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As filed with the Securities and Exchange Commission on September 7, 1999
Registration No. 333-84965
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ENERGY CONVERGENCE HOLDING COMPANY
(Exact Name of Registrant as Specified in Its Charter)
(Successor to Dynegy Inc., File No. 1-11156)
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Illinois 6719 74-2928353
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation Classification Code
or Organization) Number)
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1000 Louisiana Street, Suite 5800
Houston, Texas 77002
(713) 507-6400
(Address, Including Zip Code, and Telephone Number, Including
Area Code of Registrant's Principal Executive Offices)
Kenneth E. Randolph
1000 Louisiana Street, Suite 5800
Houston, Texas 77002
(713) 507-6400
(Address Including Zip Code, and Telephone Number, Including Area code of
Agent For Service)
With Copies to:
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Michael E. Dillard, P.C. W. Brinkley Dickerson, Jr.
Akin, Gump, Strauss, Hauer & Feld, Troutman Sanders LLP
L.L.P. 600 Peachtree Street NE, Suite 5200
1900 Pennzoil Place-South Tower Atlanta, Georgia 30308
Houston, Texas 77002 (404) 885-3000
(713) 220-5800
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Approximate date of commencement of proposed sale to the public: upon the
consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title Of Each Class Of Proposed Maximum Proposed Maximum
Securities Amount To Be Aggregate Price Aggregate Offering Amount of
To Be Registered Registered Per Share Price Registration Fee(6)
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<S> <C> <C> <C> <C>
Class A Common Stock.... 70,776,037 Shares(1) $32.09(4) $2,264,833,054.66(4) $629,623.59
Class A Common Stock.... 37,654,539 Shares(2) $33.92(5) $1,277,321,091.98(5) $355,095.26
Series A Convertible
Preferred Stock........ 9,307,187 Shares(3) $50.00(5) $ 465,359,350.00 $129,369.90
</TABLE>
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(1) Consists of (i) up to 69,939,337 shares of Class A common stock issuable
upon the conversion, in connection with the merger described herein, of
shares of common stock of Illinova Corporation and (ii) up to 836,700
shares of Class A common stock issuable at or after the effective time of
the merger to the extent that options to purchase common stock of Illinova
are exercised. Also includes an indeterminate number of shares of Class A
common stock issuable upon the conversion of the Series A preferred stock
of Registrant (see below) to be issued to British Gas Atlantic Holdings BV
and NOVA Gas Services (U.S.) Inc. in transactions related to the merger.
(2) Consists of (i) up to 26,751,709 shares of Class A common stock issuable
upon conversion, in connection with the merger described herein, of shares
of common stock of Dynegy Inc. and (ii) up to 10,902,830 shares of Class A
common stock issuable at or after the effective time of the merger to the
extent that options or warrants to purchase common stock of Dynegy are
exercised. Shares of Energy Convergence Class B common stock issuable to
Chevron U.S.A. Inc. upon conversion, in connection with the merger
described herein, of Dynegy capital stock held by Chevron and shares of
Class B common stock to be issued under the subscription agreement between
Chevron and Energy Convergence described herein are not being registered
because such shares are being issued in reliance upon an exemption from
registration under the Securities Act.
(3) Represents the maximum number of shares of Series A convertible preferred
stock issuable to British Gas Atlantic and NOVA in transactions related to
the merger.
(4) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1). The proposed maximum aggregate offering
price is based upon the average of the high and low prices reported in the
consolidated reporting system of the New York Stock Exchange of Illinova
common stock on September 3, 1999.
(5) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f)(1). The proposed maximum aggregate offering
price is based upon the average of the high and low prices reported in the
consolidated reporting system of the New York Stock Exchange of Dynegy
common stock on September 3, 1999.
(6) The registration fee for the securities to be registered has been
calculated in accordance with Section 6(b) of the Securities Act. An
aggregate registration fee of $1,115,000 previously was paid on August 11,
1999.
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[LOGO APPEARS HERE] [LOGO APPEARS HERE]
PROPOSED MERGER--YOUR VOTE IS IMPORTANT
----------------
To Our Shareholders:
The boards of directors of Dynegy Inc. and Illinova Corporation have agreed
to merge their two companies to create a leading integrated and independent
energy company. The transaction is relatively complex, but in general involves
the creation of a new publicly-traded company, currently named Energy
Convergence Holding Company, that will acquire the two companies. Prior to the
merger, this company will be renamed Dynegy Inc. After the merger, it will be
owned by the shareholders of Dynegy and Illinova.
In exchange for each share of Dynegy stock, Dynegy shareholders, other than
the Dynegy shareholders discussed below, will have the option to elect to
receive in exchange for each share of Dynegy common stock held either (1) .69
shares of Energy Convergence Class A common stock or (2) cash in an amount of
$16.50. However, only approximately 40% of the shares can be converted into
cash. This limitation will result in pro ration of the available cash among
shareholders electing to receive cash. Three of Dynegy's shareholders --Chevron
U.S.A. Inc., NOVA Gas Services (U.S.) Inc. and BG Holdings, Inc.--will not
receive any Energy Convergence Class A common stock in the merger. Instead,
these shareholders or their affiliates will receive shares of Class B common
stock or shares of Series A preferred stock and cash in lieu of any Class A
common stock they otherwise would have received in the merger.
Illinova shareholders will receive one share of Energy Convergence Class A
common stock for each share of Illinova common stock they own.
We cannot complete the merger unless both companies' shareholders approve
it. We have scheduled special meetings for you on October 11, 1999, to vote on
the merger agreement. The meetings will be held:
Dynegy Illinova
3:00 p.m. local time 9:00 a.m. local time
Dynegy Inc. Illinova Corporation
1000 Louisiana, Suite 5800 500 South 27th Street
Houston, Texas 77002 Decatur, Illinois 62525
Whether or not you plan to attend your meeting, please take the time to vote
by completing the enclosed proxy card and mailing it to us as soon as possible.
If you sign, date and mail your proxy card without indicating how you want to
vote, your card will be counted as a vote in favor of the merger. If you fail
to return your card, the effect will be a vote against the merger.
This document provides you with detailed information about the merger. In
addition, you may obtain information about our companies from documents that we
have filed with the Securities and Exchange Commission. We encourage you to
read this entire document carefully.
Please see "Risk Factors" beginning on page 14 of this document for a
description of certain risks associated with the merger.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the merger, the common stock or preferred stock to be
issued in the merger or in connection with the merger, or the fairness of the
merger, or determined if this document is accurate or adequate. Any
representation to the contrary is a criminal offense.
This document is dated September 8, 1999, and it is first being mailed to
shareholders on or about September 10, 1999.
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TABLE OF CONTENTS
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Page
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SUMMARY................................................................... 1
The Primary Parties..................................................... 1
The Merger.............................................................. 1
What You Will Receive in the Merger................................... 1
Dissenters' Rights.................................................... 2
Material Tax Consequences............................................. 2
Accounting Treatment.................................................. 2
Financing the Transaction............................................. 2
Election Process for Dynegy Shareholders.............................. 2
Ownership of Energy Convergence Following the Merger.................... 2
Board of Directors and Management of Energy Convergence Following the
Merger................................................................. 3
Our Reasons for the Merger.............................................. 3
Opinions of Financial Advisors.......................................... 3
Recommendations to Shareholders......................................... 4
The Special Meetings.................................................... 4
Record Date; Voting Power............................................. 4
Votes Required to Approve the Merger.................................. 4
Material Differences in the Rights of Shareholders...................... 4
Interests of Officers, Directors and Certain Shareholders in the
Merger................................................................. 4
Material Provisions of the Merger Agreement............................. 5
Regulatory Approvals.................................................. 5
Other Conditions to the Merger........................................ 5
Termination of the Merger Agreement................................... 5
Termination Fees...................................................... 6
No Solicitation......................................................... 6
Risks Associated with the Merger........................................ 6
Comparative Per Share Market Price and Dividend Information............. 7
Summary Historical Consolidated Financial Information................... 8
Illinova Corporation.................................................. 9
Dynegy Inc............................................................ 10
Recent Developments................................................... 11
Summary Pro Forma Combined Unaudited Financial Information.............. 12
Comparative Per Share and Dividend Information.......................... 13
RISK FACTORS.............................................................. 14
THE SPECIAL MEETINGS...................................................... 22
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Dates, Times and Places................................................ 22
Purposes............................................................... 22
Voting Rights; Votes Required for Approval............................. 22
Election of Consideration by Dynegy Shareholders....................... 23
Notices of Special Meetings............................................ 23
Proxies................................................................ 23
ENERGY CONVERGENCE--THE COMBINED COMPANY................................. 24
Unaudited Pro Forma Financial Information.............................. 27
Notes to Unaudited Pro Forma Condensed Combined Financial Statements... 31
THE MERGER............................................................... 33
General................................................................ 33
Background of the Merger............................................... 33
Dynegy Reasons for the Merger; Recommendation of Dynegy Board.......... 37
Illinova Reasons for the Merger; Recommendation of Illinova Board...... 39
Accounting Treatment................................................... 41
Regulatory Matters..................................................... 42
Material Federal Income Tax Consequences............................... 42
Illinova Shareholders' Rights to Dissent............................... 45
Financing the Transaction.............................................. 46
OPINIONS OF FINANCIAL ADVISORS........................................... 47
Opinion of Dynegy's Financial Advisor.................................. 47
Opinions of Illinova's Financial Advisors.............................. 55
DIRECTORS AND MANAGEMENT OF ENERGY CONVERGENCE FOLLOWING THE MERGER...... 69
INTERESTS OF DYNEGY AND ILLINOVA EXECUTIVE OFFICERS AND DIRECTORS AND
DYNEGY SHAREHOLDERS IN THE MERGER....................................... 69
Interests of Dynegy Directors, Executive Officers and Shareholders..... 69
Interests of Illinova Directors and Executive Officers................. 72
Indemnification and Insurance.......................................... 73
THE MERGER AGREEMENT..................................................... 74
The Merger............................................................. 74
Conversion of Shares................................................... 74
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Page
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Election of Consideration by Dynegy Shareholders........................ 75
Exchange of Stock Certificates.......................................... 75
Representations and Warranties.......................................... 76
Material Covenants...................................................... 76
Conditions to Obligations to Effect the Merger.......................... 78
Termination............................................................. 80
Termination Fees and Expenses........................................... 80
Amendment and Waiver.................................................... 82
OTHER AGREEMENTS.......................................................... 83
Voting Agreements....................................................... 83
BG Holdings Stock Purchase Agreement.................................... 83
British Gas Atlantic/NOVA Registration Rights Agreement................. 84
Chevron Subscription Agreement.......................................... 84
Shareholder Agreement................................................... 84
Chevron Registration Rights Agreement................................... 87
Affiliate Agreements.................................................... 87
OWNERSHIP OF DYNEGY, ILLINOVA AND ENERGY CONVERGENCE...................... 88
DESCRIPTION OF ENERGY CONVERGENCE CAPITAL STOCK FOLLOWING THE MERGER...... 92
Authorized Capital Stock................................................ 92
Common Stock............................................................ 92
Preferred Stock......................................................... 93
Series A Convertible Preferred Stock.................................... 93
Transfer Agent and Registrar............................................ 95
</TABLE>
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Page
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New York Stock Exchange Listing; Delisting and Deregistration of Dynegy
and Illinova Common Stock.............................................. 95
Federal Securities Laws Consequences; Stock Transfer Restriction
Agreements............................................................. 95
COMPARISON OF SHAREHOLDERS' RIGHTS........................................ 95
DESCRIPTION OF DYNEGY..................................................... 102
DESCRIPTION OF ILLINOVA................................................... 105
ADOPTION OF THE DYNEGY INC. 2000 LONG TERM INCENTIVE PLAN................. 108
Recommendation.......................................................... 108
Purposes and Effects.................................................... 108
Vote Required for Approval.............................................. 115
LEGAL MATTERS............................................................. 115
EXPERTS................................................................... 115
FUTURE SHAREHOLDER PROPOSALS.............................................. 116
WHERE YOU CAN FIND MORE INFORMATION....................................... 116
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Appendix I:Agreement and Plan of Merger
Appendix II: Illinois Business Corporation Act-Dissenters' Rights
Appendix III:Opinion of Lehman Brothers Inc.
Appendix IV: Opinion of Berenson Minella & Company
Appendix V:Opinion of Chase Securities, Inc.
