------------------------------------------------- Total equity capital................................... 6,489,319 ----------- Total liabilities minority interest and equity capital. $78,101,914 =========== I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-named bank do hereby declare that this Report of Condition is true and correct to the best of my knowledge and belief. Thomas J. Mastro, Senior Vice President and Comptroller We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. Thomas A. Renyi -- Gerald L. Hassell | Directors Alan R. Griffith | -- - -------------------------------------------------------------------------------- EX-99.1 24 file023.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON , 200 , UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE. MIDAMERICAN ENERGY HOLDINGS COMPANY 666 Grand Avenue Des Moines, Iowa 50309 LETTER OF TRANSMITTAL For 4.625% Senior Notes due 2007 EXCHANGE AGENT: THE BANK OF NEW YORK By Facsimile: (212) 298-1915 Confirm by telephone: (212) 815-5920 By Mail, Hand or Courier: The Bank of New York Corporate Trust Department Reorganization Unit 101 Barclay Street Floor 7 East New York, New York 10286 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the Prospectus dated , 200 (the "Prospectus") of MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), and this Letter of Transmittal for 4.625% Senior Notes due 2007 which may be amended from time to time (this "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange, for each $1,000 in principal amount of its outstanding 4.625% Senior Notes due 2007 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), $1,000 in principal amount of 4.625% Senior Notes due 2007 (the "Exchange Notes"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Original Notes who wish to tender their Original Notes must, prior to the Expiration Date: (1) complete, sign, date and mail or otherwise deliver this Letter to the Exchange Agent, in person or to the address set forth above; and (2) tender his or her Original Notes or, if a tender of Original Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer - How to Tender" in the Prospectus. (See Instruction 1). The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or Douglas L. Anderson, General Counsel of the Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131 (telephone (402) 231-1642). -2- PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Original Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Original Notes on a separate SIGNED schedule and affix that schedule to this Letter. BOX 1 TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT OF ORIGINAL NOTES (PLEASE FILL IN IF BLANK) NUMBER(S)(1) OF ORIGINAL NOTES TENDERED(2) - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- TOTALS: - --------------------------------------------------------------------------------------------------------------------- (1) Need not be completed if Original Notes are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Original Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. - ---------------------------------------------------------------------------------------------------------------------
Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Company the principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered with this Letter, the undersigned exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Original Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Original Notes, with full power of substitution, to: (a) deliver certificates for such Original Notes; (b) deliver Original Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of the Original Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the assignment and transfer of the Original Notes tendered. The undersigned agrees that acceptance of any tendered Original Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the registration rights agreement (as described in the Prospectus) and that, upon the issuance of the Exchange Notes, -3- the Company will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Original Notes, the undersigned certifies that (i) any Exchange Notes received by the undersigned will be acquired in the ordinary course of its business, (ii) at the time of commencement of the Exchange Offer, the undersigned had no arrangements or understanding with any person to participate in the distribution of the Original Notes or the Exchange Notes within the meaning of the Securities Act, (iii) the undersigned is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if the undersigned is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes and (v) if the undersigned is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities; however , by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: _________________________________________ Address: ______________________________________ The undersigned understands that the Company may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Original Notes not tendered but represented by a certificate also encompassing Original Notes which are tendered) to the undersigned at the address set forth in Box 1. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter, the Prospectus shall prevail. [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution:_________________________________________ Account Number:________________________________________________________ Transaction Code Number:_______________________________________________ [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s):_______________________________________ Date of Execution of Notice of Guaranteed Delivery:___________________ Window Ticket Number (if available):__________________________________ Name of Institution which Guaranteed Delivery:________________________ -4- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BOX 2 - -------------------------------------------------------------------------------- PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY X_____________________________ _______________ X_____________________________ _______________ SIGNATURE(S) OF OWNER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number:______________________________________ This box must be signed by registered holder(s) of Original Notes as their name(s) appear(s) on certificate(s) for Original Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3) Name(s)________________________________________________________________________ _______________________________________________________________________________ (PLEASE PRINT) Capacity_______________________________________________________________________ Address________________________________________________________________________ _______________________________________________________________________________ (INCLUDE ZIP CODE) Signature(s) Guaranteed ____________________________________________________ by an Eligible Institution: (AUTHORIZED SIGNATURE) (If required by Instruction 3) ____________________________________________________ (TITLE) ____________________________________________________ (NAME OF FIRM) - -------------------------------------------------------------------------------- -5- BOX 3 SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PAYOR'S NAME: BANK OF NEW YORK
