Document:

EX-10.1

Exhibit 10.1

STOCK PURCHASE AGREEMENT

by and between

CONSTELLATION ENERGY GROUP, INC.

and

MIDAMERICAN ENERGY HOLDINGS COMPANY

September 19, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	1. Definitions
	 	 	1	 
	 
	 	 	 	 
	2. Authorization, Purchase and Sale of Stock
	 	 	3	 
	2.1 Authorization
	 	 	3	 
	2.2 Purchase and Sale of the Preferred Stock
	 	 	3	 
	2.3 Closing
	 	 	3	 
	 
	 	 	 	 
	3. Representations and Warranties of the Company
	 	 	4	 
	3.1 Corporate Existence and Power
	 	 	4	 
	3.2 Capitalization
	 	 	4	 
	3.3 Authorization
	 	 	6	 
	3.4 Valid Issuance
	 	 	6	 
	3.5 No Conflict
	 	 	7	 
	3.6 Preference
	 	 	7	 
	3.7 No Manipulation of Stock
	 	 	7	 
	3.8 General Solicitation; No Integration
	 	 	7	 
	3.9 No Regulatory Approvals
	 	 	7	 
	 
	 	 	 	 
	4. Representations and Warranties of Each Purchaser
	 	 	7	 
	4.1 Organization
	 	 	7	 
	4.2 Authorization
	 	 	8	 
	4.3 No Conflict
	 	 	8	 
	4.5 Purchase Entirely for Own Account
	 	 	8	 
	4.6 Investor Status
	 	 	8	 
	4.7 Securities Not Registered
	 	 	8	 
	 
	 	 	 	 
	5. Covenants
	 	 	9	 
	5.1 Reasonable Best Efforts
	 	 	9	 
	5.3 Interim Actions
	 	 	9	 
	 
	 	 	 	 
	6. Conditions Precedent
	 	 	9	 
	6.1 Conditions to the Obligations of Each Party
	 	 	9	 
	6.2 Conditions to the Obligations of the Company
	 	 	10	 
	6.3 Conditions to the Obligations of the Purchasers
	 	 	10	 
	 
	 	 	 	 
	7. Termination
	 	 	11	 
	7.1 Conditions of Termination
	 	 	11	 
	7.2 Effect of Termination
	 	 	11	 
	 
	 	 	 	 
	8. Miscellaneous Provisions
	 	 	11	 
	8.1 Public Statements or Releases
	 	 	11	 
	8.2 Interpretation
	 	 	12	 
	8.3 Notices
	 	 	12	 

 

 

	 	 	 	 	 
	 	 	Page	 
	8.4 Severability
	 	 	13	 
	8.5 Governing Law
	 	 	13	 
	8.6 Waiver
	 	 	13	 
	8.7 Expenses
	 	 	14	 
	8.8 Successors and Assigns
	 	 	14	 
	8.9 Third Parties
	 	 	14	 
	8.10 Counterparts
	 	 	14	 
	8.11 Entire Agreement; Amendments
	 	 	14	 
	8.12 Survival
	 	 	14	 
	8.13 Representation by Counsel; Mutual Drafting
	 	 	14	 

	 	 	 
	Exhibits	 	 
	Exhibit A

	 	Form of 14% Senior Note
	Exhibit B

	 	Investor Rights Agreement
	Exhibit C

	 	Merger Agreement
	Exhibit D

	 	Articles Supplementary

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STOCK PURCHASE AGREEMENT

     STOCK PURCHASE AGREEMENT, dated as of September 19, 2008 (this “Agreement”), by and
between CONSTELLATION ENERGY GROUP, INC., a Maryland corporation (the “Company”), and
MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa corporation (the “Purchaser”).

     WHEREAS, the Company has authorized the issuance of up to 10,000 shares of its Series A
Convertible Preferred Stock, par value $0.01 per share (the “Preferred Stock”), which
shares are, or will be upon issuance, convertible into (i) authorized but unissued shares of common
stock, without par value, of the Company (the “Common Stock”) and (ii) one or more 14%
Senior Unsecured Notes of the Company, containing the same terms and conditions, as set forth in
the form of note attached hereto as Exhibit A (the “14% Senior Notes”).

     WHEREAS, the Company desires to sell to the Purchaser, and the Purchaser desires to purchase
from the Company, as an investment in the Company, shares of Preferred Stock, subject to the terms
and conditions set forth herein.

     NOW THEREFORE, in consideration of the mutual agreements, representations, warranties and
covenants in this Agreement contained, the parties agree as follows:

     1. Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

     “14% Senior Notes” shall have the meaning set forth in the recitals.

     “Affiliate” shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control with such Person.
For the purposes of this definition, “control” when used with respect to any specified Person shall
mean the power to direct the management and policies of such Person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and the terms “controlled
by” and “controlled” have meanings correlative to the foregoing.

     “Board of Directors” means the Board of Directors of the Company.

     “Business Day” means any day other than the days on which banks in New York, New York
or Baltimore, Maryland are required or authorized to close.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Common Stock” has the meaning set forth in the recitals.

     “Company Options” means outstanding options to acquire shares of Common Stock from the
Company granted to employees of the Company under the Company Stock Plans or otherwise.

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

 

     “FERC” means the Federal Energy Regulatory Commission.

     “Governmental Authority” means any nation or government or any agency, public or
regulatory authority, instrumentality, department, commission, court, arbitrator, ministry,
tribunal or board of any nation or any government or political subdivision thereof, in each case,
whether national, federal, tribal, provincial, state, regional, local or municipal, or any
self-regulatory organization.

     “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations thereunder.

     “Investor Rights Agreement” means the Investor Rights Agreement dated as of the
Closing Date, by and among the Company and the Purchaser, in substantially the form attached hereto
as Exhibit B.

     “Law” means applicable statutes, common law, rules, ordinances, regulations, codes,
licensing requirements, orders, judgments, injunctions, writs, decrees, licenses, governmental
guidelines or interpretations having the force of law, permits, rules and bylaws, in each case, of
a Governmental Authority.

     “Material Adverse Effect” means any event, change or occurrence or development of a
set of circumstances or facts, which, individually or together with any other event, change,
occurrence or development, has or would reasonably be expected to have a material adverse effect on
the business, assets, liabilities, properties, financial condition or results of operations of the
Company, the Company Subsidiaries or the Company Joint Ventures (as defined in the Merger
Agreement) taken as a whole; provided, however, that the term “Material Adverse Effect”
shall not include (i) any such effect relating to or resulting from general changes in the nuclear,
electric or natural gas utility industry, other than such effects having a disproportionate impact
on the Company as compared to similarly situated Persons, (ii) any such effect resulting from
changes in Law or GAAP (as defined in the Merger Agreement), other than such effects having a
disproportionate impact on the Company as compared to similarly situated Persons, (iii) any such
effect resulting from changes in financial markets or general economic conditions, other than such
effects having a disproportionate impact on the Company as compared to similarly situated Persons,
and (iv) any such effect resulting from the announcement of the execution of the Merger Agreement
(except to the extent that the Company has made an express representation with respect to the
effect of such execution on the Company and the Company Subsidiaries and the Company Joint
Ventures), including any such change resulting therefrom in the market value of the Company Common
Stock; provided, however, that, notwithstanding any provision of this sentence to the contrary, (x)
the occurrence of an Insolvency Event (as defined in the Merger Agreement) in respect of the
Company or any Company Subsidiary (as defined in the Merger Agreement) or Company Joint Venture or
(y) any event, change, occurrence or development that is reasonably likely to prevent, materially
delay or materially impair the consummation of the transactions contemplated by this Agreement,
shall be deemed to cause a Material Adverse Effect. As used in this Agreement, the term
“knowledge” when referring to the knowledge of the Company or any Company Subsidiary or any Company
Joint Venture shall mean the actual knowledge of the Company officers listed on Section 4.1 of the
Company

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Disclosure Letter (as defined in the Merger Agreement) as would have been acquired in the
prudent exercise of their duties..

     “Merger Agreement” means the Agreement and Plan of Merger dated as of the date hereof,
by and among the Company, the Purchaser and Merger Sub, attached hereto as Exhibit C.

     “Merger Sub” means MEHC Merger Sub Inc., a Maryland corporation and a wholly owned
subsidiary of the Purchaser.

     “Person” means any individual, corporation, company, limited liability company,
partnership, association, trust, joint venture, group or any other entity or organization,
including any government or political subdivision or any agency or instrumentality thereof.

     “Securities” shall mean the Preferred Stock, the Common Stock and the 14% Senior
Notes.

     “Securities Act” shall mean the Securities Act of 1933, as amended, and all of the
rules and regulations promulgated thereunder.

     “Subsidiary” means, with respect to any Person, any other Person of which the first
Person owns, directly or indirectly, securities or other ownership interests having voting power to
elect a majority of the board of directors or other persons performing similar functions (or, if
there are no such voting interests, more than 50% of the equity interests of the second Person).

     “Transaction Agreements” shall mean this Agreement and the Investor Rights Agreement.

     2. Authorization, Purchase and Sale of Stock.

          2.1 Authorization. The Company has or, on or before the Closing Date, will have (i)
authorized and created a series of its preferred stock consisting of 10,000 shares of Preferred
Stock, par value $0.01 per share, designated as its “Series A Convertible Preferred Stock,” (ii)
authorized the issuance of the 14% Senior Notes upon conversion of the Preferred Stock and (iii)
authorized the issuance of the shares of Common Stock issuable upon conversion of the Preferred
Stock. The terms, limitations and relative rights and preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends or other distributions, qualifications and
terms and conditions of redemption of the Preferred Stock are set forth in the Articles
Supplementary of the Company, a copy of which is attached hereto as Exhibit D (the
“Articles Supplementary”), which will be filed by the Company on or before the Closing Date
with the Maryland State Department of Assessments and Taxation.