Appendix VI: Dynegy Inc. 2000 Long Term Incentive Plan
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Dynegy and Illinova which is not included in or delivered with this
document. Shareholders may obtain this information from the SEC or from the
appropriate company without charge upon written or oral request to the
following:
Dynegy Inc. Illinova Corporation
Investor Relations Investor Relations
1000 Louisiana Street, Suite 5800 500 South 27th Street
Houston, Texas 77002 Decatur, Illinois 62525
(713) 507-6400 (217) 424-6600
If you would like to request documents from us, please do so by October 4,
1999, so that you can receive them before your special meeting. If you request
any incorporated documents, we will mail them to you by first class mail or
other equally prompt means as soon as practicable after we receive your
request.
See "Where You Can Find More Information" on page 116 for more information
about the companies or the documents referred to in this document.
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SUMMARY
We have summarized below selected basic information regarding the proposed
merger between Illinova and Dynegy. Because it is just a summary, it does not
contain all of the information regarding the merger. To understand the merger
more fully, and for a more complete description of the legal terms of the
merger, we recommend that you read carefully this entire document and the other
available information referred to in "Where You Can Find More Information"
(page 116). We have included page references parenthetically to direct you to a
more complete description of the topics presented in this summary. The merger
agreement is included as Appendix I to this document. It is the legal document
that governs the merger and we encourage you to read it.
The Primary Parties
Illinova Corporation
500 South 27th Street
Decatur, Illinois 62525
Illinova is the holding company for: Illinois Power Company, an electric and
natural gas utility that serves approximately 650,000 customers over a 15,000
square-mile area of Illinois; Illinova Generating, Inc., which invests in,
develops and operates independent power projects worldwide; and Illinova Energy
Partners, Inc., which markets energy and energy-related services in the United
States and Canada. Illinova has approximately $6.5 billion in assets and in
1998 had revenues of $2.4 billion.
Dynegy Inc.
1000 Louisiana Street, Suite 5800
Houston, Texas 77002
Dynegy is a leading provider of energy products and services in North
America and the United Kingdom. Products marketed by Dynegy's wholesale
marketing operations include natural gas, electricity, coal, natural gas
liquids, crude oil, liquid petroleum gas and related services. Dynegy's
wholesale marketing operations are supported by ownership or control of an
extensive asset base and transportation network that includes unregulated power
generation, gas and liquids storage capacity, gas, power and liquids
transportation capacity and gas gathering, processing and fractionation
facilities. Dynegy has approximately $5.9 billion in assets and in 1998 had
revenues of $14.3 billion.
The Merger (see page 33)
The merger of Illinova and Dynegy involves the creation of a new holding
company, currently named Energy Convergence Holding Company, and two separate
but concurrent mergers. In one merger, a wholly-owned subsidiary of Energy
Convergence will merge with and into Illinova. In the other merger, a second
wholly-owned subsidiary of Energy Convergence will merge with and into Dynegy.
As a result of these two mergers, Illinova and Dynegy will continue to exist,
retaining their respective historical assets and liabilities, but rather than
being independent, publicly traded companies will instead be subsidiaries of
Energy Convergence. Energy Convergence will be renamed Dynegy Inc.
What You Will Receive in the Merger (see page 33)
If we complete the merger, in exchange for each share of Dynegy common
stock, Dynegy shareholders, other than Chevron U.S.A. Inc., NOVA Gas Services
(U.S.) Inc. and BG Holdings, Inc., will be given the option to elect to receive
in exchange for each share of Dynegy common stock either (1) .69 shares of
Energy Convergence Class A common stock, or (2) cash in an amount of $16.50.
Each Dynegy shareholder will receive cash for any fractional share regardless
of the shareholder's election. However, Energy Convergence will pay cash for
only approximately 40% of the outstanding shares of Dynegy. This will result in
conversion of a maximum of approximately 67.6 million shares of Dynegy common
stock into cash. The amount of cash available will be insufficient to satisfy
completely cash elections, and the cash will be prorated among shareholders
electing to receive cash. For each 100 shares of Dynegy common stock for which
you elect to receive cash, you will receive cash consideration with respect to
no less than 63 shares of Dynegy common stock and no more than 84 shares of
Dynegy common stock. The consideration for the balance of your Dynegy
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common stock will be Energy Convergence Class A common stock.
Instead of receiving Class A common stock in the merger, NOVA and the parent
of BG Holdings will receive shares of Energy Convergence Series A preferred
stock. Furthermore, in lieu of any shares of Class A common stock, Chevron will
receive shares of Energy Convergence Class B common stock. Additionally, in
connection with the merger Chevron will purchase for cash between $200 million
and $240 million of Energy Convergence Class B common stock.
Illinova shareholders will receive one share of Energy Convergence Class A
common stock for each share of Illinova common stock that they own.
You should not send in your stock certificates until we instruct you to do
so after we complete the merger.
Dissenters' Rights (see page 45)
Under Illinois law, Illinova shareholders are entitled to an appraisal of
the value of their Illinova shares and to receive cash rather than Energy
Convergence Class A common stock. However, to receive cash a shareholder must
vote against the merger and otherwise strictly comply with all of the
procedures required by Illinois law. These procedures are described more fully
later in this document and a copy of the relevant portions of Illinois law is
attached as Appendix II to this document.
Under Delaware law, Dynegy shareholders are not entitled to dissenters'
rights.
Material Tax Consequences (see page 42)
The exchange of your shares for shares in Energy Convergence will be tax-
free to you for federal income tax purposes, except for taxable income or loss
resulting from cash received by a Dynegy shareholder.
A holder's aggregate tax basis in the Energy Convergence Class A common
stock received in the merger generally will be the same as that holder's
aggregate federal income tax basis in the stock surrendered in the merger
increased by any gain recognized. This tax basis will be reduced in the case of
holders of Dynegy common stock by any federal income tax basis allocable to
shares or fractions of shares for which you receive cash.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your own situation. You should consult your tax
advisor for a full understanding of the tax consequences of the merger to you.
Accounting Treatment (see page 41)
The merger will be accounted for under the purchase method of accounting and
Dynegy will be the acquiror for accounting purposes.
Financing the Transaction (see page 46)
We anticipate that the cash consideration to be paid in the merger initially
will be funded through one or more bank credit facilities and the issuance of
between $200 million and $240 million of Energy Convergence Class B common
stock to Chevron.
Election Process for Dynegy Shareholders (see page 75)
Shortly before the closing of the merger Dynegy shareholders will be sent an
election form pursuant to which they can elect to receive either stock or cash
in the merger, subject to the pro ration described above in "What You Will
Receive in the Merger." These election forms will be due two business days
before the closing--Dynegy will publicly announce this date once it is
established--and until that time the elections may be changed. If a Dynegy
shareholder does not submit an election form he will be deemed to have made an
election to receive stock.
Ownership of Energy Convergence Following the Merger (see page 88)
The shares of capital stock to be issued to Dynegy shareholders in the
merger will be approximately 51% of the outstanding capital stock of Energy
Convergence, and slightly more of the voting power, after the merger. The
shares of Energy Convergence capital stock issued to Illinova shareholders in
the merger will be approximately
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49% of the capital stock. The largest shareholder is expected to be Chevron
(at approximately 28%) and no other shareholder is expected to own more than
5% of the outstanding shares of capital stock.
Board of Directors and Management of Energy Convergence Following the Merger
(see page 69)
Following the merger, Energy Convergence's board of directors will consist
of fourteen directors, seven of whom will be designated by Illinova and seven
of whom will be designated by Dynegy. C. L. Watson, Dynegy's Chairman and
Chief Executive Officer, will be included as a Dynegy designee and will serve
as Chief Executive Officer and Chairman of the Board of Energy Convergence,
and Charles Bayless, Illinova's Chairman and Chief Executive Officer, will be
included as an Illinova designee. Chevron will select three of the Dynegy
designees. The remaining directors will be selected from the directors on
Illinova's and Dynegy's boards of directors immediately prior to the merger.
Our Reasons for the Merger (see pages 37 through 41)
We believe that the combination of Illinova and Dynegy presents an
opportunity to create a leading provider of energy services and products. We
believe that the combination will bring together a strong utility company with
strategically located assets, operations, electric transmission and retail
distribution capabilities with one of the leading energy marketers and
independent power producers.
By combining our companies, we believe that we will be able to enhance our
revenues, reduce our costs and improve our service. We expect that the
combined company will build on common strengths and provide shareholders and
customers with added value.
In reaching their recommendations in favor of the merger, each of our
boards of directors considered a number of factors, including:
. the combination achieves strategic goals for both companies. The
combination provides Dynegy with access to significant amounts of
additional power generation capacity to take advantage of the
opportunities presented by deregulation. The combination provides
Illinova with the opportunity to compete more effectively in the
electricity and gas industries by utilizing Dynegy's marketing operations
to facilitate more profitable sales of Illinova's excess generation
capacity and less expensive purchases of Illinova's power and gas needs
while at the same time diversifying Illinova's non-regulated operations.
. the combined company is better positioned strategically to compete in an
open national energy market that is undergoing substantial changes as a
result of the restructuring of the power industry and the convergence of
the natural gas and electricity industries.
. the overall fairness, from a financial point of view, of the
consideration to be received in the merger.
. the merger is expected to be accretive to the earnings of both companies.
Opinions of Financial Advisors (see page 47)
Dynegy. Dynegy's financial advisor, Lehman Brothers Inc., provided a
written opinion to Dynegy's board of directors that the consideration to be
received by Dynegy's public shareholders in the merger was fair from a
financial point of view to such public shareholders. In addition, the opinion
states that the fair market value of the shares of Class B common stock
Chevron will receive per Dynegy share in connection with the merger and
related transactions, and the fair market value of the shares of Series A
preferred stock NOVA and the parent of BG Holdings will receive per Dynegy
share in the merger and related transactions is not greater than the fair
market value of the shares of the Class A common stock issuable to Dynegy's
public shareholders per Dynegy share. We have attached the opinion as Appendix
III to this document and encourage you to read it. We note that this opinion
does not address the fairness of the consideration to be received by Chevron,
NOVA and the parent of BG Holdings. These shareholders have interests that may
be different from Dynegy's public shareholders. Each had the ability to block
the merger and each obtained its own financial advice to the extent it deemed
appropriate.
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Illinova. Illinova's financial advisors, Berenson Minella & Company and
Chase Securities, Inc., provided written opinions to Illinova's board of
directors that the consideration to be received by Illinova shareholders in the
merger was fair from a financial point of view. We have attached the opinion of
Berenson Minella as Appendix IV and the opinion of Chase Securities as Appendix
V to this document and encourage you to read them. These opinions were a
significant factor to Illinova's board of directors in considering and
approving the merger.
Recommendations to Shareholders (see pages 38 and 40)
Both the Illinova and the Dynegy boards believe that the merger is in the
best interests of their respective shareholders and unanimously recommend that
you vote FOR the proposal to approve and adopt the merger agreement. They also
recommend that you vote FOR the proposal to approve and adopt the Dynegy Inc.
2000 Long Term Incentive Plan. The 2000 Long Term Incentive Plan is designed to
enable Energy Convergence to attract and retain able employees through the
grants of stock options, common stock and option/stock equivalents.
The Special Meetings (see page 22)
We will hold the Illinova special meeting on October 11, 1999, at 9:00 a.m.
local time, at Illinova's headquarters at 500 South 27th Street, Decatur,
Illinois 62525. We will hold the Dynegy special meeting on October 11, 1999, at
3:00 p.m. local time, at Dynegy's headquarters at 1000 Louisiana Street, Suite
5800, Houston, Texas 77002. At the respective special meetings, the
shareholders of Illinova and Dynegy will be asked to approve and adopt the
merger agreement and the Dynegy Inc. 2000 Long Term Incentive Plan.
Record Date; Voting Power (see page 22)
You may vote at your shareholders' meeting if you owned shares of Illinova
or Dynegy common stock at the close of business on September 7, 1999. For each
share of common stock that you own on that date, you will have one vote on each
proposal to be presented at the meeting. On the record date, 69,939,337 shares
of Illinova common stock, and 155,512,933 shares of Dynegy common stock were
outstanding.
Votes Required to Approve the Merger (see page 22)
Illinova. Approval of the merger agreement requires the affirmative vote of
at least two-thirds of the shares entitled to vote. Approval of the Dynegy Inc.
2000 Long Term Incentive Plan requires the affirmative vote of a majority of
the votes cast.
