Filed Pursuant to Rule 424(b)(4)
Registration File No.: 33-56624
Filed pursuant to Rule 424(b)(4) Registration File No.: 333-56624
$200,000,000
MIDAMERICAN FUNDING, LLC
6 3/4% Senior Secured Notes due March 1, 2011
------------
We are offering $200,000,000 of our 63/4% Senior Secured Notes due 2011. We
will pay interest on each March 1 and September 1 of each year. The first
interest payment will be made on September 1, 2001.
We may redeem all or a portion of the securities at our option at a
redemption price equal to 100% of the principal amount of the securities being
redeemed plus accrued interest plus a make-whole premium.
INVESTING IN THE SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND MIDAMERICAN
PUBLIC COMMISSIONS FUNDING
---------------- --------------- ----------------
Per security ......... 99.94% 0.65% 99.29%
Total ................ $199,880,000 $1,300,000 $198,580,000
Delivery of the securities in book-entry form only, will be made on or
about March 19, 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
The date of this prospectus is March 14, 2001.
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TABLE OF CONTENTS
PAGE PAGE
---- ----
PROSPECTUS SUMMARY ..................... 1 UNDERWRITING ........................... 38
RISK FACTORS ........................... 7 NOTICE TO CANADIAN RESIDENTS ........... 39
USE OF PROCEEDS ........................ 11 LEGAL MATTERS .......................... 41
CAPITALIZATION ......................... 11 EXPERTS ................................ 41
SELECTED CONSOLIDATED FINANCIAL INCORPORATION BY REFERENCE ............. 41
DATA ................................ 12 WHERE YOU CAN FIND MORE
DESCRIPTION OF THE SECURITIES .......... 14 INFORMATION ......................... 41
UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS ...................... 34
------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
i
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes specific terms of the securities, as well as information
regarding our business and detailed financial data. We encourage you to read the
prospectus in its entirety. You should pay special attention to the "Risk
Factors" section beginning on page 7 of this prospectus.
SUMMARY OF OUR BUSINESS
MIDAMERICAN FUNDING
We are an Iowa limited liability company that was formed in March 1999 to
facilitate the acquisition by MidAmerican Energy Holdings Company of MHC Inc.
MidAmerican Energy Holdings Company was formerly called CalEnergy Company, Inc.
and MHC Inc. was formerly called MidAmerican Energy Holdings Company. We are a
direct wholly-owned subsidiary of MidAmerican Energy Holdings Company, which is
referred to in this prospectus as MidAmerican Holdings. We own all of the
outstanding common stock of MHC, which owns all of the common stock of
MidAmerican Energy Company.
On March 11, 1999 we issued $200,000,000 of our 5.85% Senior Secured Notes
due 2001, $175,000,000 of our 6.339% Senior Secured Notes due 2009 and
$325,000,000 of our 6.927% Senior Secured Bonds due 2029. The proceeds of these
issuances were used to finance a portion of the acquisition described in the
previous paragraph. We initially issued the 2001, 2009 and 2029 securities in
reliance on exemptions from the registration requirements of the Securities Act
and, on March 6, 2000, we exchanged these securities for substantially identical
securities registered with the Securities and Exchange Commission under the
Securities Act. The 5.85% Senior Secured Notes due 2001 were scheduled to mature
on March 1, 2001 and were repaid in full on that date. Except as otherwise
described in this prospectus, the terms of the new 6.75% Senior Secured Notes
due 2011 will have the same terms as the existing 6.339% Senior Secured Notes
due 2009 and 6.927% Senior Secured Bonds due 2029.
We conduct no business other than activities related to the issuance of the
securities and the ownership of MHC.
Our principal executive offices are located at 666 Grand Avenue, Des
Moines, Iowa 50303, and our telephone number is (515) 242-4000.
MIDAMERICAN HOLDINGS
MidAmerican Holdings is a privately owned global energy company with
publicly traded fixed income securities. Through its subsidiaries, MidAmerican
Holdings owns interests in over 10,000 megawatts of diversified power generation
facilities in operation, construction and development. In addition, through its
subsidiaries, MidAmerican Energy in the United States and Northern Electric plc
in the United Kingdom, MidAmerican Holdings currently serves approximately 1.8
million electricity customers and 1.1 million natural gas customers worldwide.
MidAmerican Holdings' senior unsecured obligations are rated Baa3 by Moody's
Investors Service, Inc., BBB- by Standard & Poor's Rating Services and BBB by
Fitch, Inc.
On March 14, 2000, an investor group including Berkshire Hathaway Inc.,
Walter Scott, Jr., David L. Sokol and Gregory E. Abel completed its acquisition
of MidAmerican Holdings. The members of the investor group paid MidAmerican
Holdings' shareholders $35.05 in cash for each outstanding share of common stock
and became the sole shareholders of MidAmerican Holdings in a "going private"
transaction.
MIDAMERICAN ENERGY AND MHC
MidAmerican Energy is the largest combined electric and gas utility in Iowa
with approximately 669,000 electric and 646,500 gas customers. It has gas and
electric operations in Iowa, Illinois and
1
South Dakota and gas operations in Nebraska. MidAmerican Energy's regulated
service area is comprised of 10,600 square miles with a total population of
approximately 1.7 million. MidAmerican Energy owns accredited generation
capacity of approximately 4,086 megawatts, comprised of 70% coal, 21% natural
gas or fuel oil and 9% nuclear fuel sources. Due to its geographic location and
fuel sources, MidAmerican Energy is a low cost producer of electricity in the
Mid-Continent Area Power Pool (a voluntary association of electric utilities who
do business in the upper Midwest). From time to time, MidAmerican Energy
supplies electricity to other utilities in major energy markets in the
midwestern United States, including the Chicago, St. Louis, Kansas City,
Milwaukee and Minneapolis areas. MidAmerican Energy's gas operations are served
by at least four major gas pipelines on which MidAmerican Energy has rights to
firm and interruptible pipeline capacity.
MidAmerican Energy has assets with a book value of $3.8 billion and its
2000 revenues totaled $2.3 billion. Approximately 98% of the total revenues of
MHC in 2000 came from MidAmerican Energy. MidAmerican Energy's senior unsecured
obligations are rated A3 by Moody's, A- by Standard & Poor's and A+ by Fitch.
MidAmerican Energy is subject to regulation and oversight by one or more of
the Federal Energy Regulatory Commission, the Iowa Utilities Board, the Illinois
Commerce Commission and other regulatory bodies. These governmental agencies
regulate the following aspects of MidAmerican Energy's business, among other
things: the issuance of securities, accounting policies and practices, electric
interconnections and transmission services, retail rates and affiliate
transactions.
MidAmerican Energy is a wholly-owned subsidiary of MHC. In addition to its
regulated business conducted through MidAmerican Energy, MHC conducts
nonregulated businesses through its subsidiaries MidAmerican Capital Company,
Midwest Capital Group and MidAmerican Services Company, including real estate
development, financial and energy investments and energy services.
The following chart shows the ownership structure of MidAmerican Holdings,
us and our subsidiaries.
-------------------------
MidAmerican
Holdings
-------------------------
100%
-------------------------
MidAmerican
Funding
-------------------------
100%
-------------------------
MHC
-------------------------
100% 100%
------------------- --------------------
MidAmerican MidAmerican
Capital Services
------------------- --------------------
100% 100%
--------------------- ---------------------
MidAmerican Midwest
Energy Capital
--------------------- ---------------------
2
RECENT DEVELOPMENT
On March 14, 2001, the Office of the Consumer Advocate of the Iowa
Department of Justice filed a petition with the Iowa Utilities Board to reduce
MidAmerican Energy's Iowa retail electric rates by approximately $77,000,000
annually. This filing will be contested by MidAmerican Energy and, under Iowa
law, the Iowa Utilities Board must rule on the petition within ten months from
March 14, 2001. Iowa law provides that the rates collected after the filing of
the petition are subject to refund with interest if they exceed rates finally
approved by the Iowa Utilities Board.
A pricing plan settlement agreement entered into in 1997 among MidAmerican
Energy, the Office of the Consumer Advocate and other parties pursuant to a rate
proceeding before the Iowa Utilities Board establishing MidAmerican Energy's
Iowa retail electric rates, expired on December 31, 2000. With limited
exceptions, the pricing plan settlement agreement precluded MidAmerican Energy
from seeking an increase in these rates and the other parties, including the
Office of the Consumer Advocate, from seeking a decrease in rates prior to
January 1, 2001. The rates established by the pricing plan settlement agreement
will remain in effect until either the plan is renegotiated or a change in rates
is approved by the Iowa Utilities Board pursuant to the rate proceeding
initiated by the Office of the Consumer Advocate.
SUMMARY OF THE TERMS OF THE SECURITIES
Following is a summary of the terms of the new securities being offered by
us and the terms of our outstanding securities which we issued on March 11,
1999. Unless otherwise expressly stated, the terms summarized below apply to
both the new securities and the outstanding securities.
New Securities.............. The new securities are $200,000,000 of our
6.75% Senior Secured Notes due 2011.
Outstanding Securities...... The outstanding securities consist of the
following:
o $175,000,000 principal amount of 6.339%
Senior Secured Notes due 2009
o $325,000,000 principal amount of 6.927%
Senior Secured Bonds due 2029
Maturity................... o The entire principal amount of the 2011
securities will mature on March 1, 2011.
o The entire principal amount of the 2009
securities will mature on March 1, 2009.
o The entire principal amount of the 2029
securities will mature on March 1, 2029.
Interest.................... Annual rate:
o 6.75%, in the case of the 2011 securities;
o 6.339%, in the case of the 2009 securities;
and
o 6.927%, in the case of the 2029 securities.
Interest is paid every six months on March 1 and
September 1.
Collateral.................. All of the securities, including the
outstanding securities, are secured equally and
ratably by a pledge of all of the common stock of
MHC.
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Ranking..................... The securities:
o are our direct senior secured obligations;
o rank on an equal basis with all of our other
existing and future senior obligations;
o rank senior to any of our existing, and all
of our future, subordinated obligations; and
o effectively rank junior to all obligations,
including preferred stock, of our direct and
indirect subsidiaries, to the extent of the
assets of the subsidiaries.
The amount of additional indebtedness that we
can incur under the indenture is unlimited so
long as (1) the indebtedness is incurred as part
of our permitted businesses and activities as
described below in the first bullet point under
"Covenants Limiting Our Activities," or (2) the
rating agencies confirm that the incurrence of
the indebtedness will not result in a downgrade
of the ratings for the securities.
The indenture does not restrict the incurrence
of additional unsecured indebtedness by our
subsidiaries (other than MHC) and permits our
subsidiaries (other than MHC) to incur a
significant amount of secured indebtedness. At
December 31, 2000, MHC and its direct and
indirect subsidiaries had total indebtedness,
including preferred stock, of approximately
$1,232 million, all of which is effectively
senior to the securities.
Ratings..................... The securities have been assigned ratings of
BBB+ by Standard & Poor's Rating Services, BBB+
by Fitch, Inc. and Baa1 by Moody's Investors
Service, Inc.
Covenants Limiting
Our Activities.............. The indenture contains covenants which restrict
our ability to do the following things, among
others:
o enter into any business operations other
than:
(1) the transactions contemplated by the
indenture;
(2) activities related to the management and
ownership of MHC;
(3) entering into and performing any
agreements to accomplish the activities
described in clauses (1) and (2) above;
and
(4) exercising any powers that are incidental
to or necessary, suitable or convenient
for the accomplishment of the activities
described in clauses (1), (2) and (3)
above.
However, we may enter into additional business
operations from time to time in the future if,
prior to doing so, we obtain written
confirmation from the rating agencies that our
entering into the new business
4
operations will not result in a downgrade of
the ratings for the securities.
o merge or consolidate with or into any other
person or transfer or lease all or
substantially all of our assets to another
person.
o incur any indebtedness other than:
(1) as a part of our permitted businesses and
activities as described above; or
(2) other indebtedness so long as the rating
agencies confirm that the incurrence of
the indebtedness will not result in a
downgrade of the ratings for the
securities.
There are exceptions to the restrictions on our
activities described above. These exceptions are
described later in this prospectus in the
section entitled "Description of the
Securities."
In addition, we can make distributions only if
no event of default exists or would result from
the distribution and either: (1) our leverage
ratio is less than or equal to 0.67:1 and our
interest coverage ratio is equal to or greater
than 2.2:1; or
(2) our senior secured long-term debt is rated
at least BBB by Standard & Poor's and
Fitch and at least Baa2 by Moody's.
The covenant limiting our ability to make
distributions described above will cease to be
in effect if the rating agencies confirm in
writing that, if the covenant is eliminated, our
long-term senior secured debt would still be
rated at least BBB+ by each of Standard & Poor's
and Fitch and at least Baa1 by Moody's.
Covenants Limiting the Activities of
Our Significant
Subsidiaries................ We may not incur any indebtedness at the MHC
level other than indebtedness that was
outstanding on March 11, 1999 (the date of the
initial issuance of securities) under MHC's
existing agreements and extensions of that
indebtedness.