          2.2 Purchase and Sale of the Preferred Stock. Subject to and upon the terms and
conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to the
Purchaser, and the Purchaser
shall purchase from the Company, 10,000 shares of Preferred Stock (the “Investment”)
at a purchase price of $100,000 per share.

          2.3 Closing. The closing of the purchase and sale of the Preferred Stock (the
“Closing”) shall take place (i) at the offices of Willkie Farr & Gallagher LLP, 787 Seventh

3

 

Avenue, New York, New York 10019 or (ii) at such other place and at such date and time as the
Company and the Purchaser may agree (the actual date of the Closing, the “Closing Date”),
as soon as reasonably practicable but, in any event, no later than the first (1st)
Business Day after the day on which the last condition set forth in Section 6 is satisfied or
waived (other than those conditions that by their nature cannot be satisfied until the Closing
Date, but subject to the satisfaction or waiver of such conditions). At the Closing, the Company
shall deliver to the Purchaser certificates representing the shares of Preferred Stock against
payment by the Purchaser of $1,000,000,000 by wire transfer of immediately available United States
funds to the Company (the “Purchase Price”).

     3. Representations and Warranties of the Company. The Company hereby represents and
warrants to the Purchaser as follows:

          3.1 Corporate Existence and Power. Each of the Company and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of its jurisdiction, except where
the failure to be in good standing has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The Company has all requisite
corporate power and authority to carry on its business as now conducted.

          3.2 Capitalization.

          (a) The authorized capital stock of the Company consists of 600,000,000 shares of Company
Common Stock, without par value (the “Company Common Stock”), and 25,000,000 shares of
preferred stock, par value $0.01 per share (the “Company Preferred Stock”). At the close
of business on, September 17, 2008, (A) 178,425,915 shares of Company Common Stock were issued and
outstanding, of which 866,625 shares were subject to future vesting requirements or risk of
forfeiture back to the Company or a right of repurchase by the Company (collectively, “Company
Restricted Stock”) and (B) 7,866,057 shares of Company Common Stock were reserved and available
for issuance pursuant to the 2002 Senior Management Long-Term Incentive Plan, Executive Long-Term
Incentive Plan, Management Long-Term Incentive Plan, the 1995 Long-Term Incentive Plan and the 2007
Long Term Incentive Plan (such plans, collectively, the “Company Stock Plans”), of which
6,821,218 shares were subject to outstanding options to purchase shares of Company Common Stock
with a weighted average exercise price of $62.69 per share (such outstanding options, together with
any options to purchase shares of Company Common Stock granted after September 17, 2008, under the
Company Stock Plans, the “Company Employee Stock Options”), and 270,052 shares of Company
Common Stock were subject to restricted stock unit awards granted under the Company Stock Plans
(such unit awards, together with any other restricted stock unit awards granted after September 17,
2008, the “Company Restricted Units”)

          (b) No shares of capital stock or other voting securities or Equity Interests (as defined in
the Merger Agreement) of the Company were issued, reserved for issuance, outstanding or held by the
Company in its treasury. As of the date of this Agreement, (A) except as set forth in
Section 3.2(a), there were no outstanding options, stock appreciation rights, “phantom” stock
rights, performance awards, units, dividend equivalent awards, rights to receive shares of Company
Common Stock on a deferred basis, rights to purchase or receive Company

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Common Stock or other
rights that are linked to the value of Company Common Stock issued or granted by the Company or any
of the Company Subsidiaries or Company Joint Ventures to any current or former director, officer,
employee or consultant of the Company or any of the Company Subsidiaries or Company Joint Ventures
and (B) no shares of Company Restricted Stock or Company Restricted Units were subject to
performance-based vesting criteria. All outstanding shares of Company Common Stock are, and all
shares which may be issued pursuant to the exercise of Company Employee Stock Options and the
vesting of Company Performance Units (as defined in the Merger Agreement) and Company Restricted
Units will be, when issued in accordance with the terms thereof, duly authorized, validly issued,
fully paid and nonassessable and not subject to or issued in violation of any purchase option, call
option, right of first refusal, preemptive right, subscription right or any similar right under any
provision of the Maryland General Corporation Law, as amended, the articles of incorporation of the
Company as in effect from time to time, the by-laws of the Company as in effect from time to time,
or any contract to which the Company is a party or otherwise bound. During the period from
September 17, 2008, to the date of this Agreement, there have been no issuances, reservations for
issuance or grants by the Company or any of the Company Subsidiaries or Company Joint Ventures of
any shares of capital stock (including Company Restricted Stock) or other voting securities or
Equity Interests of the Company (other than issuances or grants of shares of Company Common Stock
pursuant to (i) the Company Shareholder Investment Plan and (ii) the Company Employee Savings Plan,
the Company Represented Employee Savings Plan for Nine Mile Point and the Company Non-Represented
Employee Savings Plan for Nine Mile Point in the ordinary course of business consistent with past
practice and (iii) the exercise of Company Employee Stock Options outstanding on September 17,
2008, as required by their terms as in effect on September 17, 2008).

          (c) There are no outstanding bonds, debentures, notes or other indebtedness of the Company or
any of the Company Subsidiaries or Joint Ventures having the right to vote on any matters on which
holders of capital stock or other Equity Interests of the Company or any of the Company
Subsidiaries or Joint Ventures may vote (“Company Voting Debt”).

          (d) Except as set forth in Section 4.3(d) of the Company Disclosure Letter, as of the date of
this Agreement, there are (A) no options, warrants, calls, rights, convertible or exchangeable
securities, commitments, contracts, arrangements or undertakings of any kind to which the Company
or any of the Company Subsidiaries or the Company Joint Ventures is a party or by which any of them
is bound obligating the Company or any of the Company Subsidiaries or the Company Joint Ventures to
issue, deliver or sell, or cause to be issued, delivered or sold, (1) shares of capital stock or
other voting securities or Equity Interests of, or any security convertible or exercisable for or
exchangeable into any capital stock or other voting securities or Equity Interests of, the Company
or any of the Company Subsidiaries or the Company Joint Ventures or (2) any Company Voting Debt and
(B) no other rights the value of which is in any way based on or derived from, or that give any
person the right to receive any
economic benefit or right similar to or derived from the economic benefits and rights accruing
to holders of capital stock or other voting securities or Equity Interests of the Company or any of
the Company Subsidiaries or the Company Joint Ventures. As of the date of this Agreement, there are
no outstanding contractual obligations of the Company or any of the Company Subsidiaries or the
Company Joint Ventures to repurchase, redeem or otherwise acquire any

5

 

shares of capital stock of
the Company or any of the Company Subsidiaries or the Company Joint Ventures.

          (e) None of the Company nor any of the Company Subsidiaries or the Company Joint Ventures is a
party to any voting agreement with respect to the voting of any shares of capital stock or other
voting securities or Equity Interests of the Company or any of the Company Subsidiaries or the
Company Joint Ventures.

          3.3 Authorization. The Company has all requisite corporate power to enter into the
Transaction Agreements and to carry out and perform its obligations under the terms of the
Transaction Agreements. All corporate action on the part of the Company, its officers, directors
and stockholders necessary for the authorization of the Preferred Stock, and the filing of the
Articles Supplementary, the authorization, execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated thereby, including the issuance of
the Common Stock and the 14% Senior Notes upon the conversion of the Preferred Stock (the
“Transactions”), has been taken. The execution, delivery and performance of the
Transaction Agreements by the Company and the consummation of the Transactions do not require any
approval of the Company’s stockholders. Assuming this Agreement constitutes the legal and binding
agreement of the Purchaser, this Agreement constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or fraudulent conveyance and similar laws relating to or affecting creditors generally or
by general equity principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and an implied covenant of good faith and fair dealing. The Board
of Directors has taken all action necessary to render inapplicable, as it relates to Purchaser and
its controlled Affiliates, the provisions of the Maryland Business Combination Act. At or prior to
the Closing, the Company will have reserved for issuance the shares of Common Stock initially
issuable upon conversion of the Preferred Stock.

          3.4 Valid Issuance. The Preferred Stock being purchased by the Purchaser pursuant to
this Agreement will, upon issuance pursuant to the terms of this Agreement and upon payment
therefor, be duly authorized, validly issued, fully paid and non-assessable, free and clear of
preemptive or similar rights. Upon their issuance in accordance with the terms of the Preferred
Stock, the shares of Common Stock will be duly authorized, validly issued, fully paid and
non-assessable, free and clear of preemptive or similar rights and the 14% Senior Notes will
constitute legal, valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or fraudulent conveyance and similar
laws relating to or affecting creditors generally or by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law) and an implied
covenant of good faith and fair dealing. Subject to
the accuracy of the representations made by the Purchaser in Section 4, the Preferred Stock
will be issued to the Purchaser in compliance with applicable exemptions from the registration and
prospectus delivery requirements of the Securities Act. As of the date hereof, the Company is
eligible to file a registration statement on Form S-3 under the Securities Act and is current in
its filings with the SEC under Section 13(a) of the Exchange Act.

6

 

          3.5 No Conflict. No material consent, approval, order or authorization from any
Person (other than the Purchaser and its Affiliates) or Governmental Authority that has not been
obtained is required for the (i) execution, delivery and performance of this Agreement by the
Company, (ii) the issuance of the Preferred Stock, (iii) except with respect to any approvals or
clearance required by the FERC or under the HSR Act, the issuance of the shares of Common Stock
upon conversion of the Preferred Stock, or (iv) the issuance of the 14% Senior Notes. The
execution, delivery and performance of the Transaction Agreements by the Company and the
consummation of the other transactions contemplated hereby will not (i) conflict with or result in
any violation of any provision of the charter or bylaws of the Company or (ii) conflict with or
violate any applicable Law, other than, in the case of (ii) above, as would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

          3.6 Preference. The Company has no authorized or outstanding class of securities
ranking as to dividends, redemption or distribution of assets upon a liquidation senior to or pari
passu with the Preferred Stock.

          3.7 No Manipulation of Stock. The Company has not taken, in violation of applicable
law, any action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the transactions
contemplated hereby or the sale or resale of the shares of Common Stock.