Dynegy. Approval of the merger agreement requires the affirmative vote of a
majority of the total shares entitled to vote. Chevron, BG Holdings and NOVA
have agreed to vote shares representing approximately 75% of the total
outstanding shares of Dynegy common stock in favor of the approval of the
merger agreement. The vote of such shares in favor of the merger is sufficient
to authorize Dynegy to close the merger. Approval of the Dynegy Inc. 2000 Long
Term Incentive Plan requires the affirmative vote of a majority of the votes
cast.
Material Differences in the Rights of Shareholders (see page 95)
Dynegy is a Delaware corporation and Illinova is an Illinois corporation.
Upon completion of the merger, your rights as shareholders of Energy
Convergence will be governed by Energy Convergence's charter and bylaws and
Illinois law. You should consider the fact that Energy Convergence's charter
and bylaws and Illinois law differ in some material respects from Illinova's
charter and bylaws and Dynegy's charter and bylaws and Delaware law.
Interests of Officers, Directors and Certain Shareholders in the Merger (see
page 69)
You should be aware that a number of executive officers and directors of
Dynegy and Illinova have interests in the merger that may be different from, or
in addition to, yours. These interests include employment or severance
agreements, stock options and arrangements for their
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continuation as directors or officers of Energy Convergence. Some of these
persons could receive compensation or other rights if the merger is completed.
The stock to be issued to the parent of BG Holdings, NOVA and Chevron in the
merger and related transactions will be different than the Class A common stock
of Energy Convergence to be issued to the other shareholders of Dynegy and the
shareholders of Illinova. The Series A preferred stock of Energy Convergence to
be issued to NOVA and the parent of BG Holdings will have liquidation and
dividend preferences and be convertible into Class A common stock. The Class B
common stock to be issued to Chevron will have the right to designate three
directors. Additionally, pursuant to the terms of the Class B common stock and
a shareholder agreement, Chevron will have preemptive rights with respect to
new issuances of equity securities, limited rights to block certain corporate
transactions and various other rights.
Material Provisions of the Merger Agreement (see page 74)
We have included the merger agreement as Appendix I to this document. We
encourage you to read the merger agreement because it is the principal legal
document that governs the merger.
Regulatory Approvals (see page 42)
Before we can complete the merger, we must make filings with and/or receive
approvals or compliance exemptions from the Illinois Commerce Commission under
Illinois law, the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935, and the Federal Energy Regulatory Commission under
the Federal Power Act. In addition, to close the sale of its Clinton nuclear
facility, a condition to closing the merger, Illinova will need to obtain
Nuclear Regulatory Commission and other regulatory approvals.
In connection with the merger, Chevron is seeking an exemption or exclusion
from certain registration requirements under the Public Utility Holding Company
Act of 1935. We will not complete the merger if the SEC denies or grants the
exemption or exclusion with unacceptable conditions to Chevron or to us.
Additionally, we will not complete the merger unless the Illinois Commerce
Commission issues a certification under the Public Utility Holding Company Act
1935 that Chevron and/or its affiliates may purchase and operate foreign
utility companies after the merger (or Illinova provides evidence reasonably
satisfactory to Chevron and Dynegy that such certification is unnecessary).
Under the merger agreement, we have agreed to use our reasonable efforts to
obtain all necessary governmental authorizations for the merger. Neither
Illinova nor Dynegy is obligated to complete the merger if regulators impose
conditions that would be reasonably likely to materially adversely affect
either company.
Other Conditions to the Merger (see page 78)
We will complete the merger only if a number of other conditions are
satisfied or waived including:
. Illinova and Dynegy shareholders each approve the merger agreement;
. the representations and warranties contained in the merger agreement are
correct, and the parties have fulfilled the covenants and other
agreements, except insofar as the incorrectness or non-fulfillment would
not have a materially adverse effect;
. no law, rule, regulation or court order prohibits the merger or would
restrict Chevron's ownership of Energy Convergence Class B common stock;
and
. the ancillary agreements to the merger agreement are in full force and
effect.
Termination of the Merger Agreement (see page 80)
Illinova and Dynegy may agree to terminate the merger agreement at any time
even after shareholder approval. In addition, either company may terminate the
merger agreement if:
. we do not complete the merger by May 31, 2000;
5
<PAGE>
. a law, rule, regulation or court order permanently prohibits the merger;
. the shareholders of either Dynegy or Illinova fail to approve the merger
agreement, provided that if the merger agreement is terminated because
the shareholders of one party do not approve it, that party must pay the
other party's reasonable expenses of up to $7.5 million; or
. if the board of directors of either Dynegy or Illinova withdraws or
modifies its recommendation of the merger in a manner adverse to the
other party.
Termination Fees (see page 80)
If the merger agreement is terminated by either party in specific
circumstances involving a business transaction with a third party, the party
entering into the other business transaction will be required to pay the other
party to the merger agreement a termination fee of $85 million and the expenses
of up to $7.5 million.
However, neither Dynegy nor Illinova will be entitled to the termination fee
it would otherwise have been entitled to, if its board has withdrawn, modified
or changed its recommendation of the merger agreement, its shareholders have
voted not to approve the merger agreement or it is required by the merger
agreement to pay a termination fee to the other party.
No Solicitation (see page 77)
We have each agreed not to initiate any discussions with another party
regarding a business combination while the merger is pending.
Risks Associated with the Merger (see page 14)
You should be aware of and carefully consider the risks relating to the
merger described under "Risk Factors." These risks include the possible
difficulties in combining two companies that have previously operated
independently.
6
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Dynegy common stock and Illinova common stock are listed for quotation on
the New York Stock Exchange. The NYSE symbol for Dynegy is DYN. The NYSE symbol
for Illinova is ILN.
The following table reports the high and low trading prices per share of
Dynegy common stock and Illinova common stock on the NYSE and quarterly
dividends per share.
<TABLE>
<CAPTION>
Dynegy Common Stock Illinova Common Stock
---------------------- ----------------------
High Low Dividend High Low Dividend
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
1997
First Quarter.................. $24.13 $15.38 $.0125 $27.50 $22.75 $.31
Second Quarter................. 19.63 15.00 .0125 23.75 20.13 .31
Third Quarter.................. 17.88 14.75 .0125 23.75 21.50 31
Fourth Quarter................. 20.00 15.62 .0125 27.19 20.38 .31
1998
First Quarter.................. $17.50 $14.38 $.0125 $30.50 $26.63 $.31
Second Quarter................. 15.50 12.00 .0125 31.00 27.25 .31
Third Quarter.................. 14.44 9.38 .0125 31.00 23.50 .31
Fourth Quarter................. 15.38 10.06 .0125 30.19 23.38 .31
1999
First Quarter.................. $15.00 $10.13 $.0125 $25.50 $21.00 $.31
Second Quarter................. 20.75 14.13 .0125 28.63 20.75 .31
Third Quarter (through
September 3, 1999)............ 24.44 20.13 .0125 33.38 26.81 .31
</TABLE>
On June 11, 1999, the last full trading day prior to the public announcement
of the merger, the last reported sale price was $18.69 per share for Dynegy
common stock and $25.31 per share for Illinova common stock. On September 3,
1999, the last reported sale price was $23.31 per share for Dynegy common stock
and $31.88 per share for Illinova common stock. We urge you to obtain current
market quotations prior to making any decision with respect to the merger.
Post-merger Dividend Policy. Following the merger, Energy Convergence
expects to pay dividends on its Class A common stock and Class B common stock
at the rate of $0.60 per share per year. However, the payment of dividends will
be at the discretion of the Energy Convergence board of directors and will be
determined after consideration of various factors, including the earnings and
financial condition of Energy Convergence and its subsidiaries.
Holders of the Series A preferred stock are entitled to receive cash
dividends at the rate of $3.00 per year per share. Dividends on the Series A
preferred stock will be cumulative from the date of issuance and will be
payable quarterly on the last days of March, June, September and December in
each year. Whenever accrued but unpaid dividends exceed $2.25 per share of
Series A preferred stock, the holders of the Series A preferred stock will have
the option to elect two directors to the board of directors of Energy
Convergence at the next annual meeting of shareholders and at each subsequent
meeting.
7
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary and you should read it together with the historical consolidated
financial statements of Illinova and Dynegy and the related notes incorporated
by reference in this document.
The historical financial information reflects the following items which you
should consider in making period-to-period comparisons:
Illinova
. With the passage of Illinois electric deregulation legislation in
December 1997 and in accordance with applicable accounting
pronouncements, Illinova wrote off generation-related regulatory assets
and liabilities of approximately $195 million, net of income taxes. The
net assets related to previously incurred costs including deferred
Clinton nuclear facility costs, unamortized losses on reacquired debt,
recoverable income taxes and other generation-related regulatory assets.
. The electric energy market experienced unprecedented prices for power
purchases during the last week of June 1998. Illinova's power purchases
for 1998 were $517 million higher than for 1997 due to summer price
spikes resulting in a $274 million increase in power purchased,
additional purchases of $215 million to serve increased volumes of
interchange sales and market losses of $28 million recorded on forward
power purchase and sales contracts as part of the wholesale trading
business. Income from interchange sales was $382 million higher than in
1997 due to increased sales volumes and higher prices.
. Due to uncertainties of deregulated generation pricing in Illinois, and
to various operational and managerial factors, Illinova decided in
December 1998 to sell or close the Clinton nuclear facility. This
decision resulted in an impairment of Clinton-related assets and accrual
of exit-related costs. The impairment and accrual of related charges
resulted in a $1,327.2 million, net of income taxes, charge to earnings
in December 1998.
. Concurrent with the impairment of the Clinton nuclear facility, in
December 1998 Illinova effected a quasi-reorganization. A quasi-
reorganization is an accounting procedure whereby an accumulated deficit
in retained earnings is eliminated through adjustment of assets and
liabilities to fair value and through a transfer from paid-in capital. As
a result of the quasi-reorganization implemented by Illinova, the book
value of property, plant and equipment was increased by $2,235.3 million
and paid in capital was reduced by $106.2 million, which together with
the revaluation of other assets and liabilities resulted in the
elimination of $1,419.5 million accumulated deficit in retained earnings.
. In December 1998, Illinois Power Special Purpose Trust issued $864
million of Transitional Funding Trust Notes, with Illinois Power as
servicer, as allowed by the Illinois deregulation legislation. These
notes are equal to approximately 32% of Illinois Power's total
capitalization (excluding these notes) at December 31, 1998, and are
secured by the right of the trustee to impose on Illinois Power's retail
customers certain charges which are deducted from the revenues Illinois
Power would otherwise receive for electric service. Under Illinois law,
the trust could be authorized by the Illinois Commerce Commission ("ICC")
to issue up to $864 million of additional notes.
Dynegy
. The acquisition of Destec was accounted for as an acquisition of a
business in accordance with the purchase method of accounting and the
results of operations attributed to the acquired business are included in
Dynegy's financial statements and operating statistics effective July 1,
1997. The acquisition of certain midstream assets and gas marketing
operations from Chevron in 1996 was accounted for as an acquisition of
assets in accordance with the purchase method of accounting and the
results of operations attributed to the acquired assets are included in
Dynegy's financial statements and operating statistics effective
September 1, 1996.
8
<PAGE>
Illinova Corporation
<TABLE>
<CAPTION>
Six Months
Year Ended December Ended June
31, 30,
----------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------- ------ ------
(unaudited)
(in millions except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues............................ $1,746 $2,509 $ 2,431 $1,123 $1,028
Operating income (loss)............. 472 324 (2,302) 13 124
Other operating and maintenance
expenses........................... 350 402 538 232 259
Depreciation and amortization
expense............................ 190 199 204 101 89
Clinton facility impairment......... -- -- 2,341 -- --
Net income (loss)................... 190 (90) (1,383) (24) 26
Earnings (loss) per share........... 2.51 (1.22) (19.30) (0.34) 0.38
Shares outstanding.................. 76 72 70 72 70
Cash Flow Data:
Cash flows from operating
activities......................... 407 368 268 235 42
Cash flows from investment
activities......................... (256) (252) (362) (143) (181)
Cash flows from financing
activities......................... (138) (107) 579 (107) (343)
Other Financial Data:
Capital expenditures................ 187 224 312 115 150
Balance Sheet Data:
Current assets...................... 469 520 1,017 492 557
Current liabilities................. 748 862 1,214 899 961
Property and equipment, net......... 4,562 4,545 4,455 4,564 4,521
Total Assets........................ 5,713 5,583 6,801 5,638 6,455
Long-term debt...................... 1,636 1,718 2,335 1,750 2,313
Total equity........................ 1,929 1,624 1,423 1,558 1,399
</TABLE>
9
<PAGE>
Dynegy Inc.