- ------------------------------------------------------------------------------------------- PAYEE INFORMATION (please print or type) Individual or business name: - ------------------------------------------------------------------------------------------- Check appropriate box: [ ] Individual/Sole Proprietor [ ] Corporation [ ] Partnership [ ] Other_______________________ [ ] Exempt from backup withholding - ------------------------------------------------------------------------------------------- Address (number, street, and apt. or suite no.):___________________________________________ - ------------------------------------------------------------------------------------------- City, state, and ZIP code: - ------------------------------------------------------------------------------------------- PART I: TAXPAYER IDENTIFICATION NUMBER ("TIN") Enter your TIN below. For individuals, your TIN is your social security number. Sole proprietors may enter either their social security number or their employer identification number. If you are a limited liability company that is disregarded as an entity separate from your owner, enter your owner's social security number or employer identification number, as applicable. For other entities, your TIN is your employer identification number. Social security number: [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ] OR Employer identification number: [ ] [ ] - [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Applied For - ------------------------------------------------------------------------------------------- PART II: CERTIFICATION Certification Instructions: You must cross out item 2 below if you have been notified by the Internal Revenue Service (the "IRS") that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item 2. Under penalties of perjury, I certify that: 1. The number shown on this form is my correct TIN or a TIN has not been issued to me and either (a) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide my TIN to the payor, a portion of all reportable payments made to me by the payor will be withheld until I provide my TIN to the payor and that, if I do not provide my TIN to the payor within 60 days of submitting this Substitute Form W-9, such retained amounts shall be remitted to the IRS as backup withholding. 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. 3. I am a U.S. person (including a U.S. resident alien). - ------------------------------------------------------------------------------------------- THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. - ------------------------------------------------------------------------------------------- SIGNATURE DATE - -------------------------------------------------------------------------------------------
-6-
- ------------------------------------------------------ ------------------------------------------------------ BOX 4 BOX 5 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Original To be completed ONLY if certificates for Original Notes in a principal amount not exchanged, or Exchange Notes in a principal amount not exchanged, or Exchange Notes, are to be issued in the name of someone other Notes, are to be sent to someone other than the than the person whose signature appears in Box 2, or person whose signature appears in Box 2 or to an if Original Notes delivered by book-entry transfer address other than that shown in Box 1. which are not accepted for exchange are to be returned by credit to an account maintained at the Deliver: Book-Entry Transfer Facility other than the account indicated above. (check appropriate boxes) [ ] Original Notes not tendered Issue and deliver: [ ] Exchange Notes, to: (check appropriate boxes) Name _________________________________________ [ ] Original Notes not tendered (PLEASE PRINT) [ ] Exchange Notes, to: Address ______________________________________ Name _______________________________________ (PLEASE PRINT) ______________________________________________ Address _________________________________ Please complete the Substitute Form W-9 at Box 3 Tax I.D. or Social Security Number: __________ - ------------------------------------------------------ ------------------------------------------------------
-7- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at one of its addresses set forth herein on or before the expiration of the exchange offer on the Expiration Date. The method of delivery of this Letter, certificates for Original Notes or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. Holders whose Original Notes are not immediately available or who cannot deliver their Original Notes or a Book-Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender must be made by or through an Eligible Institution (as defined in the Prospectus under the caption "The Exchange Offer - How to Tender"); (ii) prior to the expiration of the exchange offer on the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) (x) setting forth the name and address of the holder, the description of the Original Notes and the principal amount of Original Notes tendered, (y) stating that the tender is being made thereby and (z) guaranteeing that, within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter together with the certificates representing the Original Notes or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all tendered Original Notes or a Book-Entry Confirmation, as the case may be, as well as all other documents required by this Letter, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer - How to Tender." All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Original Notes will be determined by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Company's counsel, would be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Original Notes. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Original Notes. Neither the Company, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of any Original Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the fourth column of Box 1 above. All of the Original Notes represented by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. A certificate for Original Notes not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Original Notes represented by a submitted certificate is tendered (or, in the case of Original Notes tendered by book-entry transfer, such non-exchanged Original Notes will be credited to an account maintained by the holder with the Book-Entry Transfer Facility). If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Original Notes, a notice of withdrawal must: (i) be received by the Exchange Agent before the Company notifies the Exchange Agent that it has accepted the tender of Original Notes pursuant to the Exchange Offer; (ii) specify the name of the person who tendered the Original Notes; (iii) contain a description of the Original Notes to be withdrawn, the certificate numbers shown on the particular -8- certificates evidencing such Original Notes and the principal amount of Original Notes represented by such certificates; and (iv) be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantee). 3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the holder(s) of Original Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Original Notes, without alteration, enlargement or any change whatsoever. If any of the Original Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Original Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the holder's Original Notes are tendered; and/or (ii) untendered Original Notes, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Original Notes, nor provide a separate bond power. If any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Company of their authority to so act must be submitted, unless waived by the Company. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Original Notes are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively, "Eligible Institutions"). If Original Notes are registered in the name of a person other than the signer of this Letter, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Notes or certificates for Original Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 5. TAX IDENTIFICATION NUMBER. U.S.federal income tax law requires that a holder (other than a person exempt from this requirement as discussed below) whose tendered Original Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes pursuant to the Exchange Offer may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. Under U.S. federal income tax laws, payments made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding. In order to prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" in Box 3 certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been -9- notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; or (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) certify in accordance with the "Substitute Form W-9" that such holder is exempt from back-up withholding. Exempt Holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. To prevent possible erroneous back-up withholding, an exempt Holder must check the appropriate box under "Payee Information," enter its correct TIN in Part I of the Substitute Form W-9, and sign and date the form. See the Substitute Form W-9 in Box 3 for additional instructions. In order for a nonresident alien or foreign entity to qualify as exempt, such person must submit a completed Form W-8BEN, "Certificate of Foreign Status," signed under penalties of perjury attesting to such exempt status. Such forms may be obtained from the Exchange Agent, as payor. If you do not have a TIN, check the box "Applied For" in Part I of the Substitute Form W-9, consult Part II of the Substitute Form W-9 for instructions on applying for a TIN, and sign and date the form. If you do not provide your TIN to the payor within 60 days, back-up withholding will begin and continue until you furnish your TIN to the payor. Note: Checking the "Applied For" box in Part I of the Substitute Form W-9 indicates that you have already applied for a TIN or that you intend to apply for one in the near future. If you have any questions concerning the Substitute Form W-9 or any information required therein, please contact the Exchange Agent, as payor. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Original Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Original Notes tendered. 8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose certificates for Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent. IMPORTANT: This Letter (together with certificates representing tendered Original Notes or a Book-Entry Confirmation and all other required documents) must be received by the Exchange Agent, or the guaranteed delivery procedures must be complied with, on or before the Expiration Date (as defined in the Prospectus). -10- EX-99.2 25 file024.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 MIDAMERICAN ENERGY HOLDINGS COMPANY EXCHANGE OFFER TO HOLDERS OF ITS 4.625% SENIOR NOTES DUE 2007 NOTICE OF GUARANTEED DELIVERY As set forth in the Prospectus dated , 200 (the "Prospectus") of MidAmerican Energy Holdings Company ("Company") under "The Exchange Offer - How to Tender) and in the Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by the Company to exchange up to $200,000,000 in principal amount of its 4.625% Senior Notes due 2007 (the "Exchange Notes") for all of its outstanding 4.625% Senior Notes due 2007, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer of the Company if: (i) certificates for the Original Notes are not immediately available; or (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date (as defined in the Prospectus) of the Exchange Offer. Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission, letter, or courier to the Exchange Agent. TO: THE BANK OF NEW YORK, (the "Exchange Agent") By Facsimile: (212) 298-1915 Confirm by telephone: (212) 815-5920 By Mail, Hand or Courier: The Bank of New York Corporate Trust Department Reorganization Unit 101 Barclay Street Floor 7 East New York, New York 10286 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedure described in the Prospectus and the Letter of Transmittal.
Sign Here Principal Amount of Original Notes Signature(s) Tendered ----------------------------------------- ----------------------------------------- ------------------------------------------------- Certificate Nos. (if available) Please Print the Following Information ----------------------------------- Name(s) ----------------------------------------- Total Principal Amount ------------------------------------------------- Represented by Original Notes Certificate(s) Address ----------------------------------------- Account Number ------------------------------------------------- ----------------------------------- Area Code and Tel. No(s). Dated: __________________, 200 ------------------------- -------------------------------------------------
-2- GUARANTEE The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of certificates tendered hereby, in proper form for transfer, or delivery of such certificates pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within three trading days after the date of execution of a Notice of Guaranteed Delivery of the above-named person. Name of Firm ------------------------------------------------ Authorized Signature ---------------------------------------- Number and Street or P.O. Box ------------------------------- ------------------------------------------------------------ City State Zip Code ---------- ------- ------------------------ Area Code and Tel. No. -------------------------------------- Dated: , 200 -3- EX-99.3 26 file025.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.3 MID AMERICAN ENERGY HOLDINGS COMPANY OFFER TO EXCHANGE UP TO $200,000,000 IN PRINCIPAL AMOUNT OF 4.625% SENIOR NOTES DUE 2007 FOR ALL OF ITS OUTSTANDING 4.625% SENIOR NOTES DUE 2007 AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED To Our Clients: Enclosed for your consideration is a Prospectus dated , 200 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by MidAmerican Energy Holdings Company (the "Company") to exchange up to $200,000,000 in principal amount of its 4.625% Senior Notes due 2007 (the "Exchange Notes") for all of its outstanding 4.625% Senior Notes due 2007, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). The material is being forwarded to you as the beneficial owner of Original Notes carried by us for your account or benefit but not registered in your name. A tender of any Original Notes may be made only by us as the registered holder and pursuant to your instructions. Therefore, the Company urges beneficial owners of Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered holder promptly if they wish to tender