The indenture also restricts the ability of our
significant subsidiaries to do the following
things, among others:
o issue, assume or guarantee indebtedness
secured by a lien, other than liens permitted
under the indenture, which are described
later in this prospectus in the section
entitled "Description of the Securities."
o enter into new businesses and activities
other than those types of businesses and
activities in which we were or MidAmerican
Energy was engaged on March 11, 1999 and any
other business or activity which is deemed
necessary,
5
useful or desirable in connection with those
existing businesses and activities.
The indenture defines a significant subsidiary
as any subsidiary whose gross assets or gross
revenues represent at least 25% of our gross
assets or gross revenues on a consolidated
basis.
There are exceptions to the restrictions on our
significant subsidiaries' activities described
above. These exceptions are described later in
this prospectus in the section entitled
"Description of the Securities."
Optional Redemption......... We may redeem any series of securities in whole
or in part at any time at a redemption price
equal to the sum of (1) and (2) below:
(1) the greater of (x) and (y) below:
(x) 100% of the principal amount of the
series of securities being redeemed, and
(y) the sum of the present values of the
remaining scheduled payments of principal
of and interest on the series of
securities being redeemed, discounted to
the date of redemption on a semiannual
basis at the treasury yield plus (x) 20
basis points in the case of the 2011
securities, (y) 15 basis points in the
case of the 2009 securities, or (z) 25
basis points in the case of the 2029
securities;
(2) accrued and unpaid interest on the
securities being redeemed to the date of
redemption.
Sinking Fund................ There is no sinking fund for the securities.
Trustee..................... The Bank of New York is the trustee for the
holders of the securities.
Independent Manager......... Our articles of organization require us to have
an Independent Manager. Delbert D. Weber
currently serves as our Independent Manager. The
duties of the Independent Manager are described
later in this prospectus in the section entitled
"Description of the Securities".
6
RISK FACTORS
You should carefully consider the following factors in considering an
investment in the securities.
OUR ABILITY TO MAKE PAYMENTS ON THE SECURITIES IS DEPENDENT ON THE RECEIPT OF
DISTRIBUTIONS FROM OUR SUBSIDIARIES AND OUR SUBSIDIARIES CANNOT MAKE THESE
DISTRIBUTIONS UNTIL THEY MAKE PAYMENTS ON THEIR OWN INDEBTEDNESS.
We conduct our operations solely through MHC and all of our consolidated
assets related to operations are held by MHC and its subsidiaries. Our ability
to pay interest on the securities is entirely dependent upon our receipt of
dividends and other distributions from MHC and its subsidiaries. The
availability of distributions from our subsidiaries is subject to the
satisfaction of various covenants and conditions contained in the applicable
subsidiaries' existing and future financing documents. The distributions are
also subject to utility regulatory restrictions agreed to by MHC in connection
with the approval by the Iowa Utilities Board of the acquisition by MidAmerican
Holdings of MHC, whereby MHC committed to the Iowa Utilities Board to (1) use
commercially reasonable efforts to maintain an investment grade rating for
MidAmerican Energy's long-term debt and (2) maintain MidAmerican Energy's common
equity level as follows:
o MHC is required to maintain MidAmerican Energy's common equity level at
or above 42%;
o If MidAmerican Energy's common equity level falls below 42% due to
circumstances within the control of MHC, then MidAmerican Energy is
required to file an application with the Iowa Utilities Board seeking
approval of the new level of common equity;
o If MidAmerican Energy's common equity level falls below 42% but remains
at or above 39% due to circumstances beyond the control of MHC, then
MidAmerican Energy is required to notify the Iowa Utilities Board of
the decrease and the reasons for the decrease; and
o If MidAmerican Energy's common equity level falls below 39% due to
circumstances beyond the control of MHC, then MidAmerican Energy is
required to file an application with the Iowa Utilities Board seeking
approval of the new level of common equity.
Our subsidiaries, including MHC and MidAmerican Energy, will not have any
obligation to pay, or make funds available for, payments due on the securities,
and do not guarantee any payment on the securities. Any right we may have to
receive assets of any of our subsidiaries upon any liquidation or reorganization
of a subsidiary would be effectively subordinated to the claims of any of the
subsidiary's creditors and preferred stockholders.
The indenture contains limitations on our ability and the ability of MHC to
incur additional secured or unsecured indebtedness. However, the indenture
contains no restrictions on the amount of additional unsecured indebtedness
which may be incurred by our subsidiaries other than MHC. In addition, the
indenture permits our subsidiaries other than MHC to incur significant
additional amounts of secured indebtedness. At December 31, 2000, MHC and its
subsidiaries had total indebtedness, including preferred stock, of approximately
$1,232 million, all of which is effectively senior to the securities.
IF WE DEFAULT UNDER THE INDENTURE AND YOU FORECLOSE ON AND SELL THE STOCK
PLEDGED TO SECURE OUR OBLIGATIONS, THE PRICE YOU RECEIVE FOR THE STOCK MAY NOT
BE SUFFICIENT TO PAY ALL AMOUNTS DUE ON THE SECURITIES.
All of the securities, including the outstanding securities, are secured
equally and ratably by a pledge of all of the common stock of MHC. There is
currently no market for this stock. We cannot assure you that, if the securities
offered hereby were to become due and payable because of an event of default
under the indenture, the proceeds from the sale of the MHC stock would be
sufficient to pay all amounts due on the securities.
7
BECAUSE MIDAMERICAN ENERGY IS OUR WHOLLY-OWNED SUBSIDIARY, WE ARE AFFECTED BY
THE OPERATING UNCERTAINTIES ASSOCIATED WITH UTILITIES.
The operation of a utility involves many risks, including the breakdown or
failure of power generation equipment, pipelines, transmission lines,
distribution lines or other equipment, interruption of the fuel supply, and
performance below expected levels of output or efficiency. Sales and revenues of
a utility may also be adversely affected by general economic and business
conditions and weather conditions in its territory. Our subsidiary, MidAmerican
Energy, is subject to the specific risks described above, and its sales and
revenues could be affected by general economic and business conditions and
weather conditions in its service territory. If MidAmerican Energy's revenues
are adversely affected by any of these specific risks or general conditions, its
ability to make distributions to us will also be adversely affected. As a
result, the amount of funds available to us to make payments on the securities
would be decreased.
THE GENERATING FACILITIES OWNED BY OUR SUBSIDIARY, MIDAMERICAN ENERGY, ARE
DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS AND SERVICE PROVIDERS.
The electric generating facilities owned by MidAmerican Energy are often
dependent on a single or limited number of entities to supply or transport gas,
coal or other fuels, to dispose of wastes or to deliver electricity. The failure
of any of these third parties to fulfill its contractual obligations could
increase the costs incurred by MidAmerican Energy to provide electric service to
its customers. As a result, MidAmerican Energy's net revenues would decrease and
it would have less funds available to make distributions to us. We would then
have less funds available to make payments on the securities.
INCREASED COMPETITION RESULTING FROM RESTRUCTURING EFFORTS IN THE GEOGRAPHIC
MARKETS IN WHICH MIDAMERICAN ENERGY CONDUCTS ITS BUSINESS COULD PUT PRESSURE ON
MARGINS FOR TRADITIONAL ELECTRIC SERVICES PROVIDED BY MIDAMERICAN ENERGY AND
DECREASE THE REVENUES EARNED BY MIDAMERICAN ENERGY.
In the traditional regulated electric industry, the generation,
transmission, delivery and sales functions are integrated and electricity is
provided as a bundled service. Generally, in states that have enacted electric
restructuring legislation, the generation and sales functions have been
deregulated and are subject to competition while the transmission and delivery
functions remain regulated. For local gas distribution businesses, the supply
and transportation functions are similarly being separated, with the supply
function being opened to competition for all classes of customers.
MidAmerican Energy conducts its business primarily in Iowa and Illinois.
89.3% of MidAmerican Energy's regulated retail electric business is in Iowa and
10.0% of its electric business is in Illinois. 78.0% of MidAmerican Energy's
regulated retail gas business is in Iowa and 10.2% of its gas business is in
Illinois.
Legislation to initiate retail electric competition was introduced in
Iowa's legislature during the 1999 and 2000 sessions, but it did not pass in
either year. We cannot predict the timing or ultimate outcome of any potential
electric restructuring legislation in Iowa.
In Illinois, legislation to restructure Illinois' electric utility industry
was enacted in December 1997. Under this legislation, beginning on October 1,
1999 larger non-residential customers in Illinois and 33% of the remaining
non-residential Illinois customers are allowed to select their provider of
electric supply services. All other non-residential customers obtained the right
to choose starting on December 31, 2000. Residential customers all receive the
opportunity to select their electric supplier beginning on May 1, 2002.
In Iowa and Illinois, gas customers are permitted to transport gas
purchased from independent suppliers using MidAmerican Energy's distribution
facilities.
Although the anticipated changes in the electric utility industry may
create opportunities, the changes will also create additional challenges and
risks for utilities. Competition will put pressure on margins for traditional
electric services. Restructuring efforts in Iowa and Illinois could materially
impact the results of operations of MidAmerican Energy and, accordingly, our
results of operations, in a manner which is difficult to predict.
8
MIDAMERICAN ENERGY IS SUBJECT TO COMPREHENSIVE ENERGY REGULATION BY GOVERNMENTAL
AGENCIES AND THE RECOVERY OF ITS COSTS IS DEPENDENT ON REGULATORY ACTION.
MidAmerican Energy is subject to comprehensive regulation by several
utility regulatory agencies, which significantly influences its operating
environment and its ability to recover its costs from utility customers.
So far, the regulatory environment applicable to MidAmerican Energy has, in
general, given MidAmerican Energy an exclusive right to serve customers within
its regulated electric service territory and, in turn, the obligation to provide
electric service to those customers. Base electricity rates for Iowa customers
include a factor which provides for the recovery of a representative level of
fuel costs. However, to the extent actual fuel costs vary from that factor,
MidAmerican Energy's earnings are impacted.
A pricing plan settlement agreement entered into in 1997 among MidAmerican
Energy, the Office of the Consumer Advocate of the Iowa Department of Justice
and other parties pursuant to a rate proceeding before the Iowa Utilities Board
establishing MidAmerican Energy's Iowa retail electric rates, expired on
December 31, 2000. With limited exceptions, the pricing plan settlement
agreement precluded MidAmerican Energy from seeking an increase in these rates
and the other parties, including the Office of the Consumer Advocate, from
seeking a decrease in rates prior to January 1, 2001. The rates established by
the pricing plan settlement agreement will remain in effect until either the
plan is renegotiated or a change in rates is approved by the Iowa Utilities
Board pursuant to a rate proceeding.
On March 14, 2001, the Office of the Consumer Advocate filed a petition
with the Iowa Utilities Board to reduce MidAmerican Energy's Iowa retail
electric rates by approximately $77,000,000 annually. This filing will be
contested by MidAmerican Energy and, under Iowa law, the Iowa Utilities Board
must rule on the petition within ten months from March 14, 2001. Iowa law
provides that the rates collected after the filing of the petition are subject
to refund with interest if they exceed rates finally approved by the Iowa
Utilities Board.
We cannot assure you that the regulations described above will not change
or that additional regulations will not become applicable to MidAmerican
Energy's business in the future. Changes in regulations or the imposition of
additional regulations, or a rate determination that is unfavorable to
MidAmerican Energy (including in connection with the petition described above),
could have an adverse impact on MidAmerican Energy's results of operations and,
accordingly, on our results of operations.
WE AND OUR SUBSIDIARIES ARE SUBJECT TO ENVIRONMENTAL REGULATIONS WHICH COULD BE
DIFFICULT AND COSTLY TO COMPLY WITH.
We and our subsidiaries are subject to a number of environmental laws and
regulations affecting many aspects of our and our subsidiaries' present and
future operations, including the disposal of various forms of waste, the
construction or permitting of new facilities and air and water quality. These
laws and regulations generally require us and our subsidiaries to obtain and
comply with a wide variety of environmental licenses, permits and other
approvals. Both public officials and private individuals may seek to enforce the
applicable environmental laws and regulations against us and our subsidiaries.
We cannot assure you that existing environmental regulations will not be revised
or that new regulations seeking to protect the environment will not be adopted
or become applicable to us or our subsidiaries. Revised or additional
regulations which result in increased compliance costs or additional operating
restrictions could have a material adverse effect on our results of operations.
In particular, regulatory compliance associated with the construction of
new electric generating projects is a costly and time-consuming process.
Intricate and rapidly changing environmental regulations may require major
expenditures for permitting and 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 ARE SUBJECT TO THE UNIQUE RISKS ASSOCIATED WITH NUCLEAR GENERATION.