<TABLE>
<CAPTION>
Six Months
Year Ended December Ended June
31, 30,
------------------------ --------------
1996 1997 1998 1998 1999
------ ------- ------- ------ ------
(unaudited)
(in millions except per share
amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $7,260 $13,378 $14,258 $6,594 $6,206
Operating margin................... 370 385 429 205 246
General and administrative
expenses.......................... 100 149 186 87 97
Depreciation and amortization
expense........................... 72 104 113 53 63
Asset impairment, abandonment
severance and other charges....... -- 275 10 10 --
Net income (loss).................. 113 (102) 108 36 56
Earnings (loss) per share............ 0.83 (0.68) 0.66 0.21 0.34
Shares outstanding................... 136 151 165 167 165
Cash Flow Data:
Cash flows from operating
activities........................ (31) 279 251 93 118
Cash flows from investment
activities........................ (111) (511) (295) (156) (237)
Cash flows from financing
activities........................ 176 205 50 94 118
Other Financial Data:
Capital expenditures, acquisitions
and investments................... 859 1,034 478 162 215
Balance Sheet Data:
Current assets..................... 1,937 2,019 2,117 2,120 2,337
Current liabilities................ 1,549 1,753 2,026 1,835 2,184
Property and equipment, net........ 1,691 1,522 1,932 1,695 2,057
Total assets....................... 4,187 4,517 5,264 5,026 5,927
Long-term debt..................... 989 1,002 1,047 1,207 1,273
Total equity....................... 1,117 1,019 1,128 1,055 1,197
</TABLE>
10
<PAGE>
Recent Developments
On June 11, 1999 prior to entering into the merger agreement, Illinois Power
Company and Dynegy entered into a short term consulting agreement pursuant to
which certain Dynegy employees have been assigned to Illinois Power Company for
purposes of advising Illinois Power on wholesale power trading. Dynegy's
subsidiary, Dynegy Power Marketing Inc. ("DPMI") (formerly known as Electric
Clearinghouse, Inc.), and Illinois Power will also continue to buy and sell
power between themselves as they did before signing the merger agreement. In
accordance with Federal Energy Regulatory Commission ("FERC") rules the Dynegy
employees assigned to Illinois Power have signed certifications agreeing not to
share with Dynegy any market information obtained from Illinois Power. As a
result of entering into the merger agreement, DPMI and Illinois Power have
applied for approval from the FERC under the FERC's rules governing trading
between affiliates.
Illinova
On June 30, 1999, Illinova entered into an agreement to sell its Clinton
nuclear facility to AmerGen Energy Company, L.L.C. This sale will require
Nuclear Regulatory Commission and other regulatory approvals and is expected to
close in the fourth quarter of 1999 or the first quarter of 2000. Until
closing, one of AmerGen's members, PECO, will continue to provide management
personnel for the Clinton nuclear facility and bear some of the financial and
operating risks attendant to that facility. Following the closing Illinova will
purchase 75% of the facility's output pursuant to the terms of a five-year
power purchase agreement.
Illinova is in the process of transferring the fossil-fueled generating
plants now owned by Illinois Power Company to a newly formed subsidiary to take
advantage of deregulation legislation adopted in Illinois. On July 8, 1999, the
ICC unanimously approved the transfer, which is expected to be completed by
October 1, 1999. On August 25, 1999, the FERC gave its approval for power sales
by the newly-formed subsidiary back to Illinois Power.
Dynegy
On July 22, 1999, Dynegy issued $200,000,000 of 6.875% Senior Notes due July
15, 2002 and $200,000,000 of 7.45% Senior Notes due July 15, 2006. The senior
notes, which have been rated BBB+ by Standard & Poor's and Baa2 by Moody's
Investor Service, represent senior unsecured obligations of Dynegy and rank
equally with Dynegy's existing senior debt. Dynegy used the proceeds from the
issuance of these notes to reduce commercial paper borrowings.
11
<PAGE>
SUMMARY PRO FORMA COMBINED UNAUDITED FINANCIAL INFORMATION
We present below summary pro forma combined financial information for
Illinova and Dynegy. This summary pro forma financial information is derived
from the unaudited pro forma combined financial statements and notes thereto
beginning on page 27 of this document. Accordingly, this information does not
purport to represent what the financial position or results of operations of
Illinova, Dynegy or the combined company would actually have been had the
merger occurred at January 1, 1998 or to project Illinova's, Dynegy's or the
combined company's results of operations for any future period or date. The
data set forth below should be read together with the pro forma financial
statements and the separate historical financial statements and notes thereto
of Illinova and Dynegy, which are included elsewhere in, or incorporated by
reference into, this document.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30,
1998 1999
------------ ----------
(in millions except per
share amounts)
<S> <C> <C>
Statement of Operations Data:
Revenues.............................................. $16,602.9 $ 7,209.3
Operating margin...................................... 1,039.2 667.9
General and administrative expenses................... 290.7 188.8
Depreciation and amortization expense................. 303.0 162.4
Net income............................................ 166.4 126.1
Earnings per share...................................... 0.93 0.75
Diluted shares outstanding.............................. 148.1 148.1
Balance Sheet Data:
Current assets........................................ n/a 2,953.2
Current liabilities................................... n/a 3,032.5
Property and equipment, net........................... n/a 6,534.9
Total assets.......................................... n/a 12,609.6
Long-term debt........................................ n/a 4,594.5
Total equity.......................................... n/a 2,008.8
</TABLE>
12
<PAGE>
COMPARATIVE PER SHARE AND DIVIDEND INFORMATION
The following table summarizes the per share information for our companies
on a historical, pro forma combined and equivalent basis. The pro forma
comparative per share data, which is derived from the unaudited pro forma
combined financial statements and notes thereto beginning on page 27 of this
document, does not purport to represent what the financial position or results
of operations of Illinova, Dynegy or the combined companies would actually have
been had the merger occurred at January 1, 1998 or to project Illinova's,
Dynegy's or the combined companies' results of operations for any future period
or date. The data set forth below should be read together with the pro forma
financial statements and the separate historical financial statements and notes
thereto of Illinova and Dynegy, which are included elsewhere in, or
incorporated by reference into, this document.
<TABLE>
<CAPTION>
At or for
the At or for the
Year Ended Six Months
December 31, Ended
1998 June 30, 1999
------------ -------------
<S> <C> <C>
Unaudited Pro Forma Combined
Gain from continuing operations per common share:
Basic............................................. $ 0.95 $ 0.77
Diluted........................................... 0.93 0.75
Common stock dividends............................. 0.60 0.30
Book value per common share........................ n/a 13.82
Illinova--Historical
Income (loss) from continuing operations per common
share............................................. $(19.30) $ 0.38
Common stock dividends............................. 1.24 0.62
Book value per common share........................ 16.28 16.51
Dynegy--Historical
Gain from continuing operations per common share:
Basic............................................. $ 0.71 $ 0.37
Diluted........................................... 0.66 0.34
Common stock dividends............................. 0.05 0.025
Book value per common share........................ 7.42 7.76
</TABLE>
13
<PAGE>
RISK FACTORS
In deciding whether to approve the merger, you should consider the
following risks related to the merger and to your investment in Energy
Convergence following the merger. You should consider carefully these risks
along with the other information in this document and the documents to which
we have referred you. See "Where You Can Find More Information" on page 116.
Cautionary Statements Concerning Forward-Looking Statements
This document contains numerous forward-looking statements with respect to
the financial condition, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
capital and other expenditures, competitive positions, growth opportunities
for existing products, plans and objectives of management, markets for stock
of Dynegy, Illinova and Energy Convergence and other matters. The words
"estimate," "project," "intend," "expect," "believe," "forecast" and similar
expressions are intended to identify these forward-looking statements, but
some of these statements may use other phrasing. Any statement in this
document that is not a historical fact is hereby identified as a "forward-
looking statement" for the purpose of the safe harbor provided by the Private
Securities Litigation Reform Act of 1995. None of Dynegy, Illinova or Energy
Convergence undertakes any obligation to release any revisions to these
forward-looking statements publicly to reflect events or circumstances after
the date of this document or to reflect the occurrence of unanticipated
events. Such forward-looking statements, wherever they occur in this document,
are necessarily estimates reflecting the best judgment of the senior
management of Dynegy and Illinova and involve a number of risks and
uncertainties that could cause actual results to differ materially from those
suggested by the forward-looking statements. Important factors that could
cause actual results to differ materially from those suggested by the forward-
looking statements are described below and in the documents that we have
incorporated by reference into this document. In addition, there can be no
assurance that:
. we have correctly identified and assessed all of the factors affecting
Illinova's or Dynegy's businesses;
. the publicly available and other information with respect to these
factors on which we have based our analysis is complete or correct;
. our analysis is correct; or
. our strategies, which are based in part on this analysis, will be
successful.
Accordingly, you should not rely on the accuracy of predictions contained
in forward-looking statements. These statements speak only as of the date of
this document, or, in the case of documents incorporated by reference, the
date of those documents.
Factors Relating to the Merger
Directors, Executive Officers and Shareholders of the Companies May Have
Interests that are Different from or in Addition to Your Interests as a
Shareholder.
When considering the recommendations of the board of directors of each
company, you should be aware that some members of the Dynegy and Illinova
boards of directors and some executive officers of Dynegy and Illinova may
have interests in the merger that are different from, or in addition to, your
interests as shareholders.
Following the merger, Energy Convergence will elect C.L. Watson, who is the
chairman and chief executive officer of Dynegy, chairman of the board of
directors and chief executive officer of Energy Convergence. Both Mr. Watson
and Mr. Charles Bayless, who is the chairman and chief executive officer of
Illinova, will be directors of Energy Convergence.
Approximately 21 of Illinova's officers have retention agreements providing
for substantial payments in the event that they are terminated without "cause"
or resign for "good reason" in connection with the merger. In connection with
the merger Illinova amended the non-qualified options held by employees, other
than Mr. Bayless, so that any unvested options will vest upon the merger and
the employees will have one year in which to exercise the options. Illinova
has modified its incentive compensation plans to provide for (1) the
possibility that the merger will occur prior to the end of 1999 (in which
event year-end results will be projected based
14
<PAGE>
upon year-to-date results in order to determine the benefits that have been
earned), and (2) waiver of the obligation that employment continue subsequent
to the measurement period in order for the benefits to be earned. Several
senior officers of Illinova in addition to Mr. Bayless are not expected to
continue with the merged businesses and will receive substantial termination
benefits.
In connection with the merger, Energy Convergence will enter into a three-
year employment agreement with Mr. C.L. Watson to serve as the Chairman and
Chief Executive Officer of Energy Convergence. This agreement will supercede
Mr. Watson's previous employment agreement with Dynegy. The agreement will
provide for an annual base salary of $1,500,000, a target bonus of 100% of base
salary and a maximum cash award of 200% of base salary (with any amount in
excess thereof to be paid in the form of options or other non-cash
compensation). Mr. Watson will be eligible to receive annual grants of options
pursuant to the Dynegy Inc. 2000 Long Term Incentive Plan. In addition, Mr.
Watson will receive an initial grant at closing of the merger of approximately
230,000 options (subject to adjustment depending on the price of Energy
Convergence's stock on the date of closing) with an exercise price equal to the
market price of Energy Convergence's stock on the date of closing of the
merger. Otherwise, the material terms of the agreement are expected to be
generally consistent with the terms of his current employment agreement.
Options issued under the Dynegy Employee Equity Option Plan and held by
certain employees who execute new employment agreements after June 14, 1999,
will become immediately exercisable upon the closing of the merger. In
addition, options issued under the 1991 Dynegy Stock Option Plan will become
immediately exercisable upon the closing of the merger. The compensation
committees of the Dynegy and Illinova boards also may make joint decisions with
respect to other employee/retention matters, which could result in increases in
cash or non-cash compensation outside the ordinary course of business.