Original Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Original Notes, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Original Notes. YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on , 200 , unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Original Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Original Notes held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of MidAmerican Energy Holdings Company. THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED, PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. - ------------ ------------------------------------------------------------------ Box 1 [ ] Please tender my Original Notes held by you for my account or benefit. I have identified on a signed schedule attached hereto the principal amount of Original Notes to be tendered if I wish to tender less than all of my Original Notes. - ------------ ------------------------------------------------------------------ - ------------ ------------------------------------------------------------------ Box 2 [ ] Please do not tender any Original Notes held by you for my account or benefit. - ------------ ------------------------------------------------------------------ Date: , 200 --------------------------------------- --------------------------------------- Signature(s) --------------------------------------- --------------------------------------- Please print name(s) here - ----------- Unless a specific contrary instruction is given in a signed Schedule attached hereto, your signature(s) hereon shall constitute an instruction to us to tender all of your Original Notes. EX-99.4 27 file026.txt FORM OF LETTER TO NOMINEES EXHIBIT 99.4 MIDAMERICAN ENERGY HOLDINGS COMPANY OFFER TO EXCHANGE UP TO $200,000,000 IN PRINCIPAL AMOUNT OF 4.625% SENIOR NOTES DUE 2007 FOR ALL OF ITS OUTSTANDING 4.625% SENIOR NOTES DUE 2007 ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED To Securities Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated , 200 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by MidAmerican Energy Holdings Company (the "Company") to exchange up to $200,000,000 in principal amount of its 4.625% Senior Notes due 2007 (the "Exchange Notes") for all of its outstanding 4.625% Senior Notes due 2007, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). We are asking you to contact your clients for whom you hold Original Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Original Notes registered in their own name. The Company will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Company for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay all transfer taxes, if any, applicable to the tender of Original Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Original Notes and for the information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; and 4. A form of Notice of Guaranteed Delivery. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on , 200 , unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. To tender Original Notes, certificates for Original Notes or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. Additional copies of the enclosed material may be obtained from The Bank of New York, the Exchange Agent, by calling 212-815-5920. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. -2- EX-99.5 28 file027.txt FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.5 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON , 200 , UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE. MIDAMERICAN ENERGY HOLDINGS COMPANY 666 Grand Avenue Des Moines, Iowa 50309 LETTER OF TRANSMITTAL For 5.875% Senior Notes due 2012 EXCHANGE AGENT: THE BANK OF NEW YORK By Facsimile: (212) 298-1915 Confirm by telephone: (212) 815-5920 By Mail, Hand or Courier: The Bank of New York Corporate Trust Department Reorganization Unit 101 Barclay Street Floor 7 East New York, New York 10286 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges receipt of the Prospectus dated , 200 (the "Prospectus") of MidAmerican Energy Holdings Company, an Iowa corporation (the "Company"), and this Letter of Transmittal for 5.875% Senior Notes due 2012 which may be amended from time to time (this "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange, for each $1,000 in principal amount of its outstanding 5.875% Senior Notes due 2012 issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), $1,000 in principal amount of 5.875% Senior Notes due 2012 (the "Exchange Notes"). The undersigned has completed, executed and delivered this Letter to indicate the action he or she desires to take with respect to the Exchange Offer. All holders of Original Notes who wish to tender their Original Notes must, prior to the Expiration Date: (1) complete, sign, date and mail or otherwise deliver this Letter to the Exchange Agent, in person or to the address set forth above; and (2) tender his or her Original Notes or, if a tender of Original Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer (a "Book-Entry Confirmation"), in each case in accordance with the procedures for tendering described in the Instructions to this Letter. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or Book-Entry Confirmation and all other documents required by this Letter to be delivered to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer - How to Tender" in the Prospectus. (See Instruction 1). The Instructions included with this Letter must be followed in their entirety. Questions and requests for assistance or for additional copies of the Prospectus or this Letter may be directed to the Exchange Agent, at the address listed above, or Douglas L. Anderson, General Counsel of the Company, 302 South 36th Street, Suite 400, Omaha, Nebraska 68131 (telephone (402) 231-1642). -2- PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL, INCLUDING THE INSTRUCTIONS TO THIS LETTER, CAREFULLY BEFORE CHECKING ANY BOX BELOW Capitalized terms used in this Letter and not defined herein shall have the respective meanings ascribed to them in the Prospectus. List in Box 1 below the Original Notes of which you are the holder. If the space provided in Box 1 is inadequate, list the certificate numbers and principal amount of Original Notes on a separate SIGNED schedule and affix that schedule to this Letter. BOX 1 TO BE COMPLETED BY ALL TENDERING HOLDERS
- --------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT OF ORIGINAL NOTES (PLEASE FILL IN IF BLANK) NUMBER(S)(1) OF ORIGINAL NOTES TENDERED(2) - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- TOTALS: - --------------------------------------------------------------------------------------------------------------------- (1) Need not be completed if Original Notes are being tendered by book-entry transfer. (2) Unless otherwise indicated, the entire principal amount of Original Notes represented by a certificate or Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered. - ---------------------------------------------------------------------------------------------------------------------
Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned tenders to the Company the principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered with this Letter, the undersigned exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to the Original Notes tendered. The undersigned constitutes and appoints the Exchange Agent as his or her agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Original Notes, with full power of substitution, to: (a) deliver certificates for such Original Notes; (b) deliver Original Notes and all accompanying evidence of transfer and authenticity to or upon the order of the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of the Original Notes tendered under the Exchange Offer; and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of the Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed irrevocable and coupled with an interest. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the assignment and transfer of the Original Notes tendered. The undersigned agrees that acceptance of any tendered Original Notes by the Company and the issuance of Exchange Notes in exchange therefor shall constitute performance in full by the Company of its obligations under the registration rights agreement (as described in the Prospectus) and that, upon the issuance of the Exchange Notes, -3- the Company will have no further obligations or liabilities thereunder (except in certain limited circumstances). By tendering Original Notes, the undersigned certifies that (i) any Exchange Notes received by the undersigned will be acquired in the ordinary course of its business, (ii) at the time of commencement of the Exchange Offer, the undersigned had no arrangements or understanding with any person to participate in the distribution of the Original Notes or the Exchange Notes within the meaning of the Securities Act, (iii) the undersigned is not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or if it is an affiliate, the undersigned will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, (iv) if the undersigned is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes and (v) if the undersigned is a broker-dealer, that it will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities and that it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ----------------------------------------- Address: -------------------------------------- The undersigned understands that the Company may accept the undersigned's tender by delivering written notice of acceptance to the Exchange Agent, at which time the undersigned's right to withdraw such tender will terminate. All authority conferred or agreed to be conferred by this Letter shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Letter shall be binding upon the undersigned's heirs, personal representatives, successors and assigns. Tenders may be withdrawn only in accordance with the procedures set forth in the Instructions contained in this Letter. Unless otherwise indicated under "Special Delivery Instructions" below, the Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate for any Original Notes not tendered but represented by a certificate also encompassing Original Notes which are tendered) to the undersigned at the address set forth in Box 1. The undersigned acknowledges that the Exchange Offer is subject to the more detailed terms set forth in the Prospectus and, in case of any conflict between the terms of the Prospectus and this Letter, the Prospectus shall prevail. [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: ---------------------------------------- Account Number: ------------------------------------------------------- Transaction Code Number: ---------------------------------------------- [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s): -------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ------------------- Window Ticket Number (if available): ---------------------------------- Name of Institution which Guaranteed Delivery: ------------------------ -4- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BOX 2 - ------------------------------------------------------------------------------- PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY X ------------------------------ ------------- X ------------------------------ ------------- SIGNATURE(S) OF OWNER(S) DATE OR AUTHORIZED SIGNATORY Area Code and Telephone Number: --------------------------------------------- This box must be signed by registered holder(s) of Original Notes as their name(s) appear(s) on certificate(s) for Original Notes, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. (See Instruction 3) Name(s) ------------------------------------------------------------------------ - ------------------------------------------------------------------------------- (PLEASE PRINT) Capacity ------------------------------------------------------------------------ Address ------------------------------------------------------------------------ - ------------------------------------------------------------------------------- (INCLUDE ZIP CODE) Signature(s) Guaranteed ------------------------------------ by an Eligible Institution: (AUTHORIZED SIGNATURE) (If required by Instruction 3) ------------------------------------ (TITLE) ------------------------------------ (NAME OF FIRM) - ------------------------------------------------------------------------------- -5- BOX 3 SUBSTITUTE FORM W-9 REQUEST FOR TAXPAYER IDENTIFICATION NUMBER AND CERTIFICATION DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PAYOR'S NAME: BANK OF NEW YORK
- ---------------------------------------------------------------------------------------------------------------------- PAYEE INFORMATION (please print or type) Individual or business name: - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Check appropriate box: [ ] Individual/Sole Proprietor [ ] Corporation [ ] Partnership [ ] Other [ ] Exempt from backup withholding ---------------------------- - ---------------------------------------------------------------------------------------------------------------------- Address (number, street, and apt. or suite no.): ----------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- City, state, and ZIP code: --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- PART I: TAXPAYER IDENTIFICATION NUMBER ("TIN") Enter your TIN below. For individuals, your TIN is your social security number. Sole priprietors may enter either their social security number of their employer identification number. If you are a limited liability company that is disregarded as an entity separate from your owner, enter your owner's social security number or employer identification number, as applicable. For other entities, your TIN is your employer identification number. Social security number: [ ] [ ] [ ] - [ ] [ ] - [ ] [ ] [ ] [ ] OR Employer identification number: [ ] [ ] - [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] Applied For - ---------------------------------------------------------------------------------------------------------------------- PART II: CERTIFICATION Certification Instructions: You must cross out item 2 below if you have been notified by the Internal Revenue Service (the "IRS") that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item 2. Under penalties of perjury, I certify that: 1. The number shown on this form is my correct TIN or a TIN has not been issued to me and either (a) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office, or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide my TIN to the payor and that, if I do not provide by TIN to the payor within 60 days of submitting this Substitute Form W-9, such retained amounts shall be remitted to the IRS as backup withholding. 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, (b) I have not been notified by the IRS that I am subject to backup withholding as a result of a failure to report all interest or dividends or (c) the IRS has notified me that I am no longer subject to backup withholding. 3. I am a U.S. person (including a U.S. resident alien). - ---------------------------------------------------------------------------------------------------------------------- THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- SIGNATURE DATE ------------------------------------------------------- ------------------------------- - ----------------------------------------------------------------------------------------------------------------------