          3.8 General Solicitation; No Integration. Neither the Company nor any other Person or
entity authorized by the Company to act on its behalf has engaged in a general solicitation or
general advertising (within the meaning of Regulation D under the Securities Act) of investors with
respect to offers or sales of the Preferred Stock. The Company has not, directly or indirectly,
sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which, to its knowledge, is or will be integrated with the
Preferred Stock sold pursuant to this Agreement.

          3.9 No Regulatory Approvals. Except with respect to any approvals or clearance
required by the FERC or under the HSR Act in connection with the issuance of the shares of Common
Stock upon conversion of the Preferred Stock, there are no regulatory approvals or consents
required for the authorization of the Preferred Stock, and the filing of the Articles
Supplementary, the issuance of the Common Stock and the 14% Senior Notes upon conversion of the
Preferred Stock, the authorization, execution, delivery and performance of the Transaction
Agreements and the consummation of the transactions contemplated thereby.

     4. Representations and Warranties of the Purchaser. The Purchaser represents and
warrants to the Company as follows:

          4.1 Organization. The Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of Iowa and has the requisite power and authority to consummate the
transactions contemplated by this Agreement and the other Transaction Agreements to which it will
be a party and to perform each of its obligations hereunder and thereunder.

7

 

          4.2 Authorization. All corporate, member or partnership action on the part of the
Purchaser or its stockholders necessary for the authorization, execution, delivery and performance
of this Agreement and the other Transaction Agreements to which it will be a party and the
consummation of the Transactions has been taken. Assuming this Agreement constitutes the legal and
binding agreement of the Company, this Agreement constitutes a legal, valid and binding obligation
of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or fraudulent conveyance and similar laws relating to or affecting creditors generally or
by general equity principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

          4.3 No Conflict. No material consent, approval, order or authorization of any third
party is required for the execution, delivery and performance of this Agreement by the Purchaser.
The execution, delivery and performance of the Transaction Agreements by the Purchaser and the
consummation of the other transactions contemplated hereby will not (i) conflict with or result in
any violation of any provision of the certificate of incorporation or by-laws or other equivalent
organizational documents of the Purchaser or (ii) conflict with or violate any applicable Law,
other than, in the case of (ii) above, as would not, individually or in the aggregate, be
reasonably expected to materially delay or hinder the ability of the Purchaser to perform its
obligations under the Transaction Agreements.

          4.4 Purchase Entirely for Own Account. The Purchaser is acquiring the Preferred Stock
for its own account and not with a view to, or for sale in connection with, any distribution of the
Preferred Stock in violation of the Securities Act. The Purchaser has no present agreement,
undertaking, arrangement, obligation or commitment providing for the disposition of the Preferred
Stock.

          4.5 Investor Status. The Purchaser certifies and represents to the Company that it is
an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Securities
Act. The Purchaser’s financial condition is such that it is able to bear the risk of holding the
Preferred Stock for an indefinite period of time and the risk of loss of its entire investment.
The Purchaser has been afforded the opportunity to ask questions of and receive answers from the
management of the Company concerning this investment and has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to evaluate the risks and merits of
its investment in the Company.

          4.6 Securities Not Registered. The Purchaser understands that the Preferred Stock has
not been registered under the Securities Act, by reason of their issuance by the Company in a
transaction exempt from the registration requirements of the Securities Act, and that the Preferred
Stock must continue to be held by the Purchaser unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration. The Purchaser understands
that the exemptions from registration afforded by Rule 144 (the provisions of which are known to
it) promulgated under the Securities Act depend on the satisfaction of various conditions, and
that, if applicable, Rule 144 may afford the basis for sales only in limited amounts.

8

 

          5. Covenants.

          5.1 Reasonable Best Efforts. Subject to the terms and conditions of this Agreement,
each party will use its reasonable best efforts to take, or cause to be taken, all appropriate
actions, to file, or cause to be filed, all documents and to do, or cause to be done, all things
necessary, proper or advisable to consummate the Transactions, including preparing and filing as
promptly as reasonably practicable all documentation to effect all necessary filings, consents,
waivers, approvals, authorizations, licenses, consents, certificates, registrations, approvals or
other permits of any Governmental Authority or orders from all Governmental Authorities or other
Persons; provided, however, that in no event shall the Company or any of its
Subsidiaries be required to pay any fee, penalty or other consideration to obtain any consent,
approval or waiver required for the consummation of the Transactions under any contract.

          5.2 Interim Actions. If during the period between the date hereof and the earlier of
the Closing Date and the date this Agreement is terminated, the Company takes any action that, had
the Preferred Stock been outstanding at such time, (i) would have resulted in a distribution or
payment to the holders of the Preferred Stock, (ii) would, or together with other like events
could, have resulted in any adjustments to the terms of the Preferred Stock, including the
Conversion Share Amount (as defined in the Articles Supplementary), or (iii) would have required
the prior approval of or consent by the holders of the Preferred Stock, then the taking of any such
action by the Company shall require the approval of the Purchaser. 

     5.3 Payments. All payments made to the Purchaser in connection with the 14% Senior
Notes, the Common Stock or the Preferred Stock shall be made by wire transfer of immediately
available United States funds.

     6. Conditions Precedent.

          6.1 Conditions to the Obligations of Each Party. The obligations of the Company and
the Purchaser to consummate the purchase and sale of the Preferred Stock at the Closing are subject
to the satisfaction or waiver of the following conditions:

          (a) All regulatory approvals, if any, required in connection with the purchase and sale of the
Preferred Stock or the issuance of the shares of Common Stock and 14% Senior
Notes upon conversion of the Preferred Stock shall have been obtained, except with respect to
any approvals or clearance required by the FERC or under the HSR Act in connection with the
issuance of the shares of Common Stock upon conversion of the Preferred Stock.

          (b) No temporary restraining order, preliminary or permanent injunction or other judgment or
order issued by any court or agency of competent jurisdiction (each, a “Restraint”) shall
be in effect which prohibits, restrains or renders illegal the consummation of the Investment
(provided, that prior to asserting this condition, the party asserting this condition shall
have used its best efforts (in the manner contemplated by Section 5.1) to prevent the entry of any
such Restraint and to appeal as promptly as practicable any judgment that may be entered).

          (c) The Investor Rights Agreement shall be in full force and effect.

9

 

          (d) The Merger Agreement shall be in full force and effect.

          6.2 Conditions to the Obligations of the Company. The obligation of the Company to
consummate the sale of the Preferred Stock to the Purchaser at the Closing is subject to the
satisfaction or waiver of the following further conditions:

          (a) The representations and warranties contained herein of the Purchaser shall be true and
correct on the date of this Agreement and as of the Closing Date with the same force and effect as
though made on and as of the Closing Date, except where the failure to be so true and correct would
not, individually or in the aggregate, as of the date hereof and as of the Closing Date has not
had, and would not be reasonably likely to have an effect on the Purchaser that will, or would
reasonably be expected to, materially delay or hinder the ability of the Purchaser to perform its
obligations under the Transaction Agreements; provided, however, that such
representations and warranties made as of a specific date need only be true and correct (subject to
the qualifications set forth above) as of such date only.

          (b) The Purchaser shall have performed in all material respects all obligations, and complied
in all material respects with the agreements and covenants, required to be performed by or complied
with by it hereunder at or prior to the Closing.

          6.3 Conditions to the Obligations of the Purchaser. The obligation of the Purchaser
to consummate the sale of the Preferred Stock to the Purchaser at the Closing is subject to the
satisfaction or waiver of the following further conditions:

          (a) The representations and warranties of the Company (i) set forth in Sections 3.2(a), 3.4
and 3.6 shall be true and correct on the date of this Agreement and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date and (ii) set forth in Article
III, other than in Sections 3.2(a), 3.4 and 3.6, shall be true and correct on the date of this
Agreement and as of the Closing Date with the same force and effect as though made on and as of the
Closing Date (without giving effect to qualifications as to materiality or Material Adverse Effect
contained therein), except where the failure to be so true and correct
would not, individually or in the aggregate, have a Material Adverse Effect; provided,
however, that such representations and warranties made as of a specific date need only be true and
correct (subject to the qualifications set forth above) as of such date only.

          (b) As of the date hereof, the Company is able to deliver the certificate contemplated by
Section 8.2(b) of the Merger Agreement assuming for the purposes of this Section 6.3(b) that the
closing of the Merger (as defined in the Merger Agreement) occurred on the Closing Date.

          (c) The Articles Supplementary shall have been filed by the Company with, and accepted for
record by, the State Department of Assessments and Taxation of Maryland, and satisfactory evidence
of such filing and acceptance for record shall have been delivered to the Purchaser.

10

 

          (d) The Company shall have performed in all material respects all obligations, and complied in
all material respects with the agreements and covenants, required to be performed by or complied
with by it hereunder at or prior to the Closing.

          (e) Purchaser shall have received fully executed copies of all of the waivers contemplated by
Section 8.2(j) of the Merger Agreement.

          (f) There shall not have been any Material Adverse Effect since the date hereof.

     7. Termination.

          7.1 Conditions of Termination. Notwithstanding anything to the contrary contained in
this Agreement, this Agreement may be terminated at any time before the Closing:

          (a) by mutual consent of the Company and the Purchaser;

          (b) by either the Company, on the one hand, or the Purchaser, on the other hand, if:

          (i) the Closing shall not have occurred on or prior to 5:00 p.m., New York time, on
September 24, 2008 and the party or parties seeking to terminate this Agreement pursuant to
this Section 7.1(b)(i) shall not have breached in any material respect its or their
obligations under this Agreement;

          (ii) any Restraint having the effect set forth in Section 6.1(b) shall be in effect and
shall have become final and nonappealable; or

          (iii) the Merger Agreement is terminated.

          7.2 Effect of Termination. In the event of any termination pursuant to Section 7.1,
this Agreement shall become null and void and have no effect, with no liability on the part of the
Company or the Purchaser, or their
directors, officers, agents or stockholders, with respect to this Agreement, other than in
respect of willful breach.