In the merger, Chevron will receive shares of Energy Convergence Class B
common stock instead of the Class A common stock to be received by Dynegy's
public shareholders. In connection with the merger, Chevron will purchase
additional shares of Class B common stock for an aggregate purchase price of
between $200 million and $240 million. The price per share for Chevron's
purchase of Class B common stock will be the lesser of $23.91 and the average
closing price of Dynegy common stock prior to the merger divided by 0.69. As a
holder of shares of Class B common stock, Chevron will be entitled to elect
three members of Energy Convergence's board of directors as well as other
shareholder protection rights. See "Other Agreements--Shareholder Agreement"
and "Description of Energy Convergence Capital Stock Following the Merger--
Class B Common Stock."
In the merger, NOVA and the parent of BG Holdings will receive shares of
Energy Convergence Series A preferred stock instead of Class A common stock. In
general the Series A preferred stock will have liquidation and dividend
preferences over the Class A common stock and is convertible into Class A
common stock.
We have entered into registration rights agreements with Chevron, NOVA and
the parent of BG Holdings. The registration rights agreements provide, among
other things, that Energy Convergence will, upon request, register for resale
with the SEC the shares of Energy Convergence which the investors will receive
as a result of the merger.
Illinova Must Sell its Nuclear Plant Before the Closing of the Merger.
The merger cannot be completed until Illinova sells its Clinton nuclear
facility on terms and conditions consistent with those contemplated by the
merger agreement or as otherwise reasonably satisfactory to Dynegy and Chevron.
Although Illinova has agreed to sell the facility to AmerGen, we cannot assure
you of the timing of the sale or that the sale will occur on the terms and
conditions agreed to. Additionally, the sale of the facility must be approved
by the Nuclear Regulatory Commission under the Atomic Energy Act and by other
regulatory agencies. As a result of this condition, while we expect to receive
timely regulatory approvals, the merger could be delayed for a significant
period of time after shareholders approve the merger agreement at the special
meetings.
15
<PAGE>
Chevron's Request for an Exemption from PUHCA may not be Granted or may be
Granted on Unacceptable Terms.
Chevron holds approximately 25% of Dynegy's voting power and is expected to
hold approximately 28% of Energy Convergence's voting power following the
merger. Chevron entered into a shareholder agreement with Energy Convergence,
Illinova and Dynegy in connection with the merger. The shareholder agreement
requires Chevron to seek an exemption or exclusion from certain registration
requirements under the Public Utility Holding Company Act of 1935 ("PUHCA")
that could be applicable because of the size of its ownership interest in
Energy Convergence. If, prior to the closing of the merger, PUHCA approval by
the SEC is denied (or the SEC indicates that it will not support approval of
the exemption or exclusion sought by Chevron) or is granted with certain
unacceptable conditions to Chevron or us, the merger agreement may be
terminated. Additionally, Energy Convergence could be required to take steps
to avoid Chevron being required to register under PUHCA, including a possible
divestiture of its utility assets if the PUHCA exemption or exclusion
application is denied or conditionally granted by the SEC after the closing of
the merger. The merger and Chevron's proposed ownership of Energy Convergence
involve facts not present in transactions previously approved by the SEC under
PUHCA. We cannot assure you that Chevron will obtain the PUHCA approval, that
the approval will be obtained before the closing of the merger or that the
terms and conditions of any approval will be satisfactory to Chevron and us.
As a result, the merger agreement could be terminated or Energy Convergence
could be required to sell its utility assets after the closing of the merger.
The timing of and consideration for any resulting asset sale is not
determinable at the present time.
We May Not be Able to Obtain Other Required Regulatory Approvals in a Timely
Manner or on Satisfactory Terms.
Before we can complete the merger, we and/or Chevron must receive approvals
or compliance exemptions from the ICC, the SEC under PUHCA, and the FERC under
the Federal Power Act. Obtaining these regulatory approvals could delay the
merger for a significant period of time after shareholders approve the merger
at the special meetings. We cannot assure you that we will obtain these and
other regulatory approvals or, if we obtain them, whether the terms and
conditions of the approvals will be satisfactory. We also cannot give any
assurance on whether intervenors will appeal final orders approving the merger
to the appropriate courts, which could further delay the merger.
Qualifying Facilities.
To the extent that Dynegy, together with any utilities having ownership
interests, own in excess of 50% of any "qualifying cogeneration facilities" or
"qualifying small production facilities," Dynegy has agreed to sell or
restructure its ownership interests pursuant to the requirements of the Public
Utility Regulatory Policies Act of 1978, to the extent that a failure to do so
would materially harm Dynegy. We cannot assure you that Dynegy will be able to
accomplish these dispositions economically or to restructure these investments
on a timely basis or on terms that are satisfactory to Dynegy. If the
resulting dispositions or restructurings have a material adverse effect on
Dynegy, Illinova will have the right to not close the merger.
As a result of this condition, Dynegy is in the process of evaluating the
sale of its interests in 11 electrical generating facilities in California.
The sale of these interests would result in a reduction of 709 gross megawatts
(321 megawatts, net) of Dynegy's generating capacity. These interests provided
$11.4 million of equity in earnings of unconsolidated affiliates in 1998 and
had a book value of $54.2 million at December 31, 1998. The proceeds from any
sale of these interests will be used to reduce Dynegy's debt.
The Exchange Ratio in the Merger is Fixed.
At the time the merger is completed, each share of Illinova common stock
will be converted into the right to receive one share of Energy Convergence
Class A common stock. For shareholders of Dynegy other than BG Holdings, NOVA
and Chevron, each share of Dynegy common stock being converted into stock in
the merger will be converted into the right to receive .69 shares of Energy
Convergence Class A common stock. These exchange ratios will not be adjusted
in the event of any increase or decrease in the price of Illinova
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common stock or Dynegy common stock. As a result, the exchange ratio may not
reflect the relative trading prices or changes in relative values of Illinova
and Dynegy common stock.
Energy Convergence will Experience Increased Leverage.
Energy Convergence plans initially to finance the cash component of the
merger with borrowings under one or more bank credit facilities and the
issuance of between $200 million and $240 million of Class B common stock to
Chevron. After the closing of the merger, Energy Convergence anticipates
refinancing a significant portion or all of the credit facilities with proceeds
from an offering of equity securities, additional public debt issuances,
proceeds from potential asset sales and cash flow from operations. See "The
Merger--Financing the Transaction." As a result of the transaction financing,
the pro forma consolidated capital structure of Energy Convergence at closing
will be approximately 65% long-term debt, 6% mezzanine preferred securities, 1%
equity preferred stock and 28% common equity, a more leveraged capital
structure than either Illinova or Dynegy has at present.
The increase in total indebtedness of the combined companies after the
merger may have a negative impact on the credit ratings of Energy Convergence,
Dynegy and Illinois Power. This event could lead to increased borrowing costs,
more restrictive covenants and the extension of less open credit by suppliers
and counterparties, all of which could negatively affect profitability.
Management of Illinova, Dynegy and Energy Convergence believe the companies
will have strong credit ratings, access to many sources and types of short-term
and long-term capital at reasonable rates and will be extended sufficient trade
credit to operate their businesses efficiently. However, management is unable
to predict with certainty when or whether the capital structure of Energy
Convergence will become less leveraged. Additionally, if Energy Convergence's
unsecured senior debt is rated less than investment grade, the conversion
premium of the Series A preferred stock would be impacted. Each share of Series
A preferred stock will be convertible into a number of shares of Class A common
stock determined by dividing (1) the liquidation value, plus accrued but unpaid
dividends, per share of Series A preferred stock by (2) a price equal to the
mean average of the closing prices on the NYSE of Illinova's common stock over
the five consecutive trading days ending on the election date under the merger
agreement times a premium, which will be 1.22 unless Energy Convergence's
unsecured senior debt is rated less than investment grade, in which case the
premium will be 1.18 or less.
Cash Paid in the Merger Will be Different than What Dynegy Shareholders Elect.
Shareholders making elections for cash will not receive what they elect
because the amount of cash to be paid in the merger is fixed. If you are a
public shareholder of Dynegy, for each 100 shares of Dynegy common stock for
which you elect to receive cash, you will receive cash consideration with
respect to no less than 63 shares of Dynegy common stock and no more than 84
shares of Dynegy common stock.
There is No Current Market for Energy Convergence Common Stock and
Shareholders Cannot be Sure of the Market Value of the Energy Convergence
Common Stock They Will Receive in the Merger.
Under the merger agreement, we must list the Energy Convergence Class A
common stock on the NYSE. There is currently no market for Energy Convergence
Class A common stock. Until an orderly market for the stock develops, the
prices at which trading in such shares occurs cannot be determined and may
fluctuate significantly and the ultimate value of the Energy Convergence Class
A common stock cannot be determined.
Risks Relating to Energy Convergence after the Merger
We Cannot Assure You that Our Two Companies Will Be Successfully Integrated
into a Single Entity.
After the merger we will need to integrate two companies in different but
related industries. Failure to integrate our operations successfully may have a
material adverse effect on our business, financial condition or results of
operations. Integrating two companies like Dynegy and Illinova involves a
number of risks, including:
. the diversion of management's attention away from ongoing operations;
17
<PAGE>
. difficulties in combining operations and systems, which may be made more
complex by unforeseen "Year 2000" compliance issues;
. difficulties in the assimilation and retention of employees;
. challenges in retaining customers; and
. potential adverse short-term effects on operating results.
We May Not Achieve the Expected Revenue Enhancements, Cost Savings and Other
Benefits of the Merger. This May Have a Material Negative Effect on Our
Results of Operations.
Because of difficulties in combining operations, we may not be able to
achieve the revenue enhancements, cost savings and other benefits that we hope
to achieve after the merger. We expect that revenue enhancements, cost savings
and other benefits from the merger will exceed those which we could achieve
separately.
Among the factors the boards of directors of each company considered in
approving the merger agreement were the opportunities for economies of scale
and scope and operating efficiencies that could result from the merger. We
have estimated that the combined company will achieve a range of $125 million
to $165 million of revenue enhancements and costs savings per year following
the merger. Our revenue enhancements and cost savings estimates are based on
many assumptions, including future revenue levels and other operating results,
the availability of funds for investment, the ability to integrate operations,
the timing of events, as well as general industry and business conditions and
other matters. Many of these factors are beyond our control. Our actual
revenue enhancements, cost savings, and other benefits, if any, could differ
from our estimates and these differences could be material. There may be
unforeseen factors that will offset the estimated revenue enhancements, cost
savings or other components of our plan. They also may result in delays in the
realization of these benefits.
Energy Convergence Will Have a Substantial Shareholder.
Although Dynegy currently has three large shareholders, each owning
approximately 25% of Dynegy's common stock, Illinova does not have any large
shareholders. Following the merger, Chevron will own approximately 28% of the
Energy Convergence capital stock. This ownership will result in Chevron having
substantial influence over Energy Convergence. There can be no assurances that
Chevron will exert that influence in a manner that is consistent with the
interests of other shareholders. In connection with the merger, Chevron,
Illinova, Dynegy and Energy Convergence entered into a shareholder agreement
and included various provisions in Energy Convergence's articles of
incorporation and bylaws to govern Chevron's relationship with Energy
Convergence. In general, these provisions limit Chevron to electing three
directors, restrict Chevron's ownership interest to 40% unless it offers to
purchase the entire company in accordance with certain agreed-upon procedures,
and restricts the manner in which Chevron can sell its interest. However, it
also provides Chevron (as a shareholder or through its designees on the Energy
Convergence board) with the ability to block various significant transactions.
In addition, the procedures that govern Chevron's offering to purchase the
entire company could result in a sale of Energy Convergence at a time other
than when Energy Convergence's board of director believes is opportune. See
"Other Agreements--Shareholder Agreement" and "Description of Energy
Convergence Capital Stock following the Merger--Common Stock."
The Energy Industry Is Rapidly Changing.
We may not be able to respond in a timely or effective manner to the many
changes in the electric utility industry including deregulation and increasing
competition. The recent impact of these changes in Illinois includes rate
reductions and a phasing-in of the opportunity for an increasing number of
customers to choose alternative energy supplies. We may not be able to
maintain our revenues and earnings in this new and intensively competitive
marketplace. In addition, we may not be able to fully recover our investment
in regulated assets.
Over the last fifteen years the energy industry has been subject to
enormous change. In particular, starting in the mid 1980s, the natural gas
transmission and marketing business began to be deregulated. As a result,
natural gas marketing companies such as Dynegy began to accelerate their
growth. An additional consequence
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of this change was that companies in the industry had to change their focus
from being in a regulated industry where the important consideration was
controlling their rate base to competing in a market economy. In the last five
years, similar changes have occurred in the electricity generating and, to a
lesser extent, electric transmission industries. If we are unable to respond
to these changes in an effective manner our business, earnings and stock price
may be adversely affected.