The risks of nuclear generation include the following:
9
(1) the potential harmful effects on the environment and human health
resulting from the operation of nuclear facilities and the storage,
handling and disposal of radioactive materials;
(2) limitations on the amounts and types of insurance commercially
available to cover losses that might arise in connection with nuclear
operations; and
(3) 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. In the event of non-compliance, the Nuclear Regulatory
Commission has the authority to impose fines or shut down a unit, or both,
depending upon its assessment of the severity of the situation, until compliance
is achieved. Revised safety requirements promulgated by the Nuclear Regulatory
Commission have, in the past, necessitated substantial capital expenditures at
nuclear plants, including those with which we have a long-term power purchase
contract or in which we have an ownership interest, like the Cooper Nuclear
Station and the Quad Cities Generating Station described in the documents
incorporated by reference in this prospectus, and additional expenditures could
be required in the future. In addition, although we have no reason to anticipate
a serious nuclear incident at the units in which we have an interest, if an
incident did occur, it could have a material but presently undeterminable
adverse effect on our financial condition.
THE LACK OF A MARKET FOR THE SECURITIES MAY MAKE IT DIFFICULT FOR YOU TO SELL
YOUR SECURITIES AT A DESIRABLE PRICE.
There is no existing market for the securities and we cannot assure you
that a market will develop. If a market for the securities were to develop,
future trading prices would depend on many factors, including prevailing
interest rates, our operating results and the market for similar securities. We
do not intend to apply for listing or quotation of the securities on any
securities exchange or stock market. As a result, it may be difficult for you to
find a buyer for your securities at the time you want to sell them, and even if
you found a buyer, you might not get the price you want.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE DEPENDENT ON
CIRCUMSTANCES AND EVENTS WHICH MAY BE OUTSIDE OF OUR CONTROL.
Some of the statements contained in this prospectus are forward-looking
statements that are dependent on circumstances and events that may be outside of
our control. We identify these statements by using words like "expect,"
"believe," "anticipate," "estimate" and "projected" and similar expressions. The
forward-looking statements in this prospectus involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements to differ materially from any future results,
performance or achievements expressed or implied by the forward-looking
statements.
These risks, uncertainties and other important factors include, among
other things:
o general economic and business conditions in the United States as a
whole and in the midwestern United States, and MidAmerican Energy's
service territory in particular;
o governmental, statutory, regulatory or administrative initiatives
affecting us, MidAmerican Energy or the United States electricity
industry;
o weather effects on sales and revenues;
o general industry trends;
o competition;
o fuel and power costs and availability;
o changes in business strategy, development plans or vendor
relationships;
o availability, term and deployment of capital;
o availability of qualified personnel; and
o risks relating to nuclear generation.
10
USE OF PROCEEDS
We will receive approximately $198,580,000 of net proceeds from the sale of
the new securities. We will use all of the net proceeds (less the payment of
approximately $550,000 of expenses incurred in connection with this offering) to
repay a portion of a loan made to us by MidAmerican Holdings, the proceeds of
which we used to repay the principal of the 2001 securities on March 1, 2001.
The interest rate applicable to this loan is the one-month LIBOR plus 25 basis
points and the loan is payable on demand. MidAmerican Holdings will in turn use
all of the proceeds received from us to repay loans under its revolving credit
facility. The weighted average interest rate applicable to this revolving credit
facility was 8.164% at December 31, 2000.
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth our capitalization as of December 31, 2000
and as adjusted to reflect the issuance of the new securities and the
application of the net proceeds. You should read this table in conjunction with
our consolidated financial statements and the notes to the financial statements
which are incorporated by reference in this prospectus.
DECEMBER 31, 2000
----------------------------
ACTUAL AS ADJUSTED
------------- ------------
Member's equity: ...................................... $1,874,787 $1,874,787
MidAmerican Energy preferred securities, not subject to
mandatory redemption ................................ 31,759 31,759
Preferred securities, subject to mandatory redemption:
MidAmerican Energy preferred securities ............. 50,000 50,000
MidAmerican Energy-obligated preferred securities of
subsidiary trust holding solely MidAmerican Energy
junior subordinated debentures ..................... 100,000 100,000
Long-term debt:
MidAmerican Funding ................................. 502,287 702,287
MidAmerican Energy .................................. 820,082 820,082
Nonregulated subsidiary notes ....................... 23,334 23,334
Notes payable ......................................... 81,600 81,600
Current portion of long-term debt ..................... 324,933 124,933
---------- ----------
Total capitalization ............................... $3,808,782 $3,808,782
========== ==========
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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS)
The selected consolidated financial data of MHC for the years ended
December 31, 1996, 1997 and 1998 set forth below have been derived from audited
financial statements of MHC. The selected consolidated financial data of MHC for
the period January 1, 1999 through March 11, 1999, and the selected consolidated
financial data of MidAmerican Funding for the period March 12, 1999 through
December 31, 1999 and for the year ended December 31, 2000, set forth below have
been derived from audited financial statements of MidAmerican Funding. You
should read the financial data set forth below in conjunction with the
historical consolidated financial statements of MHC and MidAmerican Funding and
related notes to the financial statements incorporated by reference in this
prospectus.
HISTORICAL DATA
MHC (THE PREDECESSOR)
-----------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
INCOME STATEMENT DATA:
Revenues ........................................ $1,911,204 $1,969,537 $1,775,924
Operating income ................................ 349,399 276,726 271,412
Income from continuing operations(1)(2) ......... 143,761 139,332 127,154
Net income ...................................... 131,046 135,104 131,318
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(3) ........... 2.8x 2.8x 2.8x
MHC (THE MIDAMERICAN
PREDECESSOR) FUNDING
------------- ------------------------------
JAN. 1- MARCH 12- YEAR ENDED
MARCH 11, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- -------------- ---------------
INCOME STATEMENT DATA:
Revenues ........................................ $383,066 $1,433,046 $2,330,666
Operating income ................................ 58,898 227,133 327,560
Income from continuing operations(1)(2) ......... 16,789 124,077 126,784
Net income ...................................... 17,210 135,335 126,784
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges(3) ........... 2.7x 2.9x 2.7x
AS OF DECEMBER 31,
-------------------------------------------------------------------------
MIDAMERICAN
MHC (THE PREDECESSOR) FUNDING
------------------------------------------- ----------------------------
1996 1997 1998 1999 2000
------------- ------------- ------------- ------------- -------------
BALANCE SHEET DATA:
Total assets ............................. $4,521,848 $4,278,091 $4,244,336 $5,212,387 $5,492,721
Long-term debt(4) ........................ 1,474,701 1,178,769 1,045,548 1,642,476 1,670,636
Power purchase contract(4) ............... 111,222 97,504 83,127 68,049 52,282
Short-term borrowings .................... 161,990 138,054 339,826 204,000 81,600
Preferred stock:
Not subject to mandatory redemption ..... 31,769 31,763 31,759 31,759 31,759
Subject to mandatory redemption(5) ...... 150,000 150,000 150,000 151,598 150,000
Member's/shareholders' equity ............ 1,239,946 1,301,286 1,200,950 1,800,416 1,874,787
- ----------------------------------------------------
(1) In 1998, MHC recorded after-tax gains totaling $15,700 for sales of several
properties and investments, including a portion of its investment in the
common stock of McLeodUSA, Inc. Also, in 1998, MHC expensed $4,200 for
transaction costs related to the acquisition by MidAmerican Holdings of
MHC. In 1997, MHC recorded after-tax gains totaling $11,200 for sales of
assets of railcar businesses and a portion of its investment in McLeodUSA
common stock. MHC recorded after-tax losses of approximately $9,400 for the
write-down of nonregulated assets during 1996. In 1996, MHC incurred $8,700
of costs in connection with its merger proposal to IES Industries, Inc.
(2) In May 1999, MidAmerican Funding sold most of its remaining investment in
the common stock of McLeodUSA and recorded an after-tax gain of $47,114.
(3) For purposes of computing historical ratios of earnings to fixed charges,
earnings are divided by fixed charges. "Earnings" represent the aggregate
of (a) the pre-tax income of MidAmerican Funding, and (b) fixed charges.
"Fixed charges" represent interest, whether expensed or capitalized,
amortization of deferred financing and bank fees, and the portion of
rentals
12
considered to be representative of the interest factor, which is one-third
of lease payments, and preferred stock dividend requirements of
majority-owned subsidiaries.
(4) Includes amounts due within one year.
(5) Includes MHC-obligated mandatorily redeemable preferred securities of a
subsidiary trust holding solely MidAmerican Energy junior subordinated
debentures.
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DESCRIPTION OF THE SECURITIES
The outstanding securities have been and the new securities will be issued
under and governed by an indenture, dated as of March 11, 1999, between us and
The Bank of New York, as trustee. The following summary of the material terms
contained in the indenture and the securities is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, and all the
provisions of the indenture and the securities, including the definitions of
terms not defined in this prospectus. This summary does not restate the
indenture in its entirety. We urge you to read the indenture because it, and not
this description, defines your rights as holders of the securities. We have
filed a copy of the indenture as an exhibit to the registration statement that
includes this prospectus.
GENERAL
The indenture does not limit the aggregate principal amount of the debt
securities that we can issue under the indenture and provides that debt
securities may be issued from time to time in one or more series.
We initially issued $200 million of the 5.85% Senior Secured Notes due
2001, $175 million of the 6.339% Senior Secured Notes due 2009 and $325 million
of the 6.927% Senior Secured Bonds due 2029 on March 11, 1999. We exchanged
these securities for substantially similar securities registered with the
Securities and Exchange Commission under the Securities Act on March 6, 2000.
The 2001 securities were scheduled to mature on March 1, 2001 and were repaid in
full on that date. The 2009 securities will mature on March 1, 2009 and the 2029
securities will mature on March 1, 2029.
The new 6.75% Senior Secured Notes due 2011 will be issued in an aggregate
principal amount of $200 million. The 2011 securities will mature on March 1,
2011.
Each outstanding security will bear interest at the relevant rate per annum
stated above from the most recent interest payment date to which interest has
been paid or provided for. Each new security will bear interest at 6.75% from
March 19, 2001 or from the most recent interest payment date to which interest
has been paid or provided for. Interest on the securities will be payable
semiannually on March 1 and September 1 of each year, to the holders of record
at the close of business on the preceding February 15 and August 15,
respectively, until the relevant principal amount has been paid or made
available for payment. The first interest payment date for the new securities
will be September 1, 2001. Interest on the securities will be computed on the
basis of a 360-day year of twelve 30-day months.
RANKING
The securities will be our senior secured obligations ranking on an equal
basis with all our other existing and future senior obligations. The securities
will rank senior to any of our existing, and all of our future, subordinated
indebtedness. The securities will effectively rank junior to all indebtedness
and other liabilities, including preferred stock, of our Subsidiaries, to the
extent of the assets of the Subsidiaries. The indenture contains restrictions on
our ability and the ability of MHC to incur additional indebtedness. The
indenture contains no restrictions on the amount of additional unsecured
indebtedness which our Subsidiaries, other than MHC, may incur. In addition, the
indenture permits each of our Subsidiaries, other than MHC, to incur significant
additional amounts of secured indebtedness.
Prior to the initial offering of the securities in March 1999, we did not
have any debt obligations. We conduct our operations predominantly through MHC,
our wholly-owned subsidiary, and substantially all of our consolidated assets
relating to operations are held by MHC and its Subsidiaries, including
MidAmerican Energy. Because we are a holding company, our rights and the rights
of our creditors, including holders of the securities, in respect of claims on
the assets of each of our Subsidiaries upon any liquidation or administration
are structurally subordinated to, and therefore will be subject to the prior
claims of, each Subsidiary's preferred stockholders and creditors, except to the
extent that we may be a creditor with recognized claims against the Subsidiary.
At December 31,
14
2000, MHC and its direct and indirect Subsidiaries had total indebtedness,
including preferred stock, of approximately $1,232 million, all of which would
be effectively senior to the securities.
Our ability to pay interest on the securities is entirely dependent upon
our receipt of dividends and other distributions from our direct and indirect
Subsidiaries, and from MidAmerican Energy in particular. We believe that these
payments, which will be funded by cash flows generated through MidAmerican
Energy's operations, will be sufficient to enable us to meet all of our
obligations as they become due, including our obligations under the securities.
The availability of distributions from our Subsidiaries is subject to the
satisfaction of various covenants and conditions contained in the applicable
Subsidiaries' existing and future financing documents and utility regulatory
restrictions.
COLLATERAL
All of the securities, including the outstanding securities, will be
secured equally and ratably by a pledge of all of the capital stock of MHC.
Unless there is an Event of Default, we will be able to vote, as we see fit
in our sole discretion, the pledged shares of capital stock.
If we meet the conditions to our defeasance option or our covenant
defeasance option as described below under the caption "--Defeasance and
Covenant Defeasance," or the indenture is otherwise discharged, the lien of the
indenture on the pledged shares will terminate and the pledged shares will be
released to us without any further action by the trustee or any other person.
The proceeds of any sale of the collateral securing the securities
following an Event of Default might not be sufficient to satisfy the payments
due on the securities. If an Event of Default occurs under the indenture, the
trustee, on behalf of the holders of the securities, in addition to any rights
or remedies available to it under the indenture, may take the actions it deems
advisable to protect and enforce its rights in the collateral for the
securities, including the institution of foreclosure proceedings. The proceeds
received by the trustee from any foreclosure will be applied by the trustee,
first, to pay the expenses of foreclosure and the fees and other amounts then
payable to the trustee under the indenture and, second, to pay amounts due on
the securities.