-6-
- ------------------------------------------------------ ------------------------------------------------------ BOX 4 BOX 5 SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Original To be completed ONLY if certificates for Original Notes in a principal amount not exchanged, or Exchange Notes in a principal amount not exchanged, or Exchange Notes, are to be issued in the name of someone other Notes, are to be sent to someone other than the than the person whose signature appears in Box 2, or person whose signature appears in Box 2 or to an if Original Notes delivered by book-entry transfer address other than that shown in Box 1. which are not accepted for exchange are to be returned by credit to an account maintained at the Deliver: Book-Entry Transfer Facility other than the account indicated above. (check appropriate boxes) [ ] Original Notes not tendered Issue and deliver: [ ] Exchange Notes, to: (check appropriate boxes) Name [ ] Original Notes not tendered ----------------------------------------- [ ] Exchange Notes, to: (PLEASE PRINT) Address Name ------------------------------------- ----------------------------------------- (PLEASE PRINT) --------------------------------------------- Address ------------------------------------- Please complete the Substitute Form W-9 at Box 3 Tax I.D. or Social Security Number: __________ - ------------------------------------------------------ ------------------------------------------------------
-7- INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Original Notes or a Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed copy of this Letter and any other documents required by this Letter, must be received by the Exchange Agent at one of its addresses set forth herein on or before the expiration of the exchange offer on the Expiration Date. The method of delivery of this Letter, certificates for Original Notes or a Book-Entry Confirmation, as the case may be, and any other required documents is at the election and risk of the tendering holder, but except as otherwise provided below, the delivery will be deemed made when actually received by the Exchange Agent. If delivery is by mail, the use of registered mail with return receipt requested, properly insured, is suggested. Holders whose Original Notes are not immediately available or who cannot deliver their Original Notes or a Book-Entry Confirmation, as the case may be, and all other required documents to the Exchange Agent on or before the Expiration Date may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i) tender must be made by or through an Eligible Institution (as defined in the Prospectus under the caption "The Exchange Offer - How to Tender"); (ii) prior to the expiration of the exchange offer on the Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) (x) setting forth the name and address of the holder, the description of the Original Notes and the principal amount of Original Notes tendered, (y) stating that the tender is being made thereby and (z) guaranteeing that, within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, this Letter together with the certificates representing the Original Notes or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent; and (iii) the certificates for all tendered Original Notes or a Book-Entry Confirmation, as the case may be, as well as all other documents required by this Letter, must be received by the Exchange Agent within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in the Prospectus under the caption "The Exchange Offer - How to Tender." All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Original Notes will be determined by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which, in the opinion of the Company's counsel, would be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Original Notes. All tendering holders, by execution of this Letter, waive any right to receive notice of acceptance of their Original Notes. Neither the Company, the Exchange Agent nor any other person shall be obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount of any Original Note evidenced by a submitted certificate or by a Book-Entry Confirmation is tendered, the tendering holder must fill in the principal amount tendered in the fourth column of Box 1 above. All of the Original Notes represented by a certificate or by a Book-Entry Confirmation delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. A certificate for Original Notes not tendered will be sent to the holder, unless otherwise provided in Box 5, as soon as practicable after the Expiration Date, in the event that less than the entire principal amount of Original Notes represented by a submitted certificate is tendered (or, in the case of Original Notes tendered by book-entry transfer, such non-exchanged Original Notes will be credited to an account maintained by the holder with the Book-Entry Transfer Facility). If not yet accepted, a tender pursuant to the Exchange Offer may be withdrawn prior to the Expiration Date. To be effective with respect to the tender of Original Notes, a notice of withdrawal must: (i) be received by the Exchange Agent before the Company notifies the Exchange Agent that it has accepted the tender of Original Notes pursuant to the Exchange Offer; (ii) specify the name of the person who tendered the Original Notes; (iii) contain a description of the Original Notes to be withdrawn, the certificate numbers shown on the particular -8- certificates evidencing such Original Notes and the principal amount of Original Notes represented by such certificates; and (iv) be signed by the holder in the same manner as the original signature on this Letter (including any required signature guarantee). 