We cannot predict whether state legislatures or the federal government will
adopt additional legislation relating to the deregulation of the energy
industry. We cannot predict what impact, if any, new legislation might have on
our business.
Energy Convergence Will Continue to Face Strong Competition.
We will face strong competition relating to all aspects of the energy
industry in the development of new electric generating plants in the United
States, in the acquisition of existing electric generating plants and in the
marketing and transportation of natural gas, electricity, natural gas liquids,
crude oil and liquefied petroleum gas. Energy Convergence must compete with a
substantial number of other energy companies or power generating companies,
many of which have greater resources and focus only on one industry or a
segment of one industry. While we believe that through the merger we will
diversify our individual businesses and achieve costs savings and revenue
enhancements, Energy Convergence may not be able to compete effectively with
other companies in these industries which have a more specialized focus than
Energy Convergence.
Energy Convergence's Business Will Be Affected by Different Factors than
Illinova and Dynegy Individually.
While both companies are in the energy industry, Illinova's business
includes a utility and substantial electric generation whereas Dynegy's
business involves primarily natural gas and gas liquids processing,
distribution and marketing and power generation and marketing. Energy
Convergence's more balanced energy profile will expose Illinova shareholders
to the risks associated with the volatility of natural gas and natural gas
liquids prices, while Dynegy shareholders will be more exposed to risks
associated with utility and electric generation operations.
There are Risks Attendant to Trading in Commodities.
Our ability to enhance revenue and earnings is dependent, in part, upon the
variability of commodity prices (e.g., coal, natural gas, natural gas liquids,
electricity and crude oil) and our ability to manage the price risks
associated with commodities as they directly and indirectly impact our
operations. Commodity price variability results from multiple factors
including:
. weather
. illiquid markets
. transmission or transportation inefficiencies
. availability of competitively priced alternative energy sources
. natural gas, crude oil and coal production
. international, Federal and state energy regulation and legislation.
Energy Convergence will routinely enter into contracts to hedge purchase and
sale commitments, fuel requirements and inventories of natural gas, coal,
electricity, natural gas liquids, crude oil and other commodities in order to
minimize the risk of market fluctuations on its various operations. However,
as a result of marketplace illiquidity and other factors, Energy Convergence,
at times, may be unable to hedge fully its portfolio for certain market risks.
Further, Energy Convergence, at times, may have an open position in the
market, within established guidelines. To the extent an open position exists,
fluctuating commodity prices can impact financial results and financial
position, either favorably or unfavorably. As a result, management cannot
predict with precision the impact that its risk management decisions may have
on its businesses, its operating results or its financial position.
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Decreases in Prices for Natural Gas Liquids Reduce Dynegy's Profit Margin in
the Production, Sale and Distribution of Natural Gas Liquids.
During the fiscal year ended December 31, 1998, 45% of Dynegy's operating
margin was derived from its liquids segment, which produces in excess of
120,000 barrels per day of natural gas liquids (NGLs), includes substantial
fractionation capacity and markets over 450,000 barrels daily. Volatility in
NGL prices, which Energy Convergence may not be able to hedge against as a
result of a lack of market liquidity or other factors, may cause fluctuations
in Dynegy's operating margins at each stage in the production, marketing and
transportation of NGLs, and may cause increases and decreases in Dynegy's
profits. To the extent prices for NGLs decrease, Dynegy's profits related to
its NGL business generally are expected to decrease.
Our Nonregulated Businesses are Inherently Riskier than Illinova's Traditional
Utility Business.
We expect the combined company's nonregulated businesses will contribute a
greater proportion of the combined company's earnings than Illinova's
nonregulated businesses currently contribute to its earnings. Nonregulated
operations generally carry a higher level of risk than regulated utility
businesses. As a result, we expect the operating results of these businesses to
exhibit more variability than regulated utility businesses. Energy
Convergence's nonregulated businesses will face relatively higher project
investment risks than the utility business.
Independent Power Generation Projects Have Special Risks.
The operation of independent power generation facilities involves many
risks, including the breakdown or failure of generation equipment or other
equipment or processes, labor disputes, fuel interruption and operating
performance below expected levels. Operation below expected capacity levels may
result in lost revenues or increased expenses, including higher maintenance
costs and penalties. This could trigger default provisions in the project
subsidiary's or project affiliate's financing agreements, which might allow the
affected lenders to accelerate that debt.
Independent power generation facilities typically rely on a single supplier
for each of fuel, water and other services required for operation of the
facility and on a single customer or a few customers to purchase all of the
facility's output. These arrangements are made under long-term agreements that
provide the support for any project debt used to finance the facilities. The
facility's financial results could be materially adversely affected if any one
customer or supplier fails to fulfill its contractual obligations. As a result,
the financial performance of this type of facility is dependent on the
continued performance by customers and suppliers of their obligations under
their long-term agreements and, in particular, on the credit quality of the
project's customers.
Additionally, Energy Convergence may acquire or build independent power
projects which do not have long-term agreements for sale of power generated by
these projects. The success or failure of these projects will depend on future
market prices which cannot be predicted with certainty.
Many of Energy Convergence's project investments will be minority interests
in project affiliates. This means that Energy Convergence will beneficially own
50% or less of the ownership interests. As a result, Energy Convergence's
ability to control the development, construction, acquisition or operation of
this type of project may be limited.
The economic and political conditions in some countries where Energy
Convergence will have interests or where Energy Convergence may explore
development or acquisition opportunities present risks of construction delays
and interruption of business, as well as risks of war, expropriation,
nationalization, renegotiation or nullification of existing contracts and
changes in law or tax policy, that are greater than in the United States. The
uncertain legal environment in some foreign countries where Energy Convergence
develops or acquires projects could make it more difficult for us to obtain
non-recourse project financing on satisfactory terms and could make it more
difficult for Energy Convergence to enforce our rights under agreements
relating to these projects.
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Operations in foreign countries also present currency exchange, inflation,
convertibility and repatriation risk. Economic and monetary conditions and
other factors could make it more difficult for Energy Convergence to convert
our earnings to United States dollars or other hard currencies or to move funds
offshore from some countries where Energy Convergence develops or acquires
projects.
Our Costs to Comply With Environmental Laws Are Significant.
Dynegy's and Illinova's operations have been, and Energy Convergence's
operations will be, subject to extensive federal, state and local statutes,
rules and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection. Compliance with these
statutes, rules and regulations requires capital and operating expenditures
including those related to monitoring, pollution control equipment, emission
fees and permitting at various operating facilities and remediation
obligations. Failure to comply with these statutes, rules and regulations may
result in the assessment of civil and even criminal penalties. Energy
Convergence's environmental expenditures will be substantial in the future with
the trend toward stricter standards, greater regulation, more extensive
permitting requirements and an increase in the number and types of assets
operated by us subject to environmental regulation. We cannot assure you that
future compliance with these environmental statutes, rules and regulations will
not have a material adverse effect on our operations or Energy Convergence's
financial condition.
Year 2000 Risks Exist.
Both Illinova and Dynegy currently are, and Energy Convergence will be,
subject to the risks and costs attendant to computer software and hardware and
other equipment that was not designed to accommodate dates subsequent to
December 31, 1999. In connection with the merger, Illinova shareholders will be
exposed to Dynegy's risks in this area, and, similarly, Dynegy's shareholders
will be exposed to Illinova's risks in this area. Although both companies have
carefully reviewed their systems, made appropriate upgrades and believe that
they will not experience material Year 2000 difficulties, Year 2000 issues are
unprecedented and there may be unforeseen problems that have far greater
adverse consequences than expected.
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THE SPECIAL MEETINGS
Dynegy and Illinova will each hold a special meeting of its shareholders.
This document is furnished to you in order to solicit your proxy for use at the
special meetings.
Dates, Times and Places
The Dynegy meeting will be held at Dynegy's headquarters at 1000 Louisiana
Street, Suite 5800, Houston, Texas 77002, on October 11, 1999, 3:00 p.m. local
time.
The Illinova meeting will be held at Illinova's headquarters at 500 South
27th Street, Decatur, Illinois 62525, on October 11, 1999, 9:00 a.m. local
time.
Purposes
The purpose of each of the Dynegy and Illinova meetings is to approve and
adopt the merger agreement and the Dynegy Inc. 2000 Long Term Incentive Plan.
Voting Rights; Votes Required for Approval
Only Dynegy shareholders of record at the close of business on September 7,
1999, are entitled to notice of and to vote at the Dynegy meeting. On the
Dynegy record date, there were approximately 248 shareholders of record holding
an aggregate of 155,512,933 shares of Dynegy common stock and one shareholder
of record holding an aggregate of 7,815,363 shares of Dynegy preferred stock,
which does not have voting rights.
Each share of Dynegy common stock is entitled to one vote. Approval of the
proposal concerning the merger agreement requires the affirmative vote of a
majority of the total votes represented by the outstanding Dynegy common stock.
Approval of the Dynegy Inc. 2000 Long-term Incentive Plan requires the
affirmative vote of a majority of the votes cast.
The presence, in person or by proxy, of at least a majority of the voting
power of Dynegy stock entitled to vote at the Dynegy meeting is necessary to
constitute a quorum. Abstentions and broker non-votes will count in determining
a quorum. For purposes of obtaining the required vote for approval of the
merger agreement, an abstention or a broker non-vote is the same as a vote
against the proposal. Chevron, BG Holdings and NOVA have agreed to vote shares
representing approximately 75% of the total outstanding shares of Dynegy common
stock as of August 5, 1999 in favor of approval of the merger agreement. The
vote of such shares in favor of the merger is sufficient to authorize Dynegy to
close the merger. For the proposal to adopt the Dynegy Inc. 2000 Long Term
Incentive Plan, abstentions have the same legal effect as a vote against the
proposal, but broker non-votes are not counted as votes cast and therefore,
once a quorum is present, have no effect on the proposal.
Only Illinova shareholders of record at the close of business on September
7, 1999, are entitled to notice of and to vote at the Illinova meeting. On the
Illinova record date, there were approximately 29,930 shareholders of record
holding an aggregate of 69,939,337 shares of Illinova common stock.
Each share of Illinova common stock is entitled to one vote. Approval of the
proposal concerning the merger agreement requires the affirmative vote of at
least two-thirds of the shares entitled to vote. Approval of the proposal to
adopt the Dynegy Inc. 2000 Long Term Incentive Plan requires the affirmative
vote of a majority of the votes cast.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Illinova common stock entitled to vote at the Illinova
meeting is necessary to constitute a quorum. Abstentions and broker non-votes
will be counted in determining whether a quorum is present. An abstention or
broker non-vote is the same as a vote against the merger proposal. For the
proposal to adopt the Dynegy Inc. 2000 Long Term
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Incentive Plan, abstentions are counted as votes cast and accordingly have the
same effect as votes against the proposal. Broker non-votes are not counted as
votes cast and therefore, once a quorum is present, have no effect on the
proposal.
Election of Consideration by Dynegy Shareholders
Shortly before the closing of the merger, Dynegy shareholders will be sent
an election form pursuant to which they can elect to receive either stock or,
subject to the pro ration process described in the summary of this document,
cash in the merger. These election forms will be due two business days before
the closing--Dynegy will publicly announce this date once it is established--
and until that time the elections may be changed. If the closing is delayed, a
new due date will be established and announced. If a Dynegy shareholder does
not submit an election form he will be deemed to have made an election to
receive stock.
Notices of Special Meetings
This document constitutes notice under Illinois law and Delaware law of the
respective special meetings of Illinova and Dynegy shareholders and the two
matters scheduled to be considered: adoption of the merger agreement and
adoption of the Dynegy Inc. 2000 Long Term Incentive Plan.
Proxies
Proxies are being solicited by the boards of directors of Dynegy and
Illinova. If you sign, complete, and return a proxy and your company receives
the proxy before or at your special meeting, your proxy will be voted as you
instructed. All proxies returned without instructions will be voted FOR the
approval of the proposals. Proxies marked ABSTAIN will be treated as set forth
above.