COVENANTS
Except as otherwise described under the caption "--Defeasance and Covenant
Defeasance" below, for so long as any securities remain outstanding or any
amount remains unpaid on any of the securities, we will comply with the terms of
the covenants described below.
PAYMENT OF PRINCIPAL AND INTEREST
We will duly and punctually pay the principal of and interest on the
securities in accordance with the terms of the securities and the indenture.
MAINTENANCE OF OFFICE OR AGENCY
We will maintain in the Borough of Manhattan, The City of New York, (1) an
office or agency of a paying agent where the securities may be paid and notices
and demands to or upon us in respect of the securities and the indenture may be
served and (2) an office or agency of a registrar where securities may be
surrendered for registration of transfer or exchange. We will give prompt
written notice to the trustee of the location, and any change in the location,
of any office or agency. If at any time we fail to maintain any required office
or agency or fail to furnish the trustee with the address of any required office
or agency, all presentations, surrenders, notices and demands may be served at
the office of the trustee.
AVAILABLE INFORMATION
Notwithstanding that we may not in the future be required to comply with
the reporting requirements of Section 13 or 15(d) of the Exchange Act, we will
continue to file or cause to be filed with the Securities and Exchange
Commission, and provide the trustee with, the information,
15
documents and other reports, or copies of the portions of any of the foregoing
as the Securities and Exchange Commission may by rules and regulations
prescribe, as specified in Sections 13 and 15(d) of the Exchange Act. If we are
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, we will also provide the information, documents and reports described
above to the holders of the securities. We also will comply with the other
provisions of Section 314(a) of the Trust Indenture Act.
CONSOLIDATION, MERGER, CONVEYANCE, SALE OR LEASE
We may not consolidate with or merge with or into any other person, or
convey, transfer or lease our consolidated properties and assets substantially
as an entirety, in one transaction or in a series of related transactions, to
any person, or permit any person to merge into or consolidate with us, unless:
(1) (x) we will be the surviving or continuing person or (y) if other
than us, the surviving or continuing person or purchaser or lessee will be
a corporation incorporated under the laws of the United States of America,
one of the States or the District of Columbia or Canada and expressly
assumes by supplemental indenture our obligations under the securities and
the indenture;
(2) immediately before and after giving effect to the subject
transaction, no Event of Default will have occurred and be continuing; and
(3) the trustee will continue to have a valid, perfected, first
priority security interest in the collateral for the securities.
LIMITATION ON DISTRIBUTIONS
The indenture provides that we will only declare, recommend, make or pay
any Distribution to any of our equity holders if there exists no Event of
Default and no Event of Default will result from making the Distribution, and
either:
(1) at the time and as a result of the Distribution, our Leverage Ratio
does not exceed 0.67:1 and our Interest Coverage Ratio is not less than
2.2:1; or
(2) if we are not in compliance with the ratios described in clause
(1), at the time our senior secured long-term debt is rated at least BBB,
or its then equivalent, by Standard & Poor's and Fitch and Baa2, or its
then equivalent, by Moody's.
This "Limitation on Distributions" covenant will cease to be in effect if
the Rating Agencies confirm in writing that, without this covenant, our senior
secured long-term debt would still be rated at least BBB+, or its then
equivalent, by each of Standard & Poor's and Fitch and Baa1, or its then
equivalent, by Moody's. If the restriction on Distributions ceases to be in
effect, we will be under no obligation to reinstate the restriction or otherwise
observe its terms if our ratings are thereafter lowered or withdrawn.
In order to obtain the release of the restriction on Distributions, we will
deliver to the trustee written confirmation from each Rating Agency of the
ratings conditions described in the preceding paragraph.
LIMITATION ON INDEBTEDNESS OF MIDAMERICAN FUNDING AND OF MHC
The indenture provides that we will not incur any Indebtedness other than
(1) as part of our permitted businesses and activities described under the
caption "--Limitation on Business Activities" below or (2) other Indebtedness
incurred subsequent to receipt of written confirmation from the Rating Agencies
that the incurrence of the Indebtedness would not result in a downgrade of the
existing ratings for the securities.
The indenture further provides that we will not permit MHC to incur any
Indebtedness other than Indebtedness outstanding on March 11, 1999 (the date of
the initial issuance of securities) under MHC's agreements then in existence and
extensions of this Indebtedness.
16
LIMITATION ON LIENS
The indenture permits us to incur unsecured indebtedness as described above
and does not in any way restrict or prevent any Subsidiary other than MHC from
incurring unsecured indebtedness. With respect to secured indebtedness, however,
the indenture provides that neither we nor any Significant Subsidiary will
issue, assume or guarantee any Indebtedness secured by a Lien upon any of our
property or assets, other than cash or cash equivalents, or any property or
assets of any Significant Subsidiary, as applicable, without effectively
providing that the outstanding securities (together with, if we so determine,
any other indebtedness or obligation then existing or thereafter created ranking
equally with the securities) will be secured equally and ratably with (or prior
to) the new Indebtedness for so long as the new Indebtedness is so secured. The
foregoing restriction on Liens will not, however, apply to the following
"Permitted Liens":
(1) Liens in existence on March 11, 1999 (the date of the initial
issuance of securities);
(2) any Lien created or arising over any property which is acquired,
constructed or created by us or any of our Significant Subsidiaries, but
only if (A) the Lien secures only principal amounts (not exceeding the cost
of the acquisition, construction or creation) raised for the purposes of
the acquisition, construction or creation, together with any costs,
expenses, interest and fees incurred in relation to, or a guarantee given
in respect of, the acquisition, construction or creation, (B) the Lien is
created or arises on or before 180 days after the completion of the
acquisition, construction or creation and (C) the Lien is confined solely
to the property so acquired, constructed or created;
(3) any Lien securing amounts not more than 180 days overdue or
otherwise being contested in good faith;
(4) (a) rights of financial institutions to offset credit balances in
connection with the operation of cash management programs established for
our benefit and/or the benefit of a Significant Subsidiary or in connection
with the issuance of letters of credit for our benefit and/or the benefit
of a Significant Subsidiary;
(b) any Lien securing Indebtedness of us and/or a Significant
Subsidiary incurred in connection with the financing of accounts
receivable;
(c) any Lien incurred or deposits made in the ordinary course of
business, including, but not limited to, (A) any mechanics', materialmen's,
carriers', workmen's, vendors' and other like Liens and (B) any Liens
created in connection with workers' compensation, unemployment insurance
and other types of social security;
(d) any Lien upon specific items of inventory or other goods and
proceeds owned by us and/or a Significant Subsidiary securing our
obligations and/or the obligations of a Significant Subsidiary in respect
of bankers' acceptances issued or created to facilitate the purchase,
shipment or storage of the inventory or other goods;
(e) any Lien incurred or deposits made securing the performance of
tenders, bids, leases, trade contracts (other than for borrowed money),
statutory obligations, surety bonds, appeal bonds, government contracts,
performance bonds, return-of-money bonds, letters of credit not securing
borrowings and other obligations of like nature incurred in the ordinary
course of business;
(f) any Lien created by us or a Significant Subsidiary under or in
connection with or arising out of any transactions or arrangements entered
into in connection with the hedging or management of risks relating to the
electricity or natural gas distribution industry;
(g) any Lien constituted by a right of set off or right over a
margin call account or any form of cash or cash collateral or any similar
arrangement for obligations incurred in respect of Currency, Interest Rate
or Commodity Agreements;
17
(h) any Lien arising out of title retention or like provisions in
connection with the purchase of goods and equipment in the ordinary course
of business;
(i) any Lien securing reimbursement obligations under letters of
credit, guaranties and other forms of credit enhancement given in
connection with the purchase of goods and equipment in the ordinary course
of business; and
(j) any Lien securing obligations under Currency, Interest Rate or
Commodity Agreements;
(5) Liens in favor of us or a Subsidiary;
(6) (a) any Liens on any property or assets acquired from an entity
which is merged with or into us or a Significant Subsidiary, or any Liens
on the property or assets of any corporation or other entity existing at
the time the corporation or other entity becomes a subsidiary of us, which,
in either case, are not created in anticipation of the transaction, unless
the Liens were created to secure or provide for the payment of any part of
the purchase price of the corporation or other entity;
(b) any Lien on any property or assets existing at the time of
acquisition of the property or assets and which is not created in
anticipation of the acquisition, unless the Lien was created to secure or
provide for the payment of any part of the purchase price of the property
or assets; and
(c) any Lien created or outstanding on or over any asset of any
company which becomes a Significant Subsidiary on or after the date of the
initial issuance of securities where the Lien is created before the date on
which the company becomes a Significant Subsidiary;
(7) (a) Liens required by any contract, statute or regulation in order
to permit us or a Significant Subsidiary to perform any contract or
subcontract made by us or it with or at the request of a governmental
entity or any department, agency or instrumentality of a governmental
entity, or to secure partial, progress, advance or any other payments by us
or a Significant Subsidiary to a governmental unit under the provisions of
any contract, statute or regulation;
(b) any Lien securing industrial revenue, development, pollution
control or similar bonds issued by or for the benefit of us or a
Significant Subsidiary, so long as the industrial revenue, development,
pollution control or similar bonds do not provide recourse generally to us
and/or the Significant Subsidiary; and
(c) any Lien securing taxes or assessments or other applicable
governmental charges or levies;
(8) (a) any Lien which arises under any order of attachment, distraint
or similar legal process arising in connection with court proceedings and
any Lien which secures the reimbursement obligation for any bond obtained
in connection with an appeal taken in any court proceeding, so long as the
execution or other enforcement of the Lien arising because of the legal
process is effectively stayed and the claims secured by the Lien are being
contested in good faith and, if appropriate, by appropriate legal
proceedings, and any Lien in favor of a plaintiff or defendant in any
action before a court or tribunal as security for costs and/or expenses;
and
(b) any Lien arising by operation of law or by order of a court or
tribunal or any Lien arising by an agreement of similar effect, including,
without limitation, judgment Liens;
(9) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Liens referred to
in the foregoing clauses, for amounts not exceeding the principal amount of
the Indebtedness secured by the Lien so extended, renewed or replaced, so
long as the extension, renewal or replacement Lien is limited to all or a
part of the same property or assets that were covered by the Lien extended,
renewed or replaced, plus improvements on the property or assets;
18
(10) any Lien created in connection with Project Finance Debt;
(11) any Lien created by MidAmerican Energy that is then permitted to
be created under the terms of its then existing mortgages and indentures on
the terms in effect at the time of creation of the Lien;
(12) any Lien created in connection with the securitization of some or
all of the assets of MidAmerican Energy and the associated issuance of
Indebtedness as authorized by applicable state or federal law in connection
with the restructuring of jurisdictional electric or gas businesses; and
(13) any Lien on stock created in connection with a mandatorily
convertible or exchangeable stock or debt financing, but the financing may
not be secured by or otherwise involve the creation of a Lien on any
capital stock of MHC or MidAmerican Energy or any successor to MHC or
MidAmerican Energy.
Notwithstanding the foregoing, we and/or a Significant Subsidiary may
create Liens over any of our or its respective properties or assets so long as
the aggregate amount of Indebtedness secured by all Liens, excluding the amount
of Indebtedness secured by Liens described in clauses (1) through (13) above,
does not exceed 10% of Consolidated Net Tangible Assets in the aggregate
calculated as of the date of creation of the Liens, based upon the Consolidated
Net Tangible Assets appearing on the most recently available balance sheet for
the most recently concluded calendar quarter.
LIMITATION ON BUSINESS ACTIVITIES
The indenture provides that we will not enter into any business operations
other than:
(1) the transactions contemplated by the indenture;
(2) activities related to the acquisition, management and ownership of
MHC;
(3) entering into and performing any agreements to accomplish the
foregoing, and
(4) exercising any corporate or other powers that are incidental to or
necessary, suitable or convenient for the accomplishment of the foregoing.
However, we may enter into additional business operations from time to time in
the future if, prior to doing so, we obtain written confirmation from the
Rating Agencies that the entering into of the new businesses will not result in
a downgrade of the existing ratings for the securities.
The indenture further provides that we will cause our Significant
Subsidiaries to engage only in:
(1) those types of businesses and other activities in which we or MHC
or any of its direct or indirect subsidiaries or controlled partnerships or
joint ventures were engaged in on March 11, 1999 (the date of the initial
issuance of securities), including, without limitation, any geographic or
other expansion of these businesses and other activities; and
(2) any other business or activity which is deemed necessary, useful or
desirable in connection with the activities described in clause (1) above.
MODIFICATION OF THE INDENTURE
The indenture contains provisions permitting us and the trustee to modify
the indenture or any supplemental indenture, or the rights of the holders of
securities, with the consent of the holders of a majority in aggregate
principal amount of the then outstanding securities of each series that will be
affected by the modification, subject to the same conditions described below
under the caption "--Modification or Waiver of Certain Covenants."