          8. Miscellaneous Provisions.

          8.1 Public Statements or Releases. Purchaser and the Company will consult with each
other before issuing, and provide each other the reasonable opportunity to review, comment upon and
concur with, any press release or other public statements with respect to this letter agreement or
the transactions contemplated hereby, and shall not issue any such press release or make any such
public statement prior to such consultation, unless required by applicable law or the rules of a
national securities exchange. In the event that any party concludes that it is required by law or
relevant stock exchange rules to make a public statement with respect to this letter agreement or
the transactions contemplated herby or make any public filing with respect thereto, including any
filing with the Securities and Exchange Commission, such party will immediately provide to the
other parties hereto for review a copy of any such press release, statement or filing, and will not
issue any such press release, or make any such

11

 

public statement or filing, prior to such
consultation and review, unless required by applicable law or the rules of a national securities
exchange.

          8.2 Interpretation. Section and subsection references are to this Agreement unless
otherwise specified. The headings in this Agreement are included for convenience of reference only
and will not limit or otherwise affect the meaning or interpretation of this Agreement. Whenever
the words “include,” “includes” or “including” are used in this Agreement, they will be deemed to
be followed by the words “without limitation.” The phrase “the date of this Agreement,” and terms
of similar import, unless the context otherwise requires, will be deemed to refer to the date set
forth in the first paragraph of this Agreement. The meanings given to terms defined in this
Agreement will be equally applicable to both the singular and plural forms of such terms. All
matters to be agreed to by any party must be agreed to in writing by such party unless otherwise
indicated in this Agreement. References to agreements, policies, standards, guidelines or
instruments, or to statutes or regulations, are to such agreements, policies, standards, guidelines
or instruments, or statutes or regulations, as amended or supplemented from time to time (or to
successors thereto).

          8.3 Notices. All notices, requests and other communications to any party hereunder
shall be in writing, by reliable overnight delivery service (with proof of service), hand delivery
or certified or registered mail (return receipt requested and first-class postage prepaid), or by
facsimile, and shall be given:

(a) if to the Company, to:

Constellation Energy Group, Inc.

750 E. Pratt Street

Baltimore, Maryland 21202

Attention: Charles Berardesco

Fax: (410) 470-5741

with a copy to (which shall not constitute notice):

Kirkland & Ellis LLP

Citigroup Center

153 East 53rd Street

New York, New York 10022-4611

Attention:   George Stamas

                    Mark Director

Fax: (202) 879-5200

(b) if to the Purchaser, to:

MidAmerican Energy Holdings Company

1111 South 103rd Street

Omaha, NE 68124

Attention: Douglas L. Anderson

Fax: (402) 231-1658

12

 

Willkie Farr & Gallagher LLP

787 Seventh Avenue

New York, New York 10019

Attention: Peter Hanlon

Fax: (212) 728-8111

or such other address or facsimile number as such party may hereafter specify by notice to the
other parties hereto.  Each such notice, request or other communication shall be effective (i) if
given by facsimile, when such facsimile is transmitted to the facsimile number specified above and
electronic confirmation of transmission is received or (ii) if given by any other means, when
delivered at the address specified in this Section 8.3.

          8.4 Severability. If any part or provision of this Agreement is held unenforceable or
in conflict with the applicable laws or regulations of any jurisdiction, the invalid or
unenforceable part or provisions shall be replaced with a provision which accomplishes, to the
extent possible, the original business purpose of such part or provision in a valid and enforceable
manner, and the remainder of this Agreement shall remain binding upon the parties.

          8.5 Governing Law.

          (a) This Agreement shall be governed by and construed in accordance with the laws of the State
of New York, without regard to conflicts of laws principles thereof.

          (b) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY AND (IV) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 8.5.

          8.6 Waiver. No waiver of any term, provision or condition of this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or be construed as, a
further or continuing waiver of any such term, provision or condition or as a waiver of any other
term, provision or condition of this Agreement.

13

 

          8.7 Expenses. Each of the Company and the Purchaser shall be responsible for their
own expenses incurred in connection with the Investment and the other transactions contemplated by
the Transaction Agreements.

          8.8 Successors and Assigns. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors and assigns,
provided that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the consent of the other parties hereto (and any purported
assignment without such consent shall be void and without effect), provided,
however, that the Purchaser may assign any of its rights, interests and obligations
hereunder to an Affiliate, provided that the Purchaser may not assign any of its rights,
interests and obligations hereunder to an Affiliate if such assignment would, or would reasonably
be expected to, materially delay or hinder the ability of the Purchaser to perform its obligations
under Section 2.2 hereto, and provided further that no such assignment shall relieve the
Purchaser from any of its agreements and obligations hereunder.

          8.9 Third Parties. This Agreement does not create any rights, claims or benefits
inuring to any Person that is not a party nor create or establish any third party beneficiary to
this Agreement or any other Transaction Agreement.

          8.10 Counterparts. This Agreement may be signed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one instrument.

          8.11 Entire Agreement; Amendments. This Agreement, the Investor Rights Agreement and
the Merger Agreement, constitute the entire agreement between the parties respecting the subject
matter of this Agreement and supersede all prior agreements, negotiations, understandings,
representations
and statements respecting the subject matter of this Agreement, whether written or oral. No
modification, alteration, waiver or change in any of the terms of this Agreement shall be valid or
binding upon the parties unless made in writing and duly executed by the parties.

          8.12 Survival. The representations and warranties contained in this Agreement shall
terminate upon the first to occur of the Closing or the termination of this Agreement;
provided, however, that in the event the Closing occurs, the representations and
warranties in Section 3.1, 3.3, 3.4 and 3.5 shall survive and remain in effect until the earlier of
(i) the redemption by the Company of all outstanding shares of Preferred Stock and (ii) the
issuance of the shares of Common Stock and 14% Senior Notes issuable upon conversion of the
Preferred Stock.

          8.13 Representation by Counsel; Mutual Drafting. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this Agreement and have
participated jointly in the negotiation and drafting of this Agreement and hereby waive the
application of any law, regulation, holding or rule of construction providing that ambiguities in
an agreement or other document will be construed against the party drafting such agreement or
document. In the event an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties, and no presumption or burden

14

 

of proof
shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions
of this Agreement.

* * * *

15

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first
above written.

	 	 	 	 	 
	 	CONSTELLATION ENERGY GROUP, INC.

 	 
	 	By:  	/s/ Mayo A. Shattuck III
 	 
	 	 	Name:  	Mayo A. Shattuck III 	 
	 	 	Title:  	Chairman, President and Chief Executive Officer 	 
	 
	 	MIDAMERICAN ENERGY HOLDINGS COMPANY

 	 
	 	By:  	/s/ Gregory E. Abel
 	 
	 	 	Name:  	Gregory E. Abel 	 
	 	 	Title:  	President and Chief Executive Officer 	 
	 

 

 

EXHIBIT A

FORM OF 14% SENIOR NOTE

 

 

EXHIBIT B

INVESTOR RIGHTS AGREEMENT

 

 

EXHIBIT C

MERGER AGREEMENT

 

 

EXHIBIT D

ARTICLES SUPPLEMENTARYEX-10.2

Exhibit 10.2

ARTICLES SUPPLEMENTARY

SERIES A CONVERTIBLE PREFERRED STOCK

OF

CONSTELLATION ENERGY GROUP, INC.

 

Pursuant to Section 2-208(b) of

the Maryland General Corporation Law
 

          Constellation Energy Group, Inc. (the “Company”), a corporation organized and existing
under and by virtue of the Maryland General Corporation Law (the “MGCL”), hereby certifies
as follows:

          FIRST: The charter of the Company (as amended and supplemented, the “Articles of
Incorporation”) authorizes the issuance of up to 25,000,000 shares of preferred stock, par
value $0.01 per share (the “Authorized Preferred Stock”), and further authorizes the Board
of Directors of the Company to classify any unissued shares of Authorized Preferred Stock by
setting the preferences, conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the shares.

          SECOND: On September 19, 2008, the Board of Directors of the Company by duly adopted
resolutions classified and designated 10,000 shares of Authorized Preferred Stock as shares of
Series A Convertible Preferred Stock, with the following preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other distributions, qualifications,
and terms and conditions of redemption:

     1. Designation and Amount; Ranking.

          (a) There shall be created from the Authorized Preferred Stock a series of preferred stock,
designated as the “Series A Convertible Preferred Stock”, par value $0.01 per share (the
“Preferred Stock”), and the number of shares of such series shall be 10,000. Such number
of shares may be decreased by resolution of the Board of Directors; provided that no
decrease shall reduce the number of shares of Preferred Stock to a number less than that number of
shares of Preferred Stock then outstanding.

          (b) The Preferred Stock will, with respect to both dividend rights and rights upon a
Liquidation, rank (i) senior to all Junior Stock, (ii) on parity with all Parity Stock and (iii)
junior to all Senior Stock.

 

 

     2. Definitions. As used herein, the following terms shall have the following
meanings:

          (a) “Accrued Dividends” means, with respect to any share of Preferred Stock, as of any
date, the accrued and unpaid cash dividends on such share through and including such date (whether
or not authorized or declared).

          (b) “Affiliate” means any Person or entity, directly or indirectly, controlling,
controlled by or under common control with such Person or entity.

          (c) “Approved Markets” shall mean the Nasdaq Global Market, the NYSE or the American
Stock Exchange.

          (d) “Articles” means these Articles Supplementary with respect to the Preferred Stock,
as amended from time to time.

          (e) “Articles of Incorporation” has the meaning set forth in the recitals.

          (f) “Authorized Preferred Stock” has the meaning set forth in the recitals.

          (g) “Beneficially Owned” means with respect to any securities having “beneficial
ownership” of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act).

          (h) “BGE” means Baltimore Gas and Electric Company.