If your shares are held in the name of a broker, bank, or other record
holder, you must either direct the record holder as to how to vote your shares
or obtain a proxy from the record holder to vote at your special meeting. Under
applicable rules of the New York Stock Exchange, brokers who hold shares in
street names for customers who are beneficial owners of those shares are
prohibited from giving a proxy to vote those customers' shares in the absence
of specific instructions from the customers (i.e., broker non-votes). Broker
non-votes will be treated as set forth above.
If any other matters are properly presented for consideration at the special
meetings, the persons named in the proxies will have discretion to vote or not
vote on those matters in accordance with their best judgment, unless
authorization to use that discretion is withheld. Proxies marked AGAINST
approval and adoption of the proposals will be voted against any proposal to
adjourn the meeting(s) for the purpose of soliciting additional proxies. We do
not intend, however, to seek an adjournment of our special meetings. We are
unaware of any business for consideration at the special meetings other than as
described in this document.
You may revoke your proxy at any time prior to its use. To revoke your
proxy, you must deliver to the corporate secretary of the company of which you
are a shareholder, a signed notice of revocation or deliver a later-dated proxy
changing your vote. In addition, you may choose to attend your special meeting
and vote in person. Please realize that simply attending the meeting will not
in itself constitute the revocation of your proxy. If you are not the record
holder of your shares, you may not vote your shares at your meeting without a
proper proxy from the record holder.
Each company will pay the costs associated with soliciting proxies from its
shareholders. In addition to solicitation by mail, arrangements will be made
with brokerage houses and other custodians, nominees, and fiduciaries to send
proxy materials to beneficial owners. Dynegy and Illinova, as the case may be,
will reimburse these parties for their reasonable expenses. Illinova has
retained Innisfree M&A Incorporated to aid in the solicitation of proxies for a
fee of $25,000 plus certain other charges and expenses. Dynegy has not retained
a proxy solicitation firm. In order to ensure sufficient representation at our
meetings, we may request by telephone or telegram the return of your proxy.
Please assist us by promptly returning your proxy without delay.
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ENERGY CONVERGENCE--THE COMBINED COMPANY
As a result of the merger between Dynegy and Illinova, Energy Convergence
will be a leading national energy merchant with, based on 1998 numbers, over
$16 billion in annual revenues and $12.7 billion in assets including
approximately 14,000 megawatts of gross generation capacity (10,321 megawatts,
net). This combination will unite a strong utility company with strategically
located assets, operations, electric transmission and retail electric and gas
distribution capabilities with one of the nation's leading energy marketers and
independent power producers.
Initial Resources. Energy Convergence's asset base will consist primarily of
domestic assets consisting of electric generation, transmission and
distribution assets, gas gathering and pipeline systems, gas distribution
systems, gas processing facilities and NGL fractionation facilities. Energy
Convergence's generation capacity is located throughout the United States with
the majority being strategically located in the attractive electric markets in
the Midwest, California, Texas and the Southeast. Energy Convergence is
expected to have an interest in forty-one power projects in the United States
in operation, under construction, in late stage development or pending
acquisition. Many projects are owned through interests in joint ventures formed
to operate the plants. Seventy percent of the gross capacity of these projects
is gas-fired, 26% is coal-fired and the remaining 4% consists of either oil-
fired or gasification facilities. The geographic diverse generation is based in
the following areas:
<TABLE>
<CAPTION>
Percentage by
Region (NERC Region) Gross Megawatt
-------------------- --------------
<S> <C>
California (WSCC).......................................... 22%
Texas (ERCOT).............................................. 17%
Midwest (ECAR & MAIN)...................................... 47%
Southeast (SERC)........................................... 13%
Other Areas................................................ 1%
</TABLE>
Illinois Power Company, a regulated public utility, will be engaged in the
generation, transmission and sale of electricity at wholesale and retail.
Illinois Power provides retail electric service to customers located throughout
portions of northern, central and southern Illinois. Illinois Power owns
approximately 2,829 miles of transmission facilities with ratings from 69 to
345 kilovolts. Illinois Power also supplies retail natural gas service to 266
incorporated municipalities, suburban areas and other unincorporated
communities in Illinois. Illinois Power has eight underground gas storage
fields and contracts with various natural gas suppliers and producers to insure
deliverability to its customers during peak load periods. Illinois Power also
owns one active liquefied petroleum gas plant and approximately 8,000 miles of
gas mains.
Energy Convergence's natural gas liquid or mid-stream business will own all
or an interest in 42 gas processing plants, three fractionation facilities,
14,000 miles of gas pipelines, 2,000 miles of crude oil pipelines and gathering
systems, 500 miles of NGL pipelines and 60 million barrels of NGL storage
capacity. The majority of these assets are located on the Gulf Coast or in
Texas and Oklahoma.
Strategy. The larger size and scale provided by the merger is expected to
enable Energy Convergence to capitalize on the opportunities afforded by the
deregulation and restructuring of the $90 billion wholesale electricity market.
The market for energy, whether in the form of natural gas, coal or electricity,
has continued to shift from a series of separate markets for a specific energy
type or source to "converge" into a broader market for energy as measured on a
btu (British Thermal Unit) basis. Accordingly, we expect to have numerous
opportunities for integrating disparate energy related assets into our company
and then using our expertise and infrastructure to maximize profits along the
entire value chain for various energy media--from generation, to delivery, to
marketing and trading to retail.
Dynegy and Illinova are developing plans to integrate their operations
immediately after the merger. We intend to combine our businesses into three
primary competitive areas: BTU convergence, regulated gas and electric utility
operation and the NGL business. Each of these businesses is described below.
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BTU Convergence. The BTU convergence business will actively engage in value
creation through marketing and trading of natural gas, electricity and coal and
the generation of electricity. Based upon combined 1998 numbers, Energy
Convergence would have ranked fourth in natural gas sales with sales of 9.1
billion cubic feet per day and second in power sales with sales of 187 million
megawatt hours produced and sold. Energy Convergence will continue to pursue
aggressively an energy convergence strategy that exploits the marketing,
trading and arbitrage opportunities existing in the natural gas and power
markets that are enhanced by the control and optimization of related physical
assets. Energy Convergence believes that merchant generation capacity, which is
designed principally to supply power to markets during periods of peak demand,
offers the greatest flexibility in executing its strategy of creating an
integrated gas and power marketing and power generation business. We refer to
our ability to extract incremental value from the market by integrating
merchant generation capacity with our national gas and power marketing
franchise as the "Merchant Leverage Effect."
[Diagram appears here]
Approximately two-thirds of the estimated $125 million to $165 million of
merger benefits is expected to result from revenue enhancements, primarily
through the Merchant Leverage Effect. By capitalizing on the potential
synergistic relationship between Illinova's generation capacity and Dynegy's
energy trading and marketing skills, Energy Convergence expects to increase
earnings and cash flow above what the two companies would have produced
separately.
This merger is also expected to enhance Energy Convergence's ability to
implement a national retail energy and energy service strategy by leveraging
the retail experience and presence brought by Illinova with the existing Dynegy
retail alliance network.
While Dynegy has already successfully expanded its core BTU Convergence
businesses into the U.K. and Canada, Energy Convergence will continue to look
at select opportunities in other countries in which the business and regulatory
climates are favorable to Energy Convergence's strategy to exploit
multicommodity marketing opportunities and the leveraging of asset positions.
Regulated Electricity and Gas Business. Illinova's subsidiary, Illinois
Power, a regulated electric and gas utility, will remain headquartered in
Decatur, Illinois. Illinois Power has served the region's energy needs for more
than 75 years and is one of the most progressive utilities in the country. It
has strategically positioned itself for deregulation while still maintaining
high-quality service to its customers. Illinois Power led the way for "customer
choice," the electric utility restructuring legislation in Illinois. Illinois
Power serves over
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<PAGE>
580,000 electric customers and 400,000 natural gas customers. As permitted by
Illinois' deregulation law, Illinois Power is in the process of transferring
its generation assets to a newly formed Illinova subsidiary which, after the
merger, will be a key component of Energy Convergence's BTU convergence
business.
The merger is expected to enhance Illinois Power's ability to serve its
customers by enabling it to address the customers' total energy needs and to
have access to greater energy resources on a more efficient basis. In addition,
the merger will make Illinois Power a more experienced, innovative and
competitive company. This should result in the provision of more diverse,
economical and reliable services to its customers.
The Natural Gas Liquids Business. Through its NGL business, Energy
Convergence expects to continue to be a recognized industry leader in
substantially all mid-stream components businesses, ranging from natural gas
processing to marketing NGLs to end users. Dynegy is currently the second
largest processor of natural gas in the United States. It owns substantial
fractionation capacity and markets over 450,000 barrels of NGLs daily. An
extensive storage and transportation system--barge, rail, trucking and
terminalling assets--support these activities.
Although the impact of this merger on the NGL business is expected to be
minimal, Energy Convergence intends to continue to improve its mid-stream
earnings profile (regardless of commodity prices) through continued cost
efficiencies and plant rationalizations/consolidations. In addition Energy
Convergence may acquire, divest, trade and partner to enhance its position in
core markets and reduce its presence in non-core markets.
Additionally, Energy Convergence will be one of the few mid-stream companies
with assets positioned to capitalize upon the significant opportunities created
by the increasing production coming on line for the liquid-rich areas in the
deepwater Gulf Coast of Louisiana and Texas. These assets cover the entire mid-
stream value chain (offshore gathering, processing, raw NGL and residue gas
takeaway transportation capacity, NGL fractionation and storage capacity,
component NGL product marketing and residue gas marketing).
Cost Savings. Although Energy Convergence intends to capitalize on the
combined asset and talent bases of the two companies rather than on a cost
cutting strategy to produce the ultimate benefits of the merger, about one-
third of the financial benefits of the merger are estimated to come from cost
savings. Energy Convergence anticipates that one-half of the cost savings will
come from the elimination of duplicate or redundant third party or professional
fees and other expense items. Workforce reductions are expected not to exceed
5% of the combined workforce and will be primarily in the corporate support and
overhead functions, as opposed to operating personnel.
Enhanced Ability to Make Further Acquisitions. Although Energy Convergence
will aggressively pursue internal growth, it also intends to pursue external
acquisitions in the evolving and deregulating energy industry. The combined
company's expertise and assets throughout the energy value chain should allow
us to pursue and integrate acquisitions on a more effective basis than either
of the companies could have done on an individual basis. We also believe that
our Class A common stock will provide a liquid and otherwise attractive
"currency" with which we can make acquisitions.
26
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet and statements of
operations (the "statements") are presented to give effect to the proposed
merger between Dynegy and Illinova. The preparation of the statements required
management of Dynegy and Illinova to develop estimates and make assumptions
that affected the pro forma financial position and results of operations
contained therein. Actual results could differ from those estimates. The pro
forma information was prepared based on the following assumptions:
. For financial reporting purposes, the statements assume that Dynegy is
the acquiring company.
. Dynegy will account for the transaction as a purchase for financial
reporting purposes.
. The statements are based on the historical consolidated financial
statements of Dynegy and Illinova under the assumptions and adjustments
set forth in the accompanying notes to the pro forma statements.
. The pro forma balance sheet dated June 30, 1999 assumes the merger and
the sale of the Clinton nuclear facility were both consummated on June
30, 1999, and adjusts Illinova's quasi-reorganization from a plant
closure and decommissioning presentation to an asset sale presentation
(including the impact of the power purchase agreement with the purchaser
of the Clinton nuclear facility). This statement also assumes that
certain qualifying facilities expected to be disposed of or restructured
by Dynegy are held for sale at book value.
. The statements for the year ended December 31, 1998, and for the six-
month period ended June 30, 1999, assume the merger, Illinova's quasi-
reorganization, the sale of the Clinton nuclear facility and the sale of
certain qualifying facilities were all consummated on January 1, 1998.
Further, the pro forma presentation assumes an asset sale presentation
for the restated quasi-reorganization.
. The statements assume the goodwill resulting from the merger will be
amortized over a forty-year period. We have considered the technology,
industry and financial considerations that we deemed relevant impacting
this decision and have concluded that there is no persuasive evidence
indicating that a material portion of the value creation resulting from
the combination will dissipate over a shorter period than forty years.
. We have not reflected any revenue enhancements or cost savings in the
statements. However, the combination of the two companies is estimated to
create annual pre-tax revenue enhancements and cost savings ranging from
$125 million to $165 million. Approximately two-thirds of the total
annual synergies are attributable to revenue enhancement opportunities
with the remaining one-third of the total annual synergies attributable
to cost savings. A significant portion of these annual revenue
enhancements and cost savings is estimated to be realized in the first
year of combined operations.