The indenture also contains provisions permitting us and the trustee to
amend the indenture by entering into one or more supplemental indentures
without the consent of the holders of any securities for any of the following
purposes:
(1) to cure any ambiguity;
19
(2) to correct or supplement any provision in the indenture which may
be defective or inconsistent with any other provision in the indenture;
(3) to evidence the merger of us or the replacement of the trustee; and
(4) to make any other changes that do not materially adversely affect
the rights of the holders of securities.
EVENTS OF DEFAULT
An Event of Default with respect to the securities is defined in the
indenture as:
(1) default for 30 days in the payment of any interest on the
securities;
(2) default for three days in the payment of principal of or any
premium on the securities at maturity, upon redemption, upon required
purchase, upon acceleration or otherwise;
(3) material default in the performance, or breach, of any of our
material covenants or obligations in the indenture and continuance of the
material default or breach for a period of 90 days after written notice
specifying the default is given to us by the trustee or to us and the
trustee by the holders of at least a majority in aggregate principal amount
of the securities;
(4) the trustee fails to have a perfected security interest in the
pledged capital stock of MHC and the failure continues for a period of 10
days;
(5) default in the payment of:
o the principal of any bond, debenture, note or other evidence of
indebtedness for money borrowed by us or a Significant
Subsidiary; or
o principal under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for Borrowed Money incurred by us or
any Significant Subsidiary that is not Project Finance Debt and
which provides for recourse generally to us or any Significant
Subsidiary;
if:
o the unpaid principal exceeds $75,000,000 when it becomes due and
payable, whether at maturity, upon redemption or acceleration or
otherwise; and
o the default continues unremedied and unwaived for more than 30
business days and the time for payment has not been expressly
extended; and
(6) any of the following occurs:
o we or any of our Significant Subsidiaries fail generally to pay
our or its debts as they become due, or admit in writing our or
its inability to pay our or its debts generally;
o the making of a general assignment for the benefit of our or any
of our Significant Subsidiaries' creditors;
o the institution of any proceeding by or against us or a
Significant Subsidiary which does either of the following and
which is not dismissed within 180 days:
o seeks to adjudicate us or the Significant Subsidiary bankrupt
or insolvent, or
o seeks a liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition (in each case,
other than a solvent liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition)
of us or the Significant Subsidiary or our or its debts under
any law relating to bankruptcy, insolvency, reorganization,
moratorium or relief of debtors;
o the entry of an order for relief or appointment of an
administrator, receiver, trustee, intervenor or other similar
official for us or a Significant Subsidiary or for any
substantial part of our or its property; or
20
o the taking of any action by us or a Significant Subsidiary to
authorize or consent to any of the actions described in this
subparagraph (6).
We will give the trustee notice by facsimile or other written communication
satisfactory to the trustee of any Event of Default within five days after we
know of the occurrence of that Event of Default, and of the measures we are
taking to remedy the Event of Default.
If an Event of Default with respect to the securities occurs and continues,
either the trustee or the relevant percentage of holders described in (x) or (y)
below may declare the principal amount of the securities, and any interest
accrued thereon, to be due and payable immediately:
(x) holders of at least 33% in aggregate principal amount of the securities
in the case of an Event of Default described in clause (1) or (2) under
"Events of Default" above; or
(y) the holders of a majority in aggregate principal amount of the
securities in the case of any other Event of Default.
At any time after a declaration of acceleration has been made, but before
a judgment or decree for payment of money has been obtained, if all Events of
Default have been cured or waived (other than the non-payment of principal of
the securities which has become due solely by reason of the declaration of
acceleration), then the holders of a majority in aggregate principal amount of
the outstanding securities may, by written notice to us and the trustee,
rescind and annul the declaration and its consequences on behalf of all of the
holders. However, no rescission or annulment will extend to or affect any
subsequent default or impair any right consequent on any subsequent default.
No holder of the securities will have any 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 under the
indenture, unless:
(a) the holder has previously given written notice to the trustee 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 has made written request to the trustee
to institute proceedings in respect of the Event of Default in its own name
as trustee;
(c) the holder or holders have offered the trustee indemnity
satisfactory to the trustee against the costs, expenses and liabilities to
be incurred in compliance with the request;
(d) the trustee, for 90 days after its receipt of the notice, request
and offer of indemnity, has failed to institute any proceeding; and
(e) no direction inconsistent with the written request has been given
to the trustee during that 90-day period by the holders of a majority in
principal amount of the outstanding securities.
As noted above, actions to be taken by the holders of the securities with
respect to an Event of Default, including giving notice to us and the trustee
of an Event of Default, declaring an acceleration of the securities, rescinding
a declaration of acceleration, exercising remedies with respect to the
collateral for the securities and instituting and controlling proceedings
following an Event of Default, may be taken by the holders of the specified
percentages of the aggregate principal amount of securities outstanding. For
purposes of voting on modifications to the indenture or supplemental indentures
or the rights of holders of the securities, the consent of a majority in
aggregate principal amount of the outstanding securities of each series to be
affected is required. For these purposes, each of the 2011 securities, the 2009
securities and the 2029 securities will be treated as a separate series of
securities under the indenture. However, as a result of voting together as one
class with respect to matters involving an Event of Default, holders of one or
two series of the securities will likely be able to control the actions taken
with respect to an Event of Default without obtaining the consent of holders of
the other series of securities.
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OPTIONAL REDEMPTION
GENERAL
The securities of each series will be redeemable in whole or in part, at
our option at any time, at a redemption price equal to the greater of:
(1) 100% of the principal amount of the series of securities being
redeemed; or
(2) the sum of the present values of the remaining scheduled payments
of principal of and interest on the series of securities 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 (x) the Treasury Yield plus 20 basis points, in the case of the 2011
securities, (y) the Treasury Yield plus 15 basis points, in the case of the
2009 securities, and (z) the Treasury Yield plus 25 basis points, in the
case of the 2029 securities,
plus, for (1) or (2) above, whichever is applicable, accrued interest on the
securities to be redeemed to the date of redemption.
Notice of redemption will be given not less than 30 days nor more than 60
days prior to the date of redemption. If fewer than all the securities are to be
redeemed, selection of securities of a series for redemption will be made by the
trustee in any manner the trustee deems fair and appropriate.
Unless we default in payment of the Redemption Price (as defined below),
from and after the redemption date, the securities or portions of securities
called for redemption will cease to bear interest, and the holders of those
securities will have no right in respect of those securities except the right to
receive the applicable Redemption Price.
OPTIONAL REDEMPTION PROVISIONS
Under the procedures described above, the price payable upon the optional
redemption of a security (the "Redemption Price") is determined by calculating
the present value (the "Present Value") at the time of redemption of each
remaining payment of principal of or interest on the security to be redeemed 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 the security to be redeemed, the
Redemption Price of the security 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 the security, the Redemption Price of the security will
be the greater amount (redemption at a premium). In no event may a security 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
security is calculated by applying the applicable discount rate (the "Discount
Rate") to the payment. The Discount Rate applicable at any time to a payment of
principal of or interest on a security equals the equivalent yield to maturity
at that time of a fixed rate United States treasury security having a maturity
comparable to the maturity of the subject payment plus 20 basis points (in the
case of the 2011 securities), 15 basis points (in the case of the 2009
securities) and 25 basis points (in the case of the 2029 securities), with the
yield being calculated on the basis of the interest rate borne by the applicable
United States treasury security and the price at that time of the treasury
security. The United States treasury security employed in the calculation of a
Discount Rate as well as the price and equivalent yield to maturity of the
relevant treasury security will be selected or determined by an independent
investment banking institution of international standing appointed by us.
Whether the sum of the Present Values of the remaining payments of
principal of and interest on a security to be redeemed will or will not exceed
100% of its principal amount and, accordingly, whether the security will be
redeemed at par or at a premium will depend on the Discount Rate used to
calculate the Present Values. The Discount Rate, in turn, will depend upon the
equivalent yield to maturity of the treasury security used in the calculation of
the Discount Rate, which yield will itself depend on the interest rate borne by,
and the price of, the relevant treasury security. While the interest rate borne
by the relevant treasury security is fixed, the price of the relevant treasury
security
22
tends to vary with interest rate levels prevailing from time to time. In
general, if at a particular time the prevailing interest rate for a newly
issued United States treasury security having a maturity comparable to that of
the treasury security used in the calculation of the Discount Rate is higher
than the prevailing interest rates for newly issued United States treasury
securities having a maturity comparable to the relevant treasury security
prevailing at the time the relevant treasury security was issued, the price of
the relevant treasury security will be lower than its issue price. Conversely,
if at a particular time the prevailing interest rate for a newly issued United
States treasury security having a maturity comparable to that of the treasury
security used in the calculation of the Discount Rate is lower than the
prevailing interest rates for newly issued United States treasury securities
having a maturity comparable to the relevant treasury security at the time the
relevant treasury security was issued, the price of the relevant treasury
security will be higher than its issue price.
Because the equivalent yield to maturity on the treasury security used in
the calculation of the Discount Rate depends on the interest rate it bears and
its price, an increase or a decrease in the interest rates for newly issued
United States treasury securities with a maturity comparable to that of the
relevant treasury security above or below the interest rates for newly issued
United States treasury securities having a maturity comparable to the relevant
treasury security prevailing at the time of issue of the relevant treasury
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 security. 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 treasury security, will result in a decrease or an increase,
respectively, of the Present Value of a payment of principal of or interest on a
security. In other words, the Redemption Price varies inversely with the
prevailing interest rates for newly issued United States treasury securities
having a maturity comparable to the treasury security used in the calculation of
the Discount Rate. As noted above, however, if the sum of the Present Values of
the remaining payments of principal of and interest on a security proposed to be
redeemed is less than its principal amount, the security may only be redeemed at
par.
DEFEASANCE AND COVENANT DEFEASANCE
We, at our option, may elect:
o to be discharged from any and all obligations in respect of a series of
securities ("Defeasance"), except for the obligations to, among other
things, register the transfer or exchange of the securities of that
series, replace stolen, lost or mutilated securities, maintain paying
agencies, hold moneys for payment in trust and pay when due all
principal and interest solely out of moneys held in trust; or
o not to comply with the covenants ("Covenant Defeasance") described
above under the captions "Consolidation, Merger, Conveyance, Sale or
Lease", "Limitation on Distributions", "Limitation on Indebtedness of
MidAmerican Funding and MHC", "Limitation on Liens" and "Limitation on
Business Activities" in respect of a series of securities;
if, in either case, we irrevocably deposit with the trustee, as trust
funds in trust specifically pledged as security for, and dedicated solely to,
the benefit of the holder or holders of the securities of the applicable
series:
(1) money;
(2) U.S. Government Obligations which through the payment of interest and
principal in accordance with their terms will provide, not later than
one day before the due date of any payment, money; or
(3) a combination of money and the U.S. Government Obligations described in
clause (2);
in each case in an amount sufficient, in the opinion of a nationally recognized
firm of independent accountants, to pay and discharge the principal of and
premium and interest on the outstanding securities of that series (x) on the
dates payments are due in accordance with the terms of the
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securities of that series, or (y) if we have designated a redemption date as
described in the next paragraph, to and including the redemption date so
designated by us.
Other conditions precedent to effecting Defeasance or Covenant Defeasance
include:
(1) that the securities will not be delisted by any securities exchange
on which they are then traded as a result of the deposit of trust funds in
trust;
(2) no Event of Default, or event which with notice or lapse of time
would become an Event of Default (including by reason of the deposit), with
respect to the securities of the series to be defeased will exist and be
continuing on the date of the deposit; and
(3) the Defeasance or Covenant Defeasance will not result in the breach
or violation of, or constitute a default under, any other material
agreement or instrument by which we are bound.
If we elect to exercise either of the defeasance options, we are required
to deliver to the trustee:
(a) an opinion of independent counsel of recognized standing to the
effect that the holders will not recognize income, gain or loss for United
States federal income tax purposes as a result of the defeasance deposit,
which in the case of Defeasance must be based on a change in law or a
ruling by the United States Internal Revenue Service, and
(b) an officer's certificate as to compliance with all conditions
precedent provided for in the indenture relating to the satisfaction and
discharge of the securities of the series to be defeased.
If we wish to deposit or cause to be deposited money or U.S. Government
Obligations to pay or discharge the principal of and interest, if any, on the
outstanding securities of a series to and including a redemption date on which
all of the outstanding securities of that series are to be redeemed, the
redemption date will be irrevocably designated by a board resolution delivered
to the trustee on or before the date of deposit of the money or U.S. Government
Obligations, and the board resolution will be accompanied by an irrevocable
request from us that the trustee give notice of the redemption in our name and
at our expense not less than 30 nor more than 60 days prior to the redemption
date in accordance with the indenture.