3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the holder(s) of Original Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificate(s) for such Original Notes, without alteration, enlargement or any change whatsoever. If any of the Original Notes tendered hereby are owned by two or more joint owners, all owners must sign this Letter. If any tendered Original Notes are held in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are names in which certificates are held. If this Letter is signed by the holder of record and (i) the entire principal amount of the holder's Original Notes are tendered; and/or (ii) untendered Original Notes, if any, are to be issued to the holder of record, then the holder of record need not endorse any certificates for tendered Original Notes, nor provide a separate bond power. If any other case, the holder of record must transmit a separate bond power with this Letter. If this Letter or any certificate or assignment is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and proper evidence satisfactory to the Company of their authority to so act must be submitted, unless waived by the Company. Signatures on this Letter must be guaranteed by an Eligible Institution, unless Original Notes are tendered: (i) by a holder who has not completed the Box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter; or (ii) for the account of an Eligible Institution. In the event that the signatures in this Letter or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by an eligible guarantor institution which is a member of The Securities Transfer Agents Medallion Program (STAMP), The New York Stock Exchanges Medallion Signature Program (MSP) or The Stock Exchanges Medallion Program (SEMP) (collectively, "Eligible Institutions"). If Original Notes are registered in the name of a person other than the signer of this Letter, the Original Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company, in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in Box 4 or 5, as applicable, the name and address to which the Exchange Notes or certificates for Original Notes not exchanged are to be issued or sent, if different from the name and address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate. 5. TAX IDENTIFICATION NUMBER. U.S. federal income tax law requires that a holder (other than a person exempt from this requirement as discussed below) whose tendered Original Notes are accepted for exchange must provide the Exchange Agent (as payor) with his or her correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Exchange Agent is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to the holder of the Exchange Notes pursuant to the Exchange Offer may be subject to back-up withholding. (If withholding results in overpayment of taxes, a refund may be obtained.) Exempt holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. Under U.S. federal income tax laws, payments made by the Company on account of Exchange Notes issued pursuant to the Exchange Offer may be subject to back-up withholding. In order to prevent back-up withholding, each tendering holder must provide his or her correct TIN by completing the "Substitute Form W-9" in Box 3 certifying that the TIN provided is correct (or that the holder is awaiting a TIN) and that: (i) the holder has not been -9- notified by the Internal Revenue Service that he or she is subject to back-up withholding as a result of failure to report all interest or dividends; or (ii) the Internal Revenue Service has notified the holder that he or she is no longer subject to back-up withholding; or (iii) certify in accordance with the "Substitute Form W-9" that such holder is exempt from back-up withholding. Exempt Holders (including, among others, all corporations and certain foreign individuals) are not subject to these back-up withholding and reporting requirements. To prevent possible erroneous back-up withholding, an exempt Holder must check the appropriate box under "Payee Information," enter its correct TIN in Part I of the Substitute Form W-9, and sign and date the form. See the Substitute Form W-9 in Box 3 for additional instructions. In order for a nonresident alien or foreign entity to qualify as exempt, such person must submit a completed Form W-8BEN, "Certificate of Foreign Status," signed under penalties of perjury attesting to such exempt status. Such forms may be obtained from the Exchange Agent, as payor. If you do not have a TIN, check the box "Applied For" in Part I of the Substitute Form W-9, consult Part II of the Substitute Form W-9 for instructions on applying for a TIN, and sign and date the form. If you do not provide your TIN to the payor within 60 days, back-up withholding will begin and continue until you furnish your TIN to the payor. Note: Checking the "Applied For" box in Part I of the Substitute Form W-9 indicates that you have already applied for a TIN or that you intend to apply for one in the near future. If you have any questions concerning the Substitute Form W-9 or any information required therein, please contact the Exchange Agent, as payor. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, the Exchange Notes or certificates for Original Notes not exchanged are to be delivered to, or are to be issued in the name of, any person other than the record holder, or if tendered certificates are recorded in the name of any person other than the person signing this Letter, or if a transfer tax is imposed by any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, then the amount of such transfer taxes (whether imposed on the record holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of taxes or exemption from taxes is not submitted with this Letter, the amount of transfer taxes will be billed directly to the tendering holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Letter. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend or waive any of the specified conditions in the Exchange Offer in the case of any Original Notes tendered. 8. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose certificates for Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above, for further instructions. 9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus or this Letter, may be directed to the Exchange Agent. IMPORTANT: This Letter (together with certificates representing tendered Original Notes or a Book-Entry Confirmation and all other required documents) must be received by the Exchange Agent, or the guaranteed delivery procedures must be complied with, on or before the Expiration Date (as defined in the Prospectus). -10- EX-99.6 29 file028.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.6 MIDAMERICAN ENERGY HOLDINGS COMPANY EXCHANGE OFFER TO HOLDERS OF ITS 5.875% SENIOR NOTES DUE 2012 NOTICE OF GUARANTEED DELIVERY As set forth in the Prospectus dated , 200 (the "Prospectus") of MidAmerican Energy Holdings Company ("Company") under "The Exchange Offer - How to Tender" and in the Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by the Company to exchange up to $500,000,000 in principal amount of its 5.875% Senior Notes due 2012 (the "Exchange Notes") for all of its outstanding 5.875% Senior Notes due 2012, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"), this form or one substantially equivalent hereto must be used to accept the Exchange Offer of the Company if: (i) certificates for the Original Notes are not immediately available; or (ii) time will not permit all required documents to reach the Exchange Agent (as defined below) on or prior to the Expiration Date (as defined in the Prospectus) of the Exchange Offer. Such form may be delivered by hand or transmitted by telegram, telex, facsimile transmission, letter or courier to the Exchange Agent. TO: THE BANK OF NEW YORK, (the "Exchange Agent") By Facsimile: (212) 298-1915 Confirm by telephone: (212) 815-5920 By Mail, Hand or Courier: The Bank of New York Corporate Trust Department Reorganization Unit 101 Barclay Street Floor 7 East New York, New York 10286 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMITTAL OF THIS INSTRUMENT TO A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedure described in the Prospectus and the Letter of Transmittal.