          (i) “Board Observer” has the meaning set forth in Section 5(b). 

          (j) “Board of Directors” means the Board of Directors of the Company or, with respect
to any action to be taken by the Board of Directors, any committee of the Board of Directors duly
authorized to take such action.

          (k) “Business Day” means a day other than a Saturday, Sunday or other day on which
banks in the State of Maryland are required or authorized to close.

          (l) “Calendar Quarter” means each three-month quarterly period ended March 31, June
30, September 30 or December 31.

          (m) “Capital Stock” of any Person means any and all securities (including
equity-linked securities), interests (including partnership interests), rights to purchase,
warrants, options, participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preference Stock.

          (n) “Change of Control” means the consummation of any transaction or series of related
transactions involving (i) any purchase or acquisition (whether by way of merger, share exchange,
consolidation, business combination or similar transaction or otherwise) by any Person or group
(within the meaning of Section 13(d)(3) of the Exchange Act) (such other Person or group, an
“Acquiring Person”), of any of (A) securities representing a majority of the

- 2 -

 

outstanding voting power of the Company entitled to elect the Board of Directors or (B) the
majority of the outstanding shares of Common Stock, (ii) any sale, lease, exchange, transfer,
license or disposition of all or substantially all of the assets of the Company and its
Subsidiaries, taken together as a whole, to an Acquiring Person, that is not the Company or a
Subsidiary of the Company (iii) any merger, consolidation or business combination in which the
holders of voting securities of the Company immediately prior to the transaction, as a group, do
not hold securities representing a majority of the outstanding voting power entitled to elect the
board of directors or other governing body of the surviving entity in such merger, consolidation or
business combination, (iv) any merger, share exchange, consolidation, business combination or
similar transaction or otherwise in which the Holders of the Preferred Stock do not receive
securities having the same powers, preferences and rights as provided for herein or (v) Continuing
Directors ceasing to constitute a majority of the members of the Board of Directors; provided,
however, that the consummation of the Merger (as defined in the Merger Agreement) shall not be
deemed to be a Change of Control.

          (o) “Common Stock” means the common stock, no par value, of the Company, or any other
class of stock resulting from successive changes or reclassifications of such common stock
consisting solely of changes in par value, or from par value to no par value, or as a result of a
subdivision, combination, or merger, consolidation or similar transaction in which the Company is a
constituent corporation.

          (p) “Company” has the meaning set forth in the recitals.

          (q) “Continuing Directors” means a director who either was a member of the Board of
Directors on the Original Issue Date or who becomes a member of the Board of Directors subsequent
to that date and whose election, appointment or nomination for election is duly approved by a
majority of the Continuing Directors on the Board of Directors at the time of such approval, either
by a specific vote or by approval of the proxy statement issued by the Company on behalf of the
entire Board of Directors in which such individual is named as nominee for director.

          (r) “Conversion Date” has the meaning set forth in Section 7(b)(iii).

          (s) “Conversion Event” shall mean the first to occur of: (i) the date that is 180
days following the date Parent (as defined in the Merger Agreement) exercises the Limited Due
Diligence Termination Right if the Company has not redeemed the Preferred Stock as of such date
pursuant to Section 6 below, (ii) the date the Merger Agreement is terminated (other than upon
exercise of the Limited Due Diligence Termination Right or due to a breach of the Merger Agreement
by Parent or Merger Sub (as defined in the Merger Agreement)) and (iii) the Initial Termination
Date, as defined in the Merger Agreement, as may be extended by the Company or Parent.

          (t) “Conversion Share Amount” has the meaning set forth in Section 7(a)(i).

          (u) “Convertible Securities” means debt securities or shares of Capital Stock
convertible into or exchangeable for Common Stock.

- 3 -

 

          (v) “Dividend Payment Date” means January 2, April 1, July 1 and October 1, of each
year. The first Dividend Payment Date shall be October 1, 2008,; provided, that if any
such payment date is not on a Business Day then such dividend shall be payable on the next Business
Day.

          (w) “Dividend Rate” has the meaning set forth in Section 3(a).

          (x) “Dividend Record Date” means, with respect to any dividend payable on a Dividend
Payment Date, the preceding December 15, March 15, June 15 and September 15, with respect to any
dividend payable on any other date, such date as may be determined by the Board of Directors.

          (y) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

          (z) “GAAP” means United States generally accepted accounting principles.

          (aa) “Guarantee” means any obligation, contingent or otherwise, of any Person directly
or indirectly guaranteeing any indebtedness of any Person and any obligation, direct or indirect,
contingent or otherwise, of such Person.

          (bb) “Holder” or “holder” means a holder of record of shares of the Preferred
Stock.

          (cc) “Indebtedness for Borrowed Money” means indebtedness for money borrowed and
indebtedness evidenced by notes, debentures, bonds or other similar instruments (including any
Guarantee of any of the foregoing) or deferred purchase price of property or services (other than
current trade liabilities incurred in the ordinary course of business and payable in accordance
with customary practice).

          (dd) “Junior Stock” means all classes of Common Stock and each other class of Capital
Stock or series of preferred stock of the Company established after the Original Issue Date by the
Board of Directors, the terms of which expressly do not provide that such class or series ranks
senior to or on parity with the Preferred Stock as to dividend rights and rights upon a Liquidation
and Change of Control.

          (ee) “Limited Due Diligence Termination Right” means the termination right set forth
in Section 9.1(h) of the Merger Agreement.

          (ff) “Liquidation” means the voluntary or involuntary liquidation, dissolution or
winding-up of the Company.

          (gg) “Liquidation Event” has the meaning set forth in Section 4(a).

(hh) “Liquidation Preference” has the meaning set forth in
Section 4(a).

          (ii) “Merger Agreement” means that certain Agreement and Plan of Merger, dated as of
September 19, 2008, by and among the Company, MidAmerican and MEHC Merger

- 4 -

 

Sub, Inc., a Maryland corporation and a wholly owned subsidiary of MidAmerican, as amended
from time to time.

          (jj) “MGCL” has the meaning set forth in the recitals.

          (kk) “MidAmerican” means MidAmerican Energy Holdings Company, an Iowa corporation.

          (ll) “NYSE” means the New York Stock Exchange, Inc.

          (mm) “Original Issue Date” means September 22, 2008.

          (nn) “Parity Stock” means any class of Capital Stock or series of preferred stock of
the Company established after the Original Issue Date by the Board of Directors and in accordance
with the terms hereof, the terms of which expressly provide that such class or series will rank on
parity with the Preferred Stock as to dividend rights or rights upon a Liquidation or payments
rights on a Change of Control.

          (oo) “Person” means any individual, corporation, general partnership, limited
partnership, limited liability partnership, joint venture, association, joint-stock company, trust,
limited liability company, unincorporated organization or government or any agency or political
subdivision thereof.

          (pp) “Preference Stock”, as applied to the Capital Stock of any Person, means Capital
Stock of any series, class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary
liquidation or dissolution of such Person, over shares of Capital Stock of any other series or
class of such Person.

          (qq) “Preferred Nominee” has the meaning set forth in Section 5(b)(i).

          (rr) “Preferred Stock” has the meaning set forth in Section 1(a).

          (ss) “Purchase Agreement” means that certain Stock Purchase Agreement, dated September
19, 2008, by and between the Company and MidAmerican.

          (tt) “Record Date” means, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the right to receive any cash,
securities or other property or in which the Common Stock (or other applicable security) is
converted or exchanged into any combination of cash, securities or other property, the date fixed
for determination of stockholders entitled to receive such dividend, distribution, cash, security
or other property (whether or not such date is fixed by the Board of Directors of the Company or by
statute, contract or otherwise).

          (uu) “Redemption” has the meaning set forth in Section 6(a).

          (vv) “Redemption Notice” has the meaning set forth in Section 6(d).

- 5 -

 

          (ww) “Redemption Price” has the meaning set forth in Section 6(a).

          (xx) “Register” has the meaning set forth in Section 3(a).

          (yy) “Required Holders” means as of any date the holders of more than 50% of the
then-outstanding shares of Preferred Stock, voting together as a single class.

          (zz) “SEC” or “Commission” means the United States Securities and Exchange
Commission.

          (aaa) “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

          (bbb) “Senior Notes” means the Company’s 14% Senior Notes which will be evidenced by
the form of Note attached as Exhibit A to the Purchase Agreement.

          (ccc) “Senior Stock” means each class of Capital Stock or series of preferred stock of
the Company established after the Original Issue Date by the Board of Directors and in accordance
with the terms hereof, the terms of which expressly provide that such class or series will rank
senior to the Preferred Stock as to dividend rights or rights upon a Liquidation.

          (ddd) “Special Triggering Event” means any of the following events:

               (i) the failure of the Company to redeem the shares of Preferred Stock required to be
redeemed on the applicable redemption date;

               (ii) the failure of the Preferred Nominees to be appointed or elected to the Board of
Directors;

               (iii) the failure of the Company to list the shares of Common Stock issuable upon
conversion of the Preferred Stock on the NYSE or another Approved Market on which the
Common Stock is listed for trading by the date that is thirty (30) days following the
Original Issuance Date; or

               (iv) the failure of the Company to reserve and keep available for issuance the number
of shares of authorized but unissued shares of Common Stock required pursuant to Section
7(a)(iii).

          (eee) “Stated Value” means $100,000 per each share of Preferred Stock, subject to
appropriate adjustment in the event of any stock dividend, stock split, stock distribution or
combination, subdivision, reclassification or other corporate action having a similar effect with
respect to the Preferred Stock.

          (fff) “Subsidiary” means a partnership, joint-stock company, corporation, limited
liability company, trust or unincorporated organization of which a Person owns, directly or
indirectly, more than 50% of the stock or other interests the holder of which is generally entitled
to vote for the election of the board of directors or other governing body of such entity.

- 6 -

 

          (ggg) “Trading Day” means a day during which trading securities generally occurs on
the NYSE or, if the Common Stock is not listed on the NYSE, on the Approved Market on which the
Common Stock is then listed.