If the trustee or the paying agent is unable to apply any moneys deposited
in trust to effect a Defeasance or Covenant Defeasance by reason of any order
or judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting the application of the moneys, then any obligations from
which we had been discharged or released will be revived and reinstated as
though no deposit of moneys in trust had occurred, until the trustee or paying
agent is permitted so to apply all of the moneys deposited in trust.
MODIFICATION OR WAIVER OF CERTAIN COVENANTS
We may omit in any particular instance to comply with any term, provision
or condition in the indenture with respect to the securities of a series if
before the time for compliance the holders of at least a majority in aggregate
principal amount of the outstanding securities of that series either modify the
covenant or waive compliance in that specific instance or generally waive
compliance with the particular term, provision or condition. However, no
modification will, without the consent of each holder of securities of that
series:
(1) change the stated maturity upon which the principal of or the
interest on the securities of that series is due and payable;
(2) reduce the principal amount or redemption price of the securities
of that series or the rate of interest on the securities of that series;
(3) change any place of payment or the currency in which the securities
of that series or any premium or the interest on the securities of that
series is payable;
(4) impair the right to institute suit for the enforcement of any
payment on or after the stated maturity of the securities of that series
(or, in the case of redemption, on or after the redemption date for the
securities); or
24
(5) reduce the percentage in principal amount of the outstanding
securities of that series, the consent of holders of which is required for
any waiver of compliance with covenants contained in the indenture or
defaults under the indenture and their consequences.
The securities owned by us or any of our affiliates will be deemed not to be
outstanding for, among other purposes, consenting to any of the modifications
described above.
TRANSFER
The securities will be issued in registered form and will be transferable
only upon the surrender of the securities being transferred for registration of
transfer. We may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with transfers
and exchanges of securities.
CONCERNING THE TRUSTEE
The Bank of New York, as successor to IBJ Whitehall Bank & Trust Company,
is the trustee under the indenture and has been appointed by us as registrar
and paying agent with respect to the securities.
GOVERNING LAW
The indenture and the securities will be governed by, and construed in
accordance with, the laws of the State of New York, without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required by those principles.
BOOK-ENTRY, DELIVERY AND FORM
GENERAL
Except as described below, the securities will be issued in the form of one
or more fully registered securities in global form. The global securities will
be deposited with, or on behalf of, The Depository Trust Company and registered
in the name of DTC or its nominee.
Upon issuance of the global securities, DTC or its nominee will credit, on
its book-entry registration and transfer system, the principal amount of
securities represented by the global securities to the account of institutions
that have accounts with DTC or its nominee participants. Ownership of beneficial
interests in the global securities will be limited to DTC participants or
persons that may hold interests through DTC participants. Ownership of
beneficial interests in the global securities will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to the DTC participants' interests) for the global
securities, or by DTC participants or persons that hold interests through DTC
participants (with respect to beneficial interests of persons other than DTC
participants). The laws of some jurisdictions may require that purchasers of
securities take physical delivery of their securities in definitive form. These
laws may impair the ability to transfer or pledge beneficial interests in the
global securities.
So long as DTC or its nominee is the registered holder of any global
securities, DTC or its nominee, as the case may be, will be considered the sole
legal owner of the securities represented by the global securities for all
purposes under the indenture and the securities. Except as described below,
owners of beneficial interests in global securities will not be entitled to have
those global securities registered in their names, will not receive or be
entitled to receive physical delivery in exchange for the global securities and
will not be considered to be the owners or holders of the global securities for
any purpose under the indenture or the securities. We understand that under
existing industry practice, if an owner of a beneficial interest in a global
security desires to take any action that DTC, as the holder of that global
security, is entitled to take, DTC would authorize the DTC participants to take
the action, and that the DTC participants would authorize beneficial owners
owning through the DTC participants to take the action or would otherwise act
upon the instructions of beneficial owners owning through them.
25
We will make available to the trustee by the applicable interest payment
date or maturity date any payment of principal or interest due on the
securities. As soon as practicable thereafter, the trustee will make payments to
DTC or its nominee, as the case may be, as the registered owner of the global
securities representing the securities in accordance with existing arrangements
between the trustee and DTC.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of the global securities, will credit immediately the
accounts of the related DTC participants with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the global
securities as shown on the records of DTC. We also expect that payments by DTC
participants to owners of beneficial interests in the global securities held
through the DTC participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of the DTC participants.
None of us, the trustee or any payment agent for the global securities will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in any of the
global securities or for maintaining, supervising or reviewing any records
relating to these beneficial ownership interests or for other aspects of the
relationship between DTC and its participants or the relationship between these
participants and the owners of beneficial interests in the global securities
owning through the DTC participants.
Unless and until exchanged in whole or in part for securities in definitive
form in accordance with the terms of the securities, the global securities may
not be transferred except as a whole by DTC to a nominee of DTC or by a nominee
of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a
successor of DTC or a nominee of the successor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global securities among its participants, it is
under no obligation to perform or continue to perform these procedures, and the
procedures may be discontinued at any time. Neither the trustee nor we will have
any responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations. We and the trustee may conclusively rely on, and
will be protected in relying on, instructions from DTC for all purposes.
CERTIFICATED NOTES
The global securities will be exchangeable for corresponding certificated
securities registered in the name of persons other than DTC or its nominee only
if:
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for any of the global securities or at any time ceases to be a
clearing agency registered under the Exchange Act;
(2) there occurs and continues an Event of Default with respect to the
securities; or
(3) we execute and deliver to the trustee an order that the global
securities will be so exchangeable.
Any certificated securities will be issued only in fully registered form, and
will be issued without coupons in denominations of $1,000 and integral
multiples of $1,000. Any certificated securities issued will be registered in
the names and in the denominations requested by DTC.
THE CLEARING SYSTEM
DTC has advised us as follows: DTC is limited-purpose trust company
organized under the laws of the State of New York, 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 under Section 17A of
the Exchange Act. DTC was created to hold securities of institutions that have
accounts with DTC and to facilitate the clearance and settlement of securities
transactions among its participants in those securities through electronic
book-entry changes in accounts of these participants,
26
thereby eliminating the need for physical movement of securities certificates.
DTC's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and other similar organizations. Access to
DTC's book-entry system is also available to others, including banks, brokers,
dealers and trust companies, that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
DEFINITIONS OF TERMS USED IN THE INDENTURE
The following is a summary of some of the defined terms used in the
indenture. We refer you to the indenture for the full definition of all these
terms, as well as any other terms used in this prospectus for which no
definition is provided.
"Capitalized Lease Obligations" means all lease obligations of us and our
Subsidiaries which, under GAAP, are or will be required to be capitalized, in
each case taken at the amount of the lease obligations accounted for as
indebtedness in conformity with GAAP.
"Comparable Treasury Issue" means the United States Treasury security
selected by an independent investment banking institution of international
standing appointed by us as having a maturity comparable to the remaining term
of the securities 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 to be redeemed.
"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 the 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 that release (or any successor release) is not
published or does not contain the appropriate prices on that business day, the
Reference Treasury Dealer Quotation for the redemption date.
"Consolidated Current Liabilities" means the consolidated current
liabilities of us and our Subsidiaries, but excluding the current portion of
long-term Indebtedness which would otherwise be included in long-term
Indebtedness, as determined on a consolidated basis in accordance with GAAP.
"Consolidated Debt" means, at any time, the sum of the aggregate
outstanding principal amount of all Indebtedness for Borrowed Money (including,
without limitation, the principal component of Capitalized Lease Obligations,
but excluding Currency, Interest Rate or Commodity Agreements and all
Consolidated Current Liabilities and Project Finance Debt) of us and our
Subsidiaries, as determined on a consolidated basis in conformity with GAAP.
"Consolidated EBITDA" means, for any period, the sum of the following
amounts for the period, determined on a consolidated basis in conformity with
GAAP:
(1) our Consolidated Net Operating Income;
(2) our Consolidated Interest Expense;
(3) our income taxes and deferred taxes, other than income taxes
(either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets;
(4) our depreciation expense;
(5) our amortization expense; and
(6) all other non-cash items reducing our Consolidated Net Operating
Income, less all non-cash items increasing our Consolidated Net Operating
Income, all as determined on a consolidated basis in conformity with GAAP.
27
However, to the extent that we have any Subsidiary that is not a
wholly-owned Subsidiary, Consolidated EBITDA will be reduced by an amount equal
to:
(a) that Subsidiary's Consolidated Net Operating Income, multiplied by
(b) the quotient of:
(x) the number of shares of outstanding common stock of that
Subsidiary not owned on the last day of the relevant period by us or
any of our Subsidiaries, divided by
(y) the total number of shares of outstanding common stock of the
Subsidiary on the last day of the relevant period.
"Consolidated Interest Expense" means, for any period, clause (1) below
minus clause (2) below:
(1) the aggregate amount of the following which is paid, accrued or
scheduled to be paid or accrued by us and each of our Subsidiaries during
the relevant period:
o interest in respect of Indebtedness for Borrowed Money,
including (x) amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective
interest method of accounting, but excluding (y) the interest
of any Subsidiary whose net operating income (or loss) is
excluded from the calculation of Consolidated Net Operating
Income as described in clause (2) of the definition of
Consolidated Net Operating Income, to the extent the net
operating income (or loss) of the Subsidiary is excluded;
o all commissions, discounts and other fees and charges owed with
respect to bankers' acceptance financing;
o the net costs associated with Interest Rate Agreements; and
o all but the principal component of rentals in respect of
Capitalized Lease Obligations.
(2) consolidated interest income.
However, to the extent that we have any Subsidiary that is not a
wholly-owned Subsidiary, Consolidated Interest Expense will be reduced by an
amount equal to (x) the interest expense of that Subsidiary multiplied by (y)
the quotient of clause (A) below divided by clause (B) below:
(A) the number of shares of outstanding common stock of the Subsidiary
not owned on the last day of the relevant period by us or any of our
Subsidiaries;
(B) the total number of shares of outstanding common stock of the
Subsidiary on the last day of the relevant period.
"Consolidated Net Operating Income" means, for any period, the aggregate
of the net operating income (or loss) of us and our Subsidiaries for the
applicable period, as determined on a consolidated basis in conformity with
GAAP. However, the following items will be excluded from any calculation of
Consolidated Net Operating Income:
(1) the net operating income (or loss) of any person (other than a
Subsidiary) in which any other person has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
us or one of our Subsidiaries during the applicable period;
(2) the net operating income (or loss) of any Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by
the Subsidiary of its net operating income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation or
license; and
(3) all extraordinary gains and extraordinary losses.
"Consolidated Net Tangible Assets" means at any time, the total of all
assets (including revaluations of assets as a result of commercial appraisals,
price level restatement or otherwise)
28
appearing on the most recently available consolidated balance sheet of us and
our Subsidiaries (so long as the balance sheet is of a date not more than 60
days prior to the record date for any Distribution) prepared in accordance with
GAAP, net of applicable reserves and deductions, but excluding goodwill, trade
names, trademarks, patents, unamortized debt discount and all other like
intangible assets (which term will not be construed to include the
revaluations), less the aggregate of the Consolidated Current Liabilities of us
appearing on our balance sheet.
"Currency, Interest Rate or Commodity Agreement" means an agreement or
transaction involving any currency, interest rate or energy price or volumetric
swap, cap or collar arrangement, forward exchange transaction, option, warrant,
forward rate agreement, futures contract or other derivative instrument of any
kind for the hedging or management of foreign exchange, interest rate or energy
price or volumetric risks, it being understood, for purposes of this
definition, that the term "energy" includes, without limitation, coal, gas, oil
and electricity.
"Distribution" means any dividend, distribution or payment (including by
way of redemption, repurchase, retirement, return or repayment) in respect of
shares of our membership interests, capital stock or other equity interests.
"Excluded Subsidiary" means any of our Subsidiaries:
(1) in respect of which neither we nor any of our Subsidiaries (other
than another Excluded Subsidiary) has undertaken any legal obligation to
give any guarantee for the benefit of the holders of any Indebtedness for
Borrowed Money (other than to us or one of our Subsidiaries) other than in
respect of any statutory obligation and the Subsidiaries of which are all
Excluded Subsidiaries; and
(2) which has been designated as an Excluded Subsidiary by us by
written notice to the trustee.
We may give written notice to the trustee at any time that any Excluded
Subsidiary is no longer an Excluded Subsidiary whereupon it will cease to be an
Excluded Subsidiary.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume or guarantee the subject Indebtedness.
"Indebtedness" means, with respect to us or any of any our Subsidiaries at
any date of determination:
(1) all Indebtedness for Borrowed Money;
(2) all obligations in respect of letters of credit or other similar
instruments, including reimbursement obligations;
(3) all obligations to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months
after the date of placing the property in service or taking delivery and
title to the property or the completion of the services, except trade
payables;
(4) all Capitalized Lease Obligations;
(5) all indebtedness of other persons secured by a mortgage, charge,
lien, pledge or other security interest on any asset of us or any of our
Subsidiaries, whether or not the indebtedness is assumed. The amount of
this Indebtedness will be the lesser of (A) the fair market value of the
subject asset at the date of determination and (B) the amount of the
secured indebtedness;
(6) all indebtedness of other persons of the types specified in the
preceding clauses (1) through (5), to the extent the indebtedness is
guaranteed by us or any of our Subsidiaries; and
(7) to the extent not otherwise included in this definition,
obligations under Currency, Interest Rate or Commodity Agreements.