Sign Here Principal Amount of Original Notes Signature(s) ___________________________ Tendered___________________________ ________________________________________ Please Print the Following Information Certificate Nos. (if available)_____________________ Name(s)_________________________________ Address ________________________________ Total Principal Amount ________________________________________ Represented by Original Notes Certificate(s) Area Code and Tel. No(s). ______________ ________________________________________ Account Number ____________________ Dated: __________________, 200
GUARANTEE The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees that delivery to the Exchange Agent of certificates tendered hereby, in proper form for transfer, or delivery of such certificates pursuant to the procedure for book-entry transfer, in either case with delivery of a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and any other required documents, is being made within three trading days after the date of execution of a Notice of Guaranteed Delivery of the above-named person. Name of Firm______________________________________________________________ Authorized Signature______________________________________________________ Number and Street or P.O. Box_____________________________________________ __________________________________________________________________________ City__________ State_____ Zip Code______________________________________ Area Code and Tel. No.____________________________________________________ Dated: , 200 EX-99.7 30 file029.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.7 MID AMERICAN ENERGY HOLDINGS COMPANY OFFER TO EXCHANGE UP TO $500,000,000 IN PRINCIPAL AMOUNT OF 5.875% SENIOR NOTES DUE 2012 FOR ALL OF ITS OUTSTANDING 5.875% SENIOR NOTES DUE 2012 AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED To Our Clients: Enclosed for your consideration is a Prospectus dated , 200 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by MidAmerican Energy Holdings Company (the "Company") to exchange up to $500,000,000 in principal amount of its 5.875% Senior Notes due 2012 (the "Exchange Notes") for all of its outstanding 5.875% Senior Notes due 2012, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). The material is being forwarded to you as the beneficial owner of Original Notes carried by us for your account or benefit but not registered in your name. A tender of any Original Notes may be made only by us as the registered holder and pursuant to your instructions. Therefore, the Company urges beneficial owners of Original Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such registered holder promptly if they wish to tender Original Notes in the Exchange Offer. Accordingly, we request instructions as to whether you wish us to tender any or all Original Notes, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to tender your Original Notes. YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER TO PERMIT US TO TENDER ORIGINAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE PROVISIONS OF THE EXCHANGE OFFER. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on , 200 , unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. If you wish to have us tender any or all of your Original Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to tender Original Notes held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of MidAmerican Energy Holdings Company. THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF ORIGINAL NOTES INDICATED BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED, PURSUANT TO THE TERMS OF AND CONDITIONS SET FORTH IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL.
- -------------------------------- ------------------------------------------------------------------------ Box 1 [] Please tender my Original Notes held by you for my account or benefit. I have identified on a signed schedule attached hereto the principal amount of Original Notes to be tendered if I wish to tender less than all of my Original Notes. - -------------------------------- ------------------------------------------------------------------------ Box 2 [] Please do not tender any Original Notes held by you for my account or benefit. - -------------------------------- ------------------------------------------------------------------------
Date: , 200 ------------------------------------ ------------------------------------ Signature(s) ------------------------------------ ------------------------------------ Please print name(s) here - ----------- Unless a specific contrary instruction is given in a signed Schedule attached hereto, your signature(s) hereon shall constitute an instruction to us to tender all of your Original Notes. EX-99.8 31 file030.txt FORM OF LETTER TO NOMINEES EXHIBIT 99.8 MIDAMERICAN ENERGY HOLDINGS COMPANY OFFER TO EXCHANGE UP TO $500,000,000 IN PRINCIPAL AMOUNT OF 5.875% SENIOR NOTES DUE 2012 FOR ALL OF ITS OUTSTANDING 5.875% SENIOR NOTES DUE 2012 ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED To Securities Dealers, Commercial Banks Trust Companies and Other Nominees: Enclosed for your consideration is a Prospectus dated _____, 200 (as the same may be amended or supplemented from time to time, the "Prospectus") and a form of Letter of Transmittal (the "Letter of Transmittal") relating to the offer (the "Exchange Offer") by MidAmerican Energy Holdings Company (the "Company") to exchange up to $500,000,000 in principal amount of its 5.875% Senior Notes due 2012 (the "Exchange Notes") for all of its outstanding 5.875% Senior Notes due 2012, issued and sold in a transaction exempt from registration under the Securities Act of 1933, as amended (the "Original Notes"). We are asking you to contact your clients for whom you hold Original Notes registered in your name or in the name of your nominee. In addition, we ask you to contact your clients who, to your knowledge, hold Original Notes registered in their own name. The Company will not pay any fees or commissions to any broker, dealer or other person in connection with the solicitation of tenders pursuant to the Exchange Offer. You will, however, be reimbursed by the Company for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay all transfer taxes, if any, applicable to the tender of Original Notes to it or its order, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed are copies of the following documents: 1. The Prospectus; 2. A Letter of Transmittal for your use in connection with the tender of Original Notes and for the information of your clients; 3. A form of letter that may be sent to your clients for whose accounts you hold Original Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer; and 4. A form of Notice of Guaranteed Delivery. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., Eastern Standard Time, on , 200 , unless extended (the "Expiration Date"). Original Notes tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. To tender Original Notes, certificates for Original Notes or a Book-Entry Confirmation, a duly executed and properly completed Letter of Transmittal or a facsimile thereof, and any other required documents, must be received by the Exchange Agent as provided in the Prospectus and the Letter of Transmittal. Additional copies of the enclosed material may be obtained from The Bank of New York, the Exchange Agent, by calling 212-815-5920. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND THE LETTER OF TRANSMITTAL. -----END PRIVACY-ENHANCED MESSAGE-----