          (hhh) “Transaction” has the meaning set forth in Section 9(c).

          (iii) “Transfer Agent” means American Stock Transfer & Trust Company, the Company’s
duly appointed transfer agent, registrar and conversion and dividend disbursing agent for the
Preferred Stock, or such other Transfer Agent as may be appointed by the Company from time to time.

     3. Dividends.

          (a) From and after the Original Issue Date, the Holders shall be entitled to receive when and
as authorized by the Board of Directors out of funds legally available for that purpose, on each
Dividend Payment Date, cash dividends on each share of Preferred Stock, at a rate per annum equal
to eight percent (8%) of the Stated Value as of the Dividend Payment Date (the “Dividend
Rate”). Dividends shall be cumulative from the Original Issue Date and shall compound
quarterly at the Dividend Rate then in effect and be payable quarterly in arrears, on each Dividend
Payment Date, commencing on the first Dividend Payment Date following the Original Issue Date;
provided, that if any such payment date is not a Business Day then such dividend shall be
payable on the next Business Day. Each dividend shall be payable to the Holders of Preferred Stock
as they appear on the securities register maintained in respect of the Preferred Stock by the
Company (the “Register”) at the close of business on the corresponding Dividend Record
Date. All dividends paid with respect to shares of Preferred Stock shall be paid pro rata to the
Holders entitled thereto. The amount of dividends payable for any other period shorter or longer
than a full dividend period, shall be computed on the basis of twelve 30-day months and a 360-day
year. Dividend payments shall be aggregated per Holder and shall be rounded to the nearest cent
(with $.005 being rounded upward).

          (b) Upon a Special Triggering Event, the then applicable Dividend Rate shall automatically be
increased by two percent (2%) per annum from and including the date on which any such Special
Triggering Event shall occur through but excluding the date on which the Special Triggering Event
shall have been cured or waived by the Required Holders.

          (c) No dividend will be declared or paid upon, or any sum set apart for the payment of
dividends upon, any outstanding share of the Preferred Stock or Parity Stock with respect to any
dividend period unless all dividends for all preceding dividend periods have been declared and
paid, or declared and a sum of cash sufficient for the payment thereof is set apart for the payment
of such dividend, upon all outstanding shares of Preferred Stock and Parity Stock. Notwithstanding
the foregoing, if full cumulative dividends have not been paid on the Preferred Stock and all
Parity Stock, all dividends declared and paid on the Preferred Stock and such Parity Stock shall be
declared and paid pro rata so that the amounts of dividends declared and paid per share on the
Preferred Stock and such Parity Stock will in all cases bear to each other the same ratio that
accumulated and unpaid dividends per share on the shares of Preferred Stock and such Parity Stock
bear to each other.

- 7 -

 

          (d) No dividends or other distributions may be declared, made or paid, or set apart for
payment upon, any Junior Stock, nor may any Junior Stock be redeemed, purchased or otherwise
acquired for any consideration (or any money paid to or made available for a sinking fund for the
redemption of any Junior Stock) by or on behalf of the Company or any of its Subsidiaries, unless
all Accrued Dividends shall have been or contemporaneously are declared and paid in cash, or are
declared and a sum of cash sufficient for the payment thereof is set apart for such payment, on the
Preferred Stock and all Parity Stock for all dividend periods terminating on or prior to the
dividend payment date for such declaration, payment, redemption, purchase or acquisition;
provided, however, that the Company may purchase shares of Common Stock upon the
exercise of stock options and vesting of restricted stock for purposes of withholding tax, cashless
exercise and to satisfy option exercises in accordance with past practices.

     4. Liquidation; Change of Control. In the event of any Liquidation or Change of
Control (a “Liquidation Event”), the Holders of Preferred Stock then outstanding shall be
entitled to be paid out of the assets and funds of the Company available for distribution to its
stockholders an amount in cash per each share of Preferred Stock equal to (a) 100% of the Stated
Value for each share of Preferred Stock outstanding on the date of such Liquidation Event, plus an
amount equal to (b) all Accrued Dividends thereon to the date of the Liquidation Event before any
payment shall be made or any assets distributed to the holders of any of the Junior Stock (the sum
of (a) and (b) being referred to as the “Liquidation Preference”). Without limiting any
rights and remedies of the Holders, if upon any such Liquidation Event, the remaining assets and
funds of the Company available for distribution to its stockholders after payment in full of
amounts required to be paid or distributed to holders of Senior Stock are not sufficient to pay in
full the liquidation payments payable to the Holders of outstanding shares of the Preferred Stock
and any the holders of any Parity Stock, then the Holders of all such shares shall share ratably in
such distribution of the remaining assets and funds of the Company in accordance with the amount
which would otherwise be payable on such distribution if the amounts to which the Holders of
outstanding shares of Preferred Stock and the holders of outstanding shares of such Parity Stock
are entitled were paid in full. The Preferred Stock shall remain outstanding following the
consummation of the Merger.

     5. Voting Rights.

          The Holders shall be entitled to the following voting rights:

          (a) General. The holders of record of shares of Series A Preferred Stock shall not be
entitled to any voting rights except as hereinafter provided in this Section 5.

          (b) Director Elections.

               (i) Within two (2) Business Days following the Original Issuance Date, the number of
directors constituting the Board of Directors of the Company shall be automatically
increased by one (1) and, MidAmerican shall have the right to nominate one (1) individual
(herein referred to as the “Preferred Nominee”), and the Board of Directors shall
appoint such Preferred Nominee to such newly created
directorship. The Preferred Nominee so appointed shall serve until the next annual
meeting of the stockholders of the Company and until his or her successor is elected

- 8 -

 

and qualifies. The Board of Directors shall cause the Company to include the Preferred
Nominee in the slate of nominees recommended by the Board of Directors to the holders of
Common Stock for election at the 2009 annual meeting of stockholders of the Company and
for reelection at every meeting thereafter and shall use all commercially reasonable
efforts to cause the election of the Preferred Nominee, including soliciting proxies in
favor of his or her election. In the event the Preferred Nominee resigns, is unable to
serve as a member of the Board of Directors, is removed from the Board of Directors or
fails to be elected as a member of the Board of Directors at any annual stockholders
meeting, MidAmerican shall have the right to nominate another individual (a
“Substitute Nominee”) and the Board of Directors shall appoint such Substitute
Nominee to fill the vacancy created by the resignation or removal of the prior Preferred
Nominee, at which point such Substitute Nominee shall be deemed to be the Preferred
Nominee.

               (ii) For so long as such membership does not conflict with any applicable law or
regulation or listing requirement of the NYSE or any other Approved Market (as determined
in good faith by the Board of Directors of the Company) that the Common Stock is listed
for trading, the Preferred Nominee shall be entitled to serve as a member of each
committee of the Board of Directors, except for any committee formed to consider a
transaction between the Company and MidAmerican, its Affiliates or any Holder that is
Affiliated with the Preferred Nominee or an Affiliate of any Holder that is Affiliated
with the Preferred Nominee.

               (iii) If MidAmerican has not exercised its right to nominate a Preferred Nominee but
is entitled to do so pursuant to this Section 5(b), it may appoint a board observer (the
“Board Observer”) who shall have the right to attend and participate in all
meetings of, and receive all material distributed to, the Board of Directors, but shall
not be entitled to vote at meetings of the Board of Directors or any committees thereof.
The Board Observer shall be entitled to attend and participate in each committee of the
Board of Directors, except for any committee formed to consider a transaction between the
Company and MidAmerican, its Affiliates or any Holder that is Affiliated with the
Preferred Nominee or an Affiliate of any Holder that is Affiliated with the Preferred
Nominee. The Company shall reimburse the Board Observer for all costs and expenses
reasonably incurred in connection with attending any meetings of the Board of Directors or
committees thereof. Notwithstanding the above, the Company has the right to withhold any
information from the Board Observer and to exclude the Board Observer from any meeting or
portion thereof if access to such information or attendance at such meeting, could:

                    (1) based on the advice of the Company’s outside counsel, adversely affect the
attorney-client privilege between the Company and its counsel;

                    (2) cause the Board of Directors to breach its fiduciary duties; or

- 9 -

 

                    (3) result in a conflict between interests of the Company, on the one hand, and
those of the Board Observer or its Affiliates, on the other hand.

          The Company will use its reasonable best efforts to ensure that any withholding of
information or any restriction on attendance is strictly limited only to the extent
necessary set forth in the preceding sentence.

               (iv) Notwithstanding the foregoing, at such time as the outstanding shares of
Preferred Stock Beneficially Owned by MidAmerican and its Affiliates are less than 33.3%
of the shares of Preferred Stock issued to MidAmerican or its Affiliates on the Original
Issuance Date, MidAmerican shall not be entitled to designate and the Holders shall not be
entitled to nominate the Preferred Nominee or the Board Observer under this Section 5(b).