The amount of Indebtedness at any date will be the current outstanding balance
of all unconditional obligations as described above and, upon the occurrence of
the contingency giving rise to the
29
obligation, the current maximum liability of any contingent obligations of the
types specified in the preceding clauses (1) through (7). However, the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of the Indebtedness less the current remaining unamortized
portion of the original issue discount of the Indebtedness as determined in
conformity with GAAP.
"Indebtedness For Borrowed Money" means any indebtedness, whether being
principal, premium, interest or other amounts, for:
(1) money borrowed;
(2) payment obligations under or in respect of any trade acceptance or
trade acceptance credit; or
(3) any notes, bonds, debentures, debenture stock, loan stock or other
debt securities offered, issued or distributed whether by way of public
offer, private placement, acquisition consideration or otherwise and
whether issued for cash or in whole or in part for a consideration other
than cash.
However, the term "Indebtedness for Borrowed Money" will exclude:
(a) any indebtedness relating to any accounts receivable
securitizations;
(b) any Indebtedness of the type permitted to be secured by Liens
described in clause (13) under the caption "--Limitation on Liens"
appearing earlier in this prospectus;
(c) any trust preferred securities or related debt or guaranties which
were issued and outstanding as of March 11, 1999 (the date of the initial
issuance of securities) or any extension, renewal or replacement (or
successive extensions, renewals or replacements), as a whole or in part, of
any of these existing trust preferred securities or related debt or
guaranties, for amounts not exceeding the principal amount or liquidation
preference of the trust preferred securities or related debt or guaranties
so extended, renewed or replaced; and
(d) any trust preferred securities or related debt or guaranties issued
in replacement or in connection with a refinancing of any preferred
securities or preferred stock which was issued and outstanding as of March
11, 1999 (the date of the initial issuance of securities), for amounts not
exceeding the liquidation preference of the preferred securities or
preferred stock so replaced or refinanced.
"Interest Coverage Ratio" means, with respect to us on the record date for
any Distribution, the ratio of (1) the aggregate amount of our Consolidated
EBITDA for the four fiscal quarters for which financial information is
available immediately prior to the record date to (2) the aggregate
Consolidated Interest Expense during that four fiscal quarters.
"Investments" in any person means any loan or advance to, any net payment
on a guarantee of, any acquisition of capital stock, equity interest,
obligation or other security of, or capital contribution or other investment
in, that person. Investments exclude advances to customers and suppliers in the
ordinary course of business.
"Leverage Ratio" means the ratio of Consolidated Debt to Total Capital,
calculated on the basis of our most recently available consolidated balance
sheet (so long as the balance sheet is as of a date not more than 60 days prior
to the record date for any Distribution) prepared in accordance with GAAP.
"Lien" means any mortgage, lien, pledge, security interest or other
encumbrance. However, the term "Lien" does not mean any easements,
rights-of-way, restrictions and other similar encumbrances and encumbrances
consisting of zoning restrictions, leases, subleases, restrictions on the use
of property or defects in the title to property.
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"Project Finance Debt" means:
(1) any Indebtedness to finance or refinance the ownership, acquisition,
development, design, engineering, procurement, construction, servicing,
management and/or operation of any project or asset which is incurred by an
Excluded Subsidiary;
(2) any Indebtedness to finance or refinance the ownership, acquisition,
development, design, engineering, procurement, construction, servicing,
management and/or operation of any project or asset in respect of which the
person or persons to whom the Indebtedness is or may be owed by the relevant
borrower (whether or not the borrower is us or one of our Subsidiaries) has or
have no recourse whatsoever to us or our Subsidiaries (other than an Excluded
Subsidiary) for the repayment of the Indebtedness other than:
(a) recourse to us and/or one or more of our Subsidiaries for amounts
limited to the cash flow or net cash flow (other than historic cash flow or
historic net cash flow) from, or ownership interests or other investments
in, the relevant project or asset; and/or
(b) recourse to us and/or one or more of our Subsidiaries for the
purpose only of enabling amounts to be claimed in respect of the
Indebtedness in an enforcement of any encumbrance given by us and/or one or
more of our Subsidiaries over the relevant project or asset or the income,
cash flow or other proceeds deriving therefrom (or given by any shareholder
or the like of, or other investor in, the borrower or the owner of the
project or asset over its shares or the like in the capital of, or other
investment in, the borrower or the owner of the project or asset) to secure
the Indebtedness, so long as the extent of recourse to us and/or one or
more of our Subsidiaries is limited solely to the amount of any recoveries
made on the enforcement; and/or
(c) recourse to the borrower generally, or directly or indirectly to us
and/or one or more of our Subsidiaries, under any form of assurance,
indemnity, undertaking or support, which recourse is limited to a claim for
damages (other than liquidated damages and damages required to be
calculated in a specified way) for breach of an obligation (not being a
payment obligation or an obligation to procure payment by another or an
indemnity in respect of a payment obligation or any obligation to comply or
to procure compliance by another with any financial ratios or other tests
of financial condition) by the person against which recourse is available;
and
(3) any Indebtedness which is issued by MidAmerican Realty Services Company
other than any Indebtedness incurred after March 12, 1999 (the effective date of
MidAmerican Holdings' acquisition of MHC) which is guaranteed by us, MHC or
MidAmerican Energy.
"Rating Agency" means (1) Standard & Poor's, (2) Moody's and (3) Fitch, and
any of their respective Subsidiaries or successors, or, in any case, if any of
these rating agencies ceases to rate any series of securities for reasons
outside our control, any other "nationally recognized statistical rating
organization" (within the meaning of Rule 15c3-l(c)(2)(vi)(F) under the
Securities Exchange Act of 1934, as amended) selected by us as a replacement
Rating Agency.
"Reference Treasury Dealer" means a primary United States government
securities dealer in New York City appointed by us.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by us, 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 us by the
Reference Treasury Dealer at 5:00 p.m. on the third business day preceding the
redemption date).
"Significant Subsidiary" means, at any particular time, any of our
Subsidiaries whose gross assets or gross revenues (having regard to our direct
and/or indirect beneficial interest in the shares or the like of that
Subsidiary) represent at least 25% of our consolidated gross assets or, as the
case may be, our consolidated gross revenues.
"Subsidiary" means, with respect to any specified person, any corporation,
association, partnership, limited liability company or other business entity of
which 50% or more of the total
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voting power of shares of capital stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees of the
business entity is at the time owned, directly or indirectly, by (1) the
specified person, (2) that person and one or more Subsidiaries of that person
or (3) one or more Subsidiaries of that person.
"Total Capital" of any person is defined to mean, as of any date, the sum
of (a) Indebtedness for Borrowed Money, (b) consolidated stockholder's equity
of that person and its consolidated Subsidiaries (excluding any preferred stock
in stockholder's equity) and (c) preferred stock and trust preferred securities
or related debt or guaranties of that person and its consolidated Subsidiaries.
"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
the redemption date.
"U.S. Government Obligation" means:
(1) any security which is (a) a direct obligation of the United States for
the payment of which the full faith and credit of the United States is pledged
or (b) an obligation 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, which, in each case, is not callable or redeemable at the option of the
issuer of the security; and
(2) any depositary receipt issued by a bank (as defined in the Securities
Act) as custodian with respect to any security specified in clause (1) above and
held by that bank for the account of the holder of the depositary receipt or
with respect to any specific payment of principal of or interest on that type of
security held by a bank (as defined in the Securities Act), so long as, except
as required by law, the custodian is not authorized to make any deduction from
the amount payable to the holder of the 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 the depository receipt.
INDEPENDENT MANAGER
Our articles of organization require us to have an Independent Manager. In
addition, our articles of organization require the unanimous vote or consent of
our Board of Managers, including the Independent Manager, to do any of the
following:
o institute bankruptcy or insolvency proceedings;
o consent to the institution of bankruptcy or insolvency proceedings
against us;
o dissolve or liquidate;
o make assignments for the benefit of our creditors;
o take other similar actions;
o change our form of organization or jurisdiction of formation; or
o amend various provisions of our articles of organization.
In all of these matters, our Board of Managers, including the Independent
Manager, will owe their fiduciary obligations to us and to our creditors.
An Independent Manager is an individual who is not, at time of his or her
appointment or any time thereafter, and was not at any time during the
preceding five years:
(1) a direct or indirect legal or beneficial owner of any shares of the
capital stock of, or membership interests in, us, MidAmerican Holdings or
any of MidAmerican Holdings' subsidiaries, except that an Independent
Manager may own shares of the capital stock of, or
32
membership interests in, MidAmerican Holdings or any of its direct or
indirect subsidiaries having a value, at all times during which the subject
person is the Independent Manager, not exceeding 1% of that person's
assets;
(2) a director, officer, employee, manager, trustee, partner,
affiliate, family member, major supplier, major contractor or major
creditor of us or of any of our affiliates (except solely by virtue of
serving as our Independent Manager); or
(3) a person who, directly or indirectly, controls (except solely by
virtue of serving as our Independent Manager) (a) us, (b) any of our
affiliates or (c) any person or entity described in clause (2) above.
The term "major supplier" means a person or entity to which we or our
affiliates, as applicable, has outstanding indebtedness for borrowed money in a
sum sufficiently large as would reasonably be expected to influence the
judgment of the proposed Independent Manager adversely to the interests of us
and our creditors. The term "major contractor" means a person or entity that
has contracts with us in a sum sufficiently large as would reasonably be
expected to influence the judgment of the proposed Independent Manager
adversely to the interests of us and our creditors. The term "major creditor"
means a person or entity to which we or our affiliates, as applicable, has
outstanding indebtedness for borrowed money in a sum sufficiently large as
would reasonably be expected to influence the judgment of the proposed
Independent Manager adversely to the interests of us or our other creditors.
The term "family member" means any child, stepchild, grandchild, parent,
grandparent, spouse, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, and includes
adoptive relationships. The term "affiliate" means any person or entity
controlling, controlled by, or under common control with us, whether by virtue
of the holding of voting securities, the election of members of our board of
managers or another governing body or otherwise.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
SCOPE OF DISCUSSION
This general discussion of United States federal income and estate tax
consequences applies to you if you acquire the securities at original issue for
cash and hold the securities as a "capital asset," generally, for investment,
under Section 1221 of the Internal Revenue Code of 1986, as amended. This
summary, however, does not consider state, local or foreign tax laws. In
addition, it does not include all of the rules which may affect the United
States tax treatment of your investment in the securities. For example, special
rules not discussed here may apply to you if you are:
o a broker-dealer, a dealer in securities or a financial institution;
o an S corporation;
o an insurance company;
o a tax-exempt organization;
o subject to the alternative minimum tax provisions of the Internal
Revenue Code;
o holding the securities as part of a hedge, straddle or other risk
reduction or constructive sale transaction; or
o a nonresident alien or foreign corporation subject to net-basis United
States federal income tax on income or gain derived from a security
because the income or gain is effectively connected with the conduct of
a United States trade or business.
This discussion only represents our best attempt to describe the federal
income tax consequences that may apply to you based on current United States
federal tax law. This discussion may in the end inaccurately describe the
federal income tax consequences which are applicable to you because the law may
change, possibly retroactively, and because the Internal Revenue Service or any
court may disagree with this discussion. If you are a partner in a partnership
that holds the securities, the tax treatment will generally depend on the
status of the partner and the activities of the partnership.
THIS SUMMARY MAY NOT COVER YOUR PARTICULAR CIRCUMSTANCES BECAUSE IT DOES
NOT CONSIDER FOREIGN, STATE OR LOCAL TAX RULES, DISREGARDS CERTAIN FEDERAL TAX
RULES, AND DOES NOT DESCRIBE FUTURE CHANGES IN FEDERAL TAX RULES. PLEASE
CONSULT YOUR TAX ADVISOR RATHER THAN RELYING ON THIS GENERAL DESCRIPTION.
UNITED STATES HOLDERS
If you are a "United States Holder," as defined below, this section
applies to you. Otherwise, the next section, "Non-United States Holders,"
applies to you.
DEFINITION OF UNITED STATES HOLDER. You are a "United States Holder" if
you hold the securities and you are:
o a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the "substantial presence" test under Section 7701(b) of the
Internal Revenue Code;
o a corporation or partnership created or organized in the United States
or under the laws of the United States or of any political subdivision
of the United States;
o an estate the income of which is subject to United States federal
income tax regardless of its source; or
o a trust, if a United States court can exercise primary supervision over
the administration of the trust and one or more United States persons
can control all substantial decisions of the trust, or if the trust was
in existence on August 20, 1996 and has elected to continue to be
treated as a United States person.