          (c) So long as any shares of Preferred Stock are outstanding, in addition to any other vote or
consent of the stockholders required by law or by the Articles of Incorporation, bylaws of the
Company or these Articles, the Company shall not, and shall not permit its Subsidiaries to (in each
case, whether by merger, consolidation, reorganization, operation of law or otherwise), without the
written consent or affirmative vote at a meeting called for that purpose of the Required Holders:

               (i) in the case of the Company, amend, alter, waive or repeal any provision of its
Articles of Incorporation or Bylaws or these Articles (by merger, consolidation or
otherwise) in any manner that would adversely affect the rights, preferences or privileges
of the Preferred Stock or split, reverse split, subdivide, reclassify or combine the
Preferred Stock or create, authorize or issue any Senior Stock or Parity Stock or any
security convertible into, or exchangeable or exercisable for, shares of Senior Stock or
Parity Stock;

               (ii) authorize or effect a voluntary or involuntary liquidation, dissolution or
winding up or adopt any plan for the same;

               (iii) amend, alter, remove or repeal any provision of the Company’s or a Subsidiary’s
charter (including articles supplementary) or bylaws (or equivalent organizational
documents) or create, authorize or issue any shares of Capital Stock having a right to
dividends (other than the Common Stock) or redemption;

               (iv) (a) incur Indebtedness for Borrowed Money; provided, however, that the Company
may incur senior unsecured debt ranking pari passu with the Company’s existing senior
unsecured debt and BGE shall be permitted to incur Indebtedness for Borrowed Money
consistent with past practices and regulatory approvals, (b) increase the amount of the
Company’s regular quarterly Common Stock dividend, (c) pay or distribute (by means of a
dividend or otherwise) assets (including property or cash) to holders of the Company’s
Capital Stock, other than the payment of cash dividends on the Preferred Stock pursuant to
Section 3, the payment of the Company’s regular cash dividend in a manner that otherwise
complies with these Articles, as required by the terms of Capital Stock outstanding as of
the Original

- 10 -

 

Issuance Date or the payment of the Merger Consideration (as defined in the Merger
Agreement) to the holders of Common Stock upon consummation of the Merger or (d) engage in
a self tender offer, redemption or share repurchase (whether privately negotiated or open
market repurchases), other than as required by the terms of Capital Stock outstanding as
of the Original Issuance Date;

               (v) if dividends have not been paid in full to holders of Preferred Stock in
accordance with Section 3 hereof on two (2) consecutive Dividend Payment Dates, take any
action that requires the approval of holders of Common Stock or other Capital Stock, other
than the election of members of the Board of Directors and the ratification of the
Company’s independent auditor at the Company’s regularly scheduled annual stockholders
meeting;

               (vi) enter into any transaction with any officer, director or Beneficial Owner of
five percent (5%) or more of the Common Stock or any Affiliate of the foregoing, other
than employment and compensation arrangements for officers, employees and directors in the
ordinary course of business consistent with past practice.

provided that this Section 5 (c) shall not apply to (and the Holders shall have no right to vote or
give consent with respect to shares of Preferred Stock with respect to) any Takeover Proposal (as
defined in the Merger Agreement) after the occurrence of a breach by MidAmerican or MEHC Merger
Sub, Inc. under the Merger Agreement that causes a termination of such agreement.

     Notwithstanding anything contained herein, for so long as the Merger Agreement is in effect,
the Company shall not be prohibited from taking any action permitted by the Merger Agreement.

          (d) Any action to be taken at any annual or special meeting of stockholders by the Holders may
be taken without a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the Holder or Holders of shares of
Preferred Stock having no less than the minimum number of votes that would be required to take such
action at a meeting at which the shares of Preferred Stock were present and voted. Prompt written
notice of the taking of any action by the Holders by less than unanimous written consent shall be
given to the Holders who did not consent in writing to the action.

          (e) Notwithstanding anything to the contrary contained herein or in the Articles of
Incorporation, the Holders shall not have any vote or consent right with respect to the Merger.

     6. Redemption Rights.

          (a) On the second anniversary of the Original Issuance Date, the Company shall, and in the
event that MidAmerican exercises the Limited Due Diligence Termination Right, for a period of 180
days after the date MidAmerican exercises such right, the Company shall have the right to, redeem
(a “Redemption”) all, but not less than all, of the outstanding shares of Preferred Stock
for an amount in cash equal to the sum of (a) 100% of the Stated Value for each share of Preferred
Stock outstanding on the date of such Redemption, plus an amount

- 11 -

 

equal to (b) all Accrued Dividends thereon to the date of the Redemption (the “Redemption
Price”).

          (b) If the Company is unable to redeem any shares of Preferred Stock then to be redeemed
because such Redemption would violate the applicable laws of the State of Maryland, then the
Company shall if requested by a Holder of Preferred Stock redeem such shares of Preferred Stock
that it is permitted to redeem pursuant to the laws of the State of Maryland and shall redeem such
other shares then subject to Redemption as soon thereafter as the Board of Directors determines
that the redemption would not violate such laws.

          (c) In the event of any Redemption of only a part of the then outstanding Preferred Stock then
entitled to be redeemed, the Company shall effect such redemption pro rata among the holders
thereof in proportion to the respective amounts which would otherwise be payable in respect to the
shares of Preferred Stock held by them upon the date of such Redemption, if all amounts payable on
or with respect to said shares were paid in full.

          (d) At least ten (10) business days prior to the redemption date written notice shall be
mailed, postage prepaid, by the Company to each holder of record of Preferred Stock at his, her or
its post office address last shown on the Register, notifying such holder of the Redemption,
specifying the redemption date and calling upon such holder to surrender to the Company, in the
manner and at the place designated, his, her or its certificate or certificates representing the
Preferred Stock to be redeemed (such notice hereinafter referred to as the “Redemption
Notice”). On or prior to each redemption date, each holder of Preferred Stock to be redeemed
shall surrender his or its certificate or certificates representing such redeemed shares to the
Company, in the manner and at the place designated in the Redemption Notice, and thereupon the
Redemption Price of such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by any such certificate are redeemed,
a new certificate shall be issued representing the unredeemed shares. From and after the
redemption date, unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of the Preferred Stock designated for Redemption in the Redemption Notice
(except the right to receive the Redemption Price upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Company or be deemed to be outstanding for any purpose whatsoever.

          (e) Any shares of Preferred Stock so redeemed shall be permanently retired, shall no longer be
deemed outstanding and shall not under any circumstances be reissued, and the Company may from time
to time take such appropriate corporate action as may be necessary to reduce the authorized
Preferred Stock accordingly.

     7. Conversion.

          (a) Automatic Conversion Right.

               (i) Upon the occurrence of the Conversion Event and subject to the receipt of all
required regulatory approvals, each share of Preferred Stock shall be

- 12 -

 

automatically converted into (A) 3,550.6757 shares of Common Stock (such number of shares, the “Conversion Share Amount”), as adjusted pursuant to Section 8, and (B)
Senior Notes with an original aggregate principal amount equal to the Stated Value.

               (ii) Except as otherwise provided for herein, a Holder of Preferred Stock shall not
be entitled to any rights of a holder of shares of Common Stock or Senior Notes until such
Holder’s Preferred Stock has been converted into shares of Common Stock and Senior Notes
in accordance with the provisions of this Section 7.

               (iii) If the conversion of Preferred Stock would result in the issuance of a
fractional share of Common Stock, such fractional share shall be payable in cash in lieu
thereof at the closing stock price on the date preceding the Conversion Date.

               (iv) At all times the Company shall reserve and keep available for issuance such
number of its authorized but unissued shares of Common Stock issuable upon conversion of
all outstanding shares of Preferred Stock. The Company shall take all action permitted by
law to increase the authorized number of shares of Common Stock if at any time there shall
be insufficient authorized but unissued shares of Common Stock to permit such reservation
or to permit the conversion of all outstanding shares of Preferred Stock. The Company
covenants that all Common Stock that may be issued upon conversion of Preferred Stock
shall upon issuance be duly authorized, fully paid and non-assessable. The Company
further covenants that, if at any time the Common Stock shall be listed on the NYSE or any
other Approved Market on which the Common Stock is listed for trading, the Company will,
if permitted by the rules of such Approved Market, cause to be listed or quoted on such
exchange or automated quotation system, all Common Stock issuable upon conversion of the
Preferred Stock.

          (b) Conversion Right Procedures.

               (i) Upon conversion pursuant to this Section 7, each Holder shall surrender to the
Company of the certificates representing shares of Preferred Stock to be converted at any
time during usual business hours at the Company’s principal place of business or the
offices of the Transfer Agent and specifying the name or names (with address or addresses)
in which a certificate or certificates for shares of Common Stock and Senior Notes are to
be issued and (if so required by the Company or the Transfer Agent) by a written
instrument or instruments of transfer in form reasonably satisfactory to the Company or
the Transfer Agent duly executed by the Holder or its legal representative.

               (ii) As promptly as practicable after the surrender of the certificate or
certificates for Preferred Stock as aforesaid in no event later than three (3) Trading
Days thereafter, the Company shall issue and shall deliver or cause to be issued and
delivered to such Holder, or to such other Person on such Holder’s written order (A) one
or more certificates representing the number of validly issued, fully paid and
non-assessable whole shares of Common Stock to which the Holder of Preferred Stock being
converted, or the Holder’s transferee, shall be entitled, (B) cash for any payment of
Accrued Dividends through the Conversion Date, (C) cash payment in lieu of

- 13 -

 

fractional shares in accordance with Section 7(a)(iii), if any, and (D) one or more
Senior Notes with a principal amount equal to the aggregate Stated Value of the shares of
Preferred Stock being converted previously held by such Holder.

               (iii) Each conversion shall be deemed to have been made at the close of business on
the date of the Conversion Event (the “Conversion Date”) so that the rights of the
Holder thereof as to the Preferred Stock being converted shall cease except for the right
to receive the Common Stock and the Senior Notes, and the Person entitled to receive
shares of Common Stock and Senior Notes shall be treated for all purposes as having become
the record holder of those shares of Common Stock and Senior Notes at that time.

               (iv) The issuance or delivery of certificates for Common Stock and Senior Notes upon
the conversion of shares of Preferred Stock pursuant to this Section 7 shall be made
without charge to the converting Holder of shares of Preferred Stock for such certificates
or for any tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or delivered in the
respective names of, or in such names as may be directed by, the Holders of the shares of
Preferred Stock converted.

          (c) Cash Payment. In the event the Company has not received all regulatory approvals
required for the issuance of the shares of Common Stock due to a Holder upon conversion of such
Holder’s shares of Preferred Stock pursuant to Section 7(a), the Company shall be required to make
a cash payment, by wire transfer of immediately available U.S. funds, to the Holder in lieu of the
issuance of the shares of Common Stock that are otherwise due to such Holder in amount equal to:
(i) the number of shares of Common Stock issuable to such Holder and not issued pursuant to Section
7(a) multiplied by (ii) $26.50, adjusted proportionately with any adjustment to the Conversion
Share Amount pursuant to Section 8. This Section 7(c) shall in no way relieve the Company from its
obligation to deliver Senior Notes to a Holder upon a Conversion Event pursuant to Section 7(a).

     8. Adjustment of Conversion Share Amount.

          (a) The Conversion Share Amount shall be adjusted from time to time (without duplication) by
the Company as follows:

               (i) If the Company shall pay a dividend or make a distribution to holders of
outstanding Common Stock in shares of Common Stock, the Conversion Share Amount in effect
immediately prior to the Record Date for the determination of stockholders entitled to
receive such dividend or other distribution shall be increased so that the same shall
equal the number determined by multiplying (A) the Conversion Share Amount in effect
immediately prior to such Record Date by (B) a fraction, of which the numerator shall be
the sum of (1) the number of shares of Common Stock outstanding at the close of business
on such Record Date plus (2) the total number of shares of Common Stock constituting such
dividend or other distribution and of which the denominator shall be the number of shares
of Common Stock outstanding at the close of business on such Record Date. Such adjustment
shall be made successively

- 14 -

 

whenever any such dividend or distribution is made and shall become effective
immediately after such Record Date. If any dividend or distribution of the type described
in this clause (i) is declared but not so paid or made, the Conversion Share Amount shall
again be adjusted to the Conversion Share Amount that would then be in effect had such
dividend or distribution not been declared.

               (ii) If the Company shall subdivide its outstanding Common Stock into a greater
number of shares of Common Stock, or combine its outstanding Common Stock into a smaller
number of shares of Common Stock, the Conversion Share Amount in effect immediately prior
to the day upon which such subdivision or combination becomes effective shall be, in the
case of a subdivision of Common Stock, proportionately increased and, in the case of a
combination of Common Stock, proportionately decreased. Such adjustment shall be made
successively whenever any such subdivision or combination of the Common Stock occurs and
shall become effective immediately after the date upon which such subdivision or
combination becomes effective.

          (b) Whenever the Conversion Share Amount shall be adjusted as provided in Section 8(a), the
Company shall file, at the office of the Transfer Agent, a statement showing in detail the facts
requiring such adjustment and the Conversion Share Amount that shall be in effect after such
adjustment, and the Company shall also cause a copy of such statement to be sent by mail, first
class postage prepaid, to each Holder at its address appearing in the Register. Each such
statement shall be signed by the Company’s chief financial officer. Where appropriate, such copy
may be given in advance and may be included as part of a notice required to be mailed under the
provisions of Section 8(c). The Company shall, upon written request at any time of any Holder,
furnish or cause to be furnished to such Holder a certificate setting forth (i) all adjustments and
readjustments to the Conversion Share Amount, (ii) the Conversion Share Amount at the time in
effect and (iii) the number of shares of Common Stock and aggregate principal amount of Senior
Notes which at the time would be received upon the conversion of such Holder’s shares of Preferred
Stock if such shares were convertible at such time.

          (c) In the event the Company shall propose to take any action of the type described in Section
8(a), the Company shall give notice to each Holder which notice shall specify the Record Date, if
any, with respect to any such action and the approximate date on which such action is to take
place. Such notice shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect on the Conversion Share Amount and the number of shares of Common
Stock which shall be deliverable upon conversion of shares of the Preferred Stock. Except as
otherwise provided herein, (x) in the case of any action that would require the fixing of a Record
Date, such notice shall be given at least five days prior to the date so fixed and (y) in the case
of all other action, such notice shall be given at least five days prior to the taking of such
proposed action.

     9. Recapitalization, Reclassification and Changes in Common Stock. Upon the
occurrence of any:

- 15 -

 

          (a) reclassification of the outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or as a result of a
subdivision or combination);

          (b) merger or consolidation of the Company with or into another Person (other than a
Subsidiary) other than a merger or consolidation in which the Company is the resulting or surviving
Person and which does not result in any reclassification or change of outstanding Common Stock and
which transaction does not constitute a Change of Control; or

          (c) sale or other disposition of all or substantially all of the property and assets of the
Company (on a consolidated basis) to any other Person which transaction does not constitute a
Change of Control (any of the foregoing events in clauses (a) through (c), a
“Transaction”), then the Preferred Stock shall be convertible after the Transaction into
the kind and amount of shares of stock or other securities or other property or assets (including
cash) that the holders of Preferred Stock would have been entitled to receive upon such Transaction
had such Preferred Stock been converted into Common Stock and Senior Notes immediately prior to
such Transaction after giving effect to any adjustment. The provisions of this Section 9 shall
apply to successive Transactions. In the event that holders of the Common Stock shall have the
opportunity to elect the form of consideration to be received in a Transaction, then the Company
shall make adequate provision whereby each Holder shall have a reasonable opportunity to determine
the form of consideration into which all of such Holder’s shares of Preferred Stock, shall be
convertible from and after the effective date of such Transaction. Such determination shall be (i)
subject to any limitations to which all of the holders of Common Stock are subject, including, but
not limited to, pro rata reductions applicable to any portion of the consideration payable in such
Transaction and (ii) conducted in such a manner as to be completed by the date that is the earlier
of (a) the deadline for elections to be made by holders of Common Stock and (b) five (5) Trading
Days prior to the anticipated effective date of such Transaction. The Company will not effect any
Transaction unless prior to the consummation thereof the successor Person (if other than the
Company) resulting from such Transaction shall assume by written instrument mailed or delivered to
the Holders at the last address of each such holder appearing on the Register, the obligation
pursuant to this Section 9. At least twenty (20) days prior written notice of the date on which
the Transaction will be consummated shall be given to the Holders.

     10. Other Provisions.

          (a) Any notice that was mailed in the manner herein provided shall be conclusively presumed to
have been duly given whether or not the Holder receives the notice.

          (b) Shares of Preferred Stock issued and reacquired will be retired and canceled promptly
after reacquisition thereof and, upon compliance with the applicable requirements of Maryland law,
will have the status of authorized but unissued shares of preferred stock of the Company
undesignated as to series and may with any and all other authorized but unissued shares of
preferred stock of the Company be designated or redesignated and issued or reissued, as the case
may be, as part of any series of preferred stock of the Company, except that any issuance or
reissuance of shares of Preferred Stock must be in compliance with these Articles.

- 16 -

 

          (c) The shares of Preferred Stock shall be issuable only in whole shares.

          (d) Unless otherwise specifically provided herein, all notice periods referred to herein shall
commence on the date following the mailing of the applicable notice.

          (e) If at any time the Company is required to make any payment to a Holder pursuant to these
Articles, the Company does not have sufficient funds legally available to make such payment, the
Company shall, to the extent permitted by applicable law, make as much of such required payment as
is, in the good faith determination of the Board of Directors legally permissable, ratably to each
Holder in proportion to the number of shares of Preferred Stock held by such Holder, and shall
thereafter from time to time, as soon as it shall have funds available therefor, make payment of as
much of the remaining amount of such required payment as it legally may until it has made such
payment in its entirety. For the avoidance of doubt, such partial payments shall not reduce or
waive the rights of the Holders hereunder.

          (f) The words “hereby”, “herein”, “hereof”, “hereunder” and words of similar import refer to
these Articles as a whole and not merely to the specific section, paragraph or clause in which such
word appears. The words “include”, “includes” and “including” shall be deemed to be followed by
the phrase “without limitation”. The definitions given for terms in Section 2 and elsewhere in
these Articles shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding masculine, feminine
and neuter forms.

          (g) Any of the rights of the Holders set forth herein (including, without limitation, any
rights to notices, adjustments, board seats or otherwise) may be waived by any Holder with respect
to such Holder and by the affirmative consent or vote of the Required Holders, and such waiver
shall be binding on all Holders.

     11. Breach Redemption Right. In the event a court having valid jurisdiction over a
claim or dispute arising under the Merger Agreement determines by a final nonappealable judgment
that Parent or Merger Sub owes damages to the Company under the Merger Agreement (the amount of any
such damages, the “Recoverable Amount”), the Company shall have the right to redeem that
number of shares of Preferred Stock with a Stated Value equal to or less than the Recoverable
Amount for $0.01 per share. If certificates are not surrendered upon payment by the Company, such
shares so redeemed shall be deemed no longer outstanding. Such redemption shall be made pursuant
to Section 6(c), (d) and (e) hereof.

     12. Transferability. Shares of Preferred Stock may not be transferred by any Holder
prior to the consummation of the Merger unless the transferee acknowledges in writing to the
Company that it understands and acknowledges the provisions of Section 11 hereof and 10.12(a) of
the Merger Agreement. Any such transfer absent such acknowledgement shall be void ab initio.

     SECOND: The shares of Series A Convertible Preferred Stock have been classified and
designated by the Board of Directors of the Company under the authority contained in the Articles
of Incorporation.

- 17 -

 

     THIRD: These Articles Supplementary have been approved by the Board of Directors of the
Company in the manner and by the vote required by law.

     FOURTH: The undersigned acknowledges these Articles Supplementary to be the corporate act of
the Company and, as to all matters or facts required to be verified under oath, the undersigned
acknowledges that, to the best of his knowledge, information and belief, these matters and facts
are true in all material respects and that this statement is made under the penalties of perjury.

* * * * *

- 18 -

 

          IN WITNESS WHEREOF, the Company has caused these Articles Supplementary to be signed in its
name and on its behalf by its Executive Vice President and General Counsel and attested to by its
Secretary on this 19th day of September, 2008.

	 	 	 	 	 
	 	CONSTELLATION ENERGY GROUP, INC.

 	 
	 	By:  	/s/ Irving B. Yoskowitz
 	 
	 	 	Irving B. Yoskowitz 	 
	 	 	Executive Vice President and General Counsel 	 

ATTEST:

	 	 	 	 	 
	By:

	 	/s/ Charles A. Berardesco
 

Charles A. Berardesco
	 	 
	 

	 	Vice President, Deputy General Counsel	 	 
	 

	 	and Secretary

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