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TAXATION OF STATED INTEREST. You must generally pay federal income tax on
the interest on the securities:
o when it accrues, if you use the accrual method of accounting for United
States federal income tax purposes; or
o when you receive it, if you use the cash method of accounting for
United States federal income tax purposes.
SALE OR OTHER TAXABLE DISPOSITION OF THE SECURITIES. You must recognize
taxable gain or loss on the sale, exchange, redemption, retirement or other
taxable disposition of a security. The amount of your gain or loss equals the
difference between the amount you receive for the security (in cash or other
property, valued at fair market value), minus the amount attributable to
accrued interest on the security, minus your adjusted tax basis in the
security. Your initial tax basis in a security equals the price you paid for
the security.
Your gain or loss will generally be a long-term capital gain or loss if
you have held the security for more than one year. Otherwise, it will be a
short-term capital gain or loss. Payments attributable to accrued interest
which you have not yet included in income will be taxed as ordinary interest
income.
BACKUP WITHHOLDING. You may be subject to a 31% backup withholding tax
when you receive interest payments on the securities or proceeds upon the sale
or other disposition of a security. Certain holders (including, among others,
corporations and certain tax-exempt organizations) are generally not subject to
backup withholding. In addition, the 31% backup withholding tax will not apply
to you if you provide your taxpayer identification number ("TIN") in the
prescribed manner unless:
o the IRS notifies us or our agent that the TIN you provided is
incorrect;
o you fail to report interest and dividend payments that you receive on
your tax return and the IRS notifies us or our agent that withholding
is required; or
o you fail to certify under penalties of perjury that you are not subject
to backup withholding.
If the 31% backup withholding tax does apply to you, you may use the
amounts withheld as a refund or credit against your United States federal
income tax liability as long as you provide the required information to the
IRS.
NON-UNITED STATES HOLDERS
DEFINITION OF NON-UNITED STATES HOLDER. A "Non-United States Holder" is
any person other than a United States Holder. Please note that if you are
subject to United States federal income tax on a net basis on income or gain
with respect to a security because such income or gain is effectively connected
with the conduct of a United States trade or business, this disclosure does not
cover the United States federal tax rules that apply to you.
INTEREST
Portfolio Interest Exemption. You will generally not have to pay United
States federal income tax on interest paid on the securities because of the
"portfolio interest exemption" if either:
o you represent that you are not a United States person for United States
federal income tax purposes and you provide your name and address to us
or our paying agent on a properly executed IRS Form W-8BEN (or a
suitable substitute form) signed under penalties of perjury; or
o a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of
its business holds the securities on your behalf, certifies to us or
our agent under penalties of perjury that it has received IRS Form
W-8BEN (or a suitable substitute) from you or from another qualifying
financial institution intermediary, and provides a copy to us or our
agent.
35
However, you will not qualify for the portfolio interest exemption described
above if:
o you own, actually or constructively, 10% or more of the total combined
voting power of all classes of our capital stock;
o you are a controlled foreign corporation with respect to which we are a
"related person" within the meaning of Section 864(d)(4) of the
Internal Revenue Code;
o you are a bank receiving interest described in Section 881(c)(3)(A) of
the Internal Revenue Code;
If you are a partner in a foreign partnership, you must provide the
certification described above and the partnership must also provide certain
information. There are special rules applicable to intermediaries.
Withholding Tax if the Interest Is Not Portfolio Interest. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to a 30% withholding tax on interest payments made on the
securities. However, you may be able to claim the benefit of a reduced
withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted on Form W-8BEN.
If you claim the benefit of a reduced withholding tax rate under an applicable
treaty, you may be required to provide your United States taxpayer
identification number.
Regulations dealing with withholding taxes on payments to foreign persons
(including the certification procedure relating to reduction of or exemption
from withholding tax) have been amended for payments after December 31, 2000.
If you are a Non-United States Holder, you are strongly urged to consult your
tax advisor as to any amendment under the regulations that might affect you.
Reporting. We may report annually to the IRS and to you the amount of
interest paid to, and the tax withheld, if any, with respect to you.
Sale or Other Disposition of the Securities. You will generally not be
subject to United States federal income tax or withholding tax on gain
recognized on a sale, exchange, redemption, retirement, or other disposition of
a security. You may, however, be subject to tax on such gain if:
o you are an individual who was present in the United States for 183 days
or more in the taxable year of the disposition, in which case you may
have to pay a United States federal income tax of 30% (or a reduced
treaty rate) on such gain; or
o you are an individual who is a former citizen or resident of the United
States, your loss of citizenship or residency occurred within the last
ten years (and, if you are a former resident, on or after February 6,
1995), and it had as one of its principal purposes the avoidance of
United States tax, in which case you may be taxed on the net gain
derived from the sale under the graduated United States federal income
tax rates that are applicable to United States citizens and resident
aliens, and you may be subject to withholding under certain
circumstances.
United States Federal Estate Taxes. If you qualify for the portfolio
interest exemption under the rules described above when you die, the securities
will not be included in your estate for United States federal estate tax
purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments From United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 31% and information reporting.
With respect to interest payments made on the securities, however, backup
withholding and information reporting will not apply if you certify, generally
on Form W-8BEN or a substitute form, that you are not a United States person in
the manner described above under the heading "--Non-United States
Holders--Interest."
36
Moreover, with respect to proceeds received on the sale, exchange,
redemption or other disposition of a security, backup withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8BEN or a substitute form, a statement that you are an
"exempt foreign person" for purposes of the broker reporting rules, and other
required information. If you are not subject to United States federal income or
withholding tax on the sale or other disposition of a security, as described
above under the heading "--Non-United States Holder--Sale or Other Disposition
of Securities," you will generally qualify as an "exempt foreign person" for
purposes of the broker reporting rules.
Payments From Foreign Office. If payments of principal and interest are
made to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of
the sale of a security through a foreign office of a "broker," as defined in
the pertinent United States Treasury Regulations, you will generally not be
subject to backup withholding or information reporting. You will, however, be
subject to backup withholding and information reporting if the foreign
custodian, nominee, agent or broker has actual knowledge or reason to know that
the payee is a United States person. You will also be subject to information
reporting, but not backup withholding, if the payment is made by a foreign
office of a custodian, nominee, agent or broker that is a United States person
or a controlled foreign corporation for United States federal income tax
purposes, a foreign partnership that is engaged in a United States trade or
business or 50% or more of whose income or capital interest is held by partners
that are United States persons, or that derives 50% or more of its gross income
from the conduct of a United States trade or business for a specified three
year period, unless the broker has in its records documentary evidence that you
are a Non-United States Holder and certain other conditions are met.
Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against the Non-United States Holder's United States
federal income tax liability, provided that the required information is
furnished to the IRS.
37
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated March 14, 2001, we have agreed to sell to Credit Suisse First
Boston Corporation all of the securities.
The underwriting agreement provides that the underwriter is obligated to
purchase all of the securities if any are purchased.
The underwriter proposes to offer the securities initially at the public
offering price on the cover page of this prospectus and to selling group
members at that price less a selling concession of 0.40% of the principal
amount per security. The underwriter and selling group members may allow a
discount of 0.25% of the principal amount per security on sales to other
broker/dealers. After the initial public offering, the underwriter may change
the public offering price and concession and discount to broker/dealers.
We estimate that our out-of-pocket expenses for this offering will be
approximately $550,000. The underwriter has agreed to reimburse to us a portion
of the costs incurred by us in connection with this offering.
The 2011 securities are a new issue of securities with no established
trading market. The underwriter intends to make a secondary market for the
securities. However, it is not obligated to do so and may discontinue making a
secondary market for the securities at any time without notice. No assurance
can be given as to how liquid the trading market for the securities will be.
We have agreed that, for a period of 90 days after the date of this
prospectus, we will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to any
additional debt securities or debt securities guaranteed by us or publicly
disclose the intention to make any such offer, sale, pledge or filing without
the prior written consent of the underwriter.
We have agreed to indemnify the underwriter against liabilities under the
Securities Act, or contribute to payments which the underwriter may be required
to make in that respect.
In connection with the offering, the underwriter may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.
o Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified
maximum.
o Over-allotment involves sales by underwriters of securities in excess
of the principal amount of the securities the underwriters are
obligated to purchase, which creates a syndicate short position.
o Syndicate covering transactions involve purchases of the securities in
the open market after the distribution has been completed in order to
cover syndicate short positions.
o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the securities originally sold by such
syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of the
securities or preventing or retarding a decline in the market price of the
securities. As a result, the price of the securities may be higher than the
price that might otherwise exist in the open market. These transactions, if
commenced, may be discontinued at any time.
In the ordinary course of business, the underwriter and its affiliates
have engaged in transactions with and performed various investment banking,
commercial banking and other services for us or one or more of our affiliates
and may do so from time to time in the future.
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We will use all of the net proceeds from this offering to repay a portion
of a loan made to us by MidAmerican Holdings. MidAmerican Holdings will, in
turn, use all of such proceeds to repay loans under its existing revolving
credit facility. We are currently in compliance with the terms of the loan made
to us by MidAmerican Holdings.
An affiliate of the underwriter who is a lender under the MidAmerican
Holdings revolving credit facility will receive approximately $14,852,250 when
MidAmerican Holdings repays loans under the revolving credit facility as
described in the previous paragraph. The decision of the underwriter to
distribute the securities was made independent of its affiliate that is a
lender under the revolving credit facility, which lender had no involvement in
determining whether or when to distribute the securities under this offering or
the terms of this offering. The underwriter will not receive any benefit from
this offering other than the underwriting commissions and discounts as paid by
us.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the securities in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of the securities are made. Any resale of the securities 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. Purchasers are advised to
seek legal advice prior to any resale of the securities.
REPRESENTATIONS OF PURCHASERS
By purchasing securities in Canada and accepting a purchase confirmation a
purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
o the purchaser is entitled under applicable provincial securities laws
to purchase the securities without the benefit of a prospectus
qualified under those securities laws;
o where required by law, that the purchaser is purchasing as principal
and not as agent; and
o the purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgement obtained in Canadian courts against such
issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of securities to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten
39
days of the sale of any securities acquired by the purchaser in this offering.
The report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from us.
Only one report must be filed for securities acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of securities should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the
securities in their particular circumstances and about the eligibility of the
securities for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
The validity of the 2011 securities will be passed upon for us by Latham &
Watkins, 885 Third Avenue, Suite 1000, New York, New York 10022. Certain legal
matters will be passed upon for the underwriter by Chadbourne & Parke LLP, 30
Rockefeller Plaza, New York, New York 10112.
EXPERTS
The consolidated statements of income, comprehensive income, cash flows
and retained earnings of MHC, Inc. for the year ended December 31, 1998
incorporated in this prospectus by reference from our Annual Report on Form
10-K for the year ended December 31, 2000, as amended, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
Our consolidated financial statements and related financial statement
schedules as of and for the years ended December 31, 2000 and 1999,
incorporated in this prospectus by reference from our Annual Report on Form
10-K for the year ended December 31, 2000, as amended, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
INCORPORATION BY REFERENCE
This prospectus incorporates documents by reference which are not
presented in, or delivered with, this prospectus. We will provide without
charge copies (without exhibits, except those specifically incorporated by
reference) of these documents to each person, including any beneficial owner of
a security, to whom this prospectus has been delivered upon written or oral
request. Requests for information should be made to MidAmerican Funding, LLC,
666 Grand Avenue, Des Moines, Iowa 50303, 515-242-4300, Attention: Investor
Relations.
Our Annual Report on Form 10-K for the year ended December 31, 2000, as
amended, which we previously filed with the Securities and Exchange Commission
under the Exchange Act (File No. 333-90553), is hereby incorporated by
reference.
In addition to the Annual Report on Form 10-K listed above, all documents
subsequently filed by us or MidAmerican Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the 2011 securities will be deemed to be incorporated by reference into this
prospectus.
The information regarding us contained in this prospectus should be read
together with the information in the documents incorporated by reference. Any
statement contained in a document incorporated by reference will be deemed to
be modified or superseded for purposes of this prospectus to the extent that a
statement contained in this prospectus modifies or supersedes the statement in
the document incorporated by reference. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to be a part of this
prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission under the Securities Act with respect to our offering of
the 2011 securities. This prospectus does not contain all of the information in
the registration statement. You will find additional information about us and
the securities in the registration statement. Any statement made in this
prospectus concerning the provisions of legal documents are not necessarily
complete and you should read the documents that are filed as exhibits to the
registration statement.
We are subject to the informational requirements of the Exchange Act and
file periodic reports, registration statements, proxy statements and other
information with the Securities and Exchange Commission. You may inspect and
copy the registration statement for the 2011 securities, including
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exhibits, and our periodic reports, registration statements, proxy statements
and other information we file with the Securities and Exchange Commission at
the Public Reference Room of the Securities and Exchange Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the Securities and Exchange Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials can be
obtained from the Public Reference Room of the Securities and Exchange
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The public may obtain information about the
operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains
a web site that contains reports, proxy and information statements and other
materials that are filed through the Securities and Exchange Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. This Web site
can be accessed at http://www.sec.gov.
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