. The allocation of the purchase price is based upon certain assumptions,
valuations and other studies that have not been finalized. The respective
managements of Illinova and Dynegy are continuing to assess the strategic
nature and fit of certain assets and operations of the combined entity in
order to identify opportunities to monetize its investment in non-
strategic operations. Further, the respective managements are assessing
the long-term direction they will take relative to the combined company's
human resource initiatives. Finally, Illinova and Dynegy will continue to
assess financial exposure to litigation, environmental, regulatory and
other similar contingencies acquired as part of the merger. Consequently,
the determination and allocation of purchase price as presented in the
statements is considered preliminary.
. The statements assume that five percent of Dynegy's public shareholders
will elect a cash payment of $16.50 in exchange for their stake in
Dynegy. Shareholders making elections for cash will not receive what they
elect because the amount of cash to be paid in the merger is fixed. If
you are a public shareholder of Dynegy, for each 100 shares of Dynegy
common stock for which you elect to receive cash, you will receive cash
consideration with respect to no less than 63 shares of Dynegy common
stock and no more than 84 shares of Dynegy common stock.
The statements and the notes thereto should be read in conjunction with the
historical consolidated financial statements and related notes of Dynegy and
Illinova, which have been incorporated herein by reference. These statements
were prepared in accordance with rules and regulations established by the
Securities and Exchange Commission and are not necessarily reflective of the
actual or future results of operations or financial position of Energy
Convergence.
27
<PAGE>
ENERGY CONVERGENCE
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------------------------------
Historical Pro Forma
------------------ --------------------
Dynegy Illinova Adjustments Clinton(f) Combined
-------- -------- ----------- ---------- ---------
(in millions)
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents.......... $ 28.1 $ 35.4 $ -- $ -- $ 63.5
Accounts receivable,
net.................. 1,566.7 323.9 -- (13.9) 1,876.7
Accounts receivable,
affiliates, net...... 78.0 -- -- -- 78.0
Inventories........... 193.6 80.8 -- (0.1) 274.3
Assets from risk-
management
activities........... 383.3 58.3 (4.5)(h) -- 437.1
Prepayments and other
assets .............. 86.9 58.2 81.1 (g) (2.6) 223.6
-------- -------- -------- ------- ---------
2,336.6 556.6 76.6 (16.6) 2,953.2
-------- -------- -------- ------- ---------
Property Plant and
Equipment, Net......... 2,056.8 4,521.4 246.0 (g)(m) (289.3) 6,534.9
-------- -------- -------- ------- ---------
Other Assets:
Investment in
unconsolidated
affiliates........... 535.5 265.9 (55.7)(g) -- 745.7
Assets from risk-
management
activities........... 461.9 -- -- -- 461.9
Transition period cost
recovery............. -- 778.1 -- -- 778.1
Nuclear fuel assets... -- 15.5 -- (15.5) --
Goodwill and other
intangibles, net..... 357.8 -- 423.8 (a)(d)(m) -- 781.6
Other assets.......... 178.4 317.9 -- (142.1) 354.2
-------- -------- -------- ------- ---------
1,533.6 1,377.4 368.1 (157.6) 3,121.5
-------- -------- -------- ------- ---------
Total Assets ........... $5,927.0 $6,455.4 $ 690.7 $(463.5) $12,609.6
======== ======== ======== ======= =========
Current Liabilities:
Accounts payable...... $1,477.8 $ 232.6 $ -- $ (87.8) $ 1,622.6
Accounts payable,
affiliates........... 150.9 -- -- -- 150.9
Accrued liabilities... 156.1 219.1 87.9 (a)(d)(l) (98.3) 364.8
Liabilities from risk-
management
activities........... 399.1 100.0 (14.0)(h) -- 485.1
Notes payable......... -- 122.0 -- -- 122.0
Current portion of
long-term debt....... -- 287.1 -- -- 287.1
-------- -------- -------- ------- ---------
2,183.9 960.8 73.9 (186.1) 3,032.5
Long-Term Debt.......... 1,273.2 2,312.6 851.4 (b)(c)(g) 157.3 4,594.5
Other Liabilities:
Liabilities from risk-
management
activities........... 341.9 -- -- -- 341.9
Deferred income
taxes................ 283.6 1,000.2 18.6 (a)(h)(l) -- 1,302.4
Decommissioning
liability............ -- 528.5 -- (506.9) 21.6
Other long-term
liabilities.......... 447.1 254.2 90.0 (a) 72.2 863.5
-------- -------- -------- ------- ---------
Total Liabilities....... 4,529.7 5,056.3 1,033.9 (463.5) 10,156.4
-------- -------- -------- ------- ---------
Company Obligated
Preferred Securities of
Subsidiary Trust....... 200.0 244.4 -- -- 444.4
Shareholders' Equity:
Preferred stock....... 75.4 -- (4.5)(b)(d) -- 70.9
Class A common stock.. 1.6 -- 1,102.9 (a)(c)(d)(e) -- 1,104.5
Class B common stock.. -- -- 648.1 (b) -- 648.1
Additional paid-in
capital.............. 952.6 1,308.7 (2,261.3)(a)(c)(d)(e) -- --
Other comprehensive
income............... -- 1.8 (1.8)(a) -- --
Retained earnings
(deficit)............ 185.3 (17.1) 17.1 (e)(h)(l) -- 185.3
Less: treasury stock.. (17.6) (138.7) 156.3 (e) -- --
-------- -------- -------- ------- ---------
Total Shareholders'
Equity................. 1,197.3 1,154.7 (343.2) -- 2,008.8
======== ======== ======== ======= =========
Total Liabilities and
Shareholders' Equity... $5,927.0 $6,455.4 $ 690.7 $(463.5) $12,609.6
======== ======== ======== ======= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements,.
28
<PAGE>
ENERGY CONVERGENCE
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------
Historical Pro Forma
------------------ --------------------
Dynegy Illinova Adjustments Clinton(f) Combined
-------- -------- ----------- ---------- ---------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $6,205.7 $1,027.7 $(21.4)(g) $ (2.7) $7,209.3
Cost of sales........... 5,959.9 703.1 (15.3)(g)(h) (106.3) 6,541.4
-------- -------- ------ ------ --------
Operating Margin...... 245.8 324.6 (6.1) 103.6 667.9
Depreciation............ 63.0 99.3 4.3 (g)(k) (4.2) 162.4
General and
administrative
expenses............... 96.6 101.6 (9.4)(i) -- 188.8
-------- -------- ------ ------ --------
Operating Income...... 86.2 123.7 (1.0) 107.8 316.7
Equity in earnings of
unconsolidated
affiliates............. 28.3 3.4 (6.7)(g) -- 25.0
Other income, net....... 21.4 17.2 -- -- 38.6
Minority interest in
income of
subsidiaries........... (8.3) (9.7) -- -- (18.0)
Interest expense........ (37.4) (86.7) (34.6)(j) 14.1 (144.6)
Other expenses, net..... (7.9) -- -- (0.2) (8.1)
-------- -------- ------ ------ --------
Income Before Income
Taxes................ 82.3 47.9 (42.3) 121.7 209.6
Income tax provision.. 26.2 22.0 (13.9)(n) 49.2 83.5
-------- -------- ------ ------ --------
Net Income............ $ 56.1 $ 25.9 $(28.4) $ 72.5 $ 126.1
======== ======== ====== ====== ========
<CAPTION>
Pro Forma
---------
<S> <C> <C> <C> <C> <C>
Earnings Per Share:
Net income............ $ 56.1 $ 25.9 $ 126.1
Plus: carrying amount
over consideration
paid for redeemed
preferred stock of a
subsidiary -- 0.5 --
Less: preferred stock
dividends............ (0.2) -- (14.4)
-------- -------- --------
Net income applicable
to common
shareholders......... $ 55.9 $ 26.4 $ 111.7
======== ======== ========
Basic earnings per
share.................. $ 0.37 $ 0.38 $ 0.77
======== ======== ========
Diluted earnings per
share.................. $ 0.34 $ 0.38 $ 0.75
======== ======== ========
Basic shares
outstanding............ 153.2 69.9 145.4
======== ======== ========
Diluted shares
outstanding............ 165.2 69.9 148.1
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
29
<PAGE>
ENERGY CONVERGENCE
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-----------------------------------------------------------
Historical Pro Forma
-------------------- --------------------
Dynegy Illinova Adjustments Clinton(f) Combined
--------- --------- ----------- ---------- ---------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues................ $14,258.0 $ 2,430.6 $ (87.4)(g) $ 1.7 $16,602.9
Cost of sales........... 13,829.3 2,076.3 (72.1)(g) (269.8) 15,563.7
--------- --------- ------- -------- ---------
Operating Margin...... 428.7 354.3 (15.3) 271.5 1,039.2
Depreciation............ 113.2 208.0 79.0 (g)(k) (97.2) 303.0
General and
administrative
expenses............... 185.7 107.4 (2.4)(i) -- 290.7
Severance charge........ 9.6 -- -- -- 9.6
--------- --------- ------- -------- ---------
Operating Income...... 120.2 38.9 (91.9) 368.7 435.9
Equity in earnings of
unconsolidated
affiliates............. 91.0 22.5 (11.4)(g) -- 102.1
Other income, net....... 46.8 3.1 (0.3)(g) -- 49.6
Clinton impairment...... -- (2,341.2) -- 2,341.2 --
Minority interest in
income of
subsidiaries........... (16.6) (19.8) -- -- (36.4)
Interest expense........ (75.0) (142.8) (69.2)(j) (2.5) (289.5)
Other expenses, net..... (7.7) -- -- -- (7.7)
--------- --------- ------- -------- ---------
Income Before Income
Taxes................ 158.7 (2,439.3) (172.8) 2,707.4 254.0
Income tax provision.. 50.3 (1,056.3) (61.1)(n) 1,154.7 87.6
--------- --------- ------- -------- ---------
Net Income............ $ 108.4 $(1,383.0) $(111.7) $1,552.7 $ 166.4
========= ========= ======= ======== =========
<CAPTION>
Pro Forma
---------
<S> <C> <C> <C> <C> <C>
Earnings Per Share:
Net income (loss)..... $ 108.4 $(1,383.0) $ 166.4
Less: preferred stock
dividends............ (0.4) -- (28.8)
--------- --------- ---------
Net income (loss)
applicable to common
shareholders......... $ 108.0 $(1,383.0) $ 137.6
========= ========= =========
Basic earnings (loss)
per share.............. $ 0.71 $ (19.30) $ 0.95
========= ========= =========
Diluted earnings per
share.................. $ 0.66 $ n/a $ 0.93
========= ========= =========
Basic shares
outstanding............ 151.6 71.7 145.4
========= ========= =========
Diluted shares
outstanding............ 164.6 71.7 148.1
========= ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) To reflect the purchase price allocation to goodwill. The adjustments
include the step-up applied to Illinova's common stock, estimated merger
costs incurred and capitalized by Dynegy and reserves related to valuing
certain contractual obligations to current market value and recognition of
certain other obligations. The significant adjustments comprising the
purchase price allocated to goodwill are as follows (in millions, except
share prices):
<TABLE>
<S> <C>
Share price........................................................ $23.913
Illinova common stock outstanding at June 30, 1999................. 69.9
-------
Fair value of stock issued......................................... 1,672.0
Less: Illinova's net equity at June 30, 1999....................... 1,154.7
-------
Consideration in excess of Illinova's net book value............... 517.3
Reserves for contractual and other obligations..................... 162.5
Merger costs....................................................... 33.3
-------
Allocable purchase price........................................... 713.1
Less: set-up allocated to fossil assets (see note(m)).............. 289.3
-------
Goodwill value..................................................... $ 423.8
=======
</TABLE>
Concurrent with its decision to exit the Clinton nuclear facility, Illinova
effected a quasi-reorganization initially reflected in its December 31,
1998 historical financial statements. In a quasi-reorganization, a company
restates its assets and liabilities to their fair value, adopts accounting
pronouncements issued but not yet adopted and eliminates any remaining
deficit in retained earnings by a transfer from other paid-in-capital. As a
result, we have assumed that the fair values assigned to Illinova's assets
and liabilities as part of the quasi-reorganization (as adjusted by pro
forma entries (f) and (m)) remain materially correct and therefore the
entire purchase price in excess of Illinova's historical net book value was
allocated to goodwill. Energy Convergence continues to review the carrying
value of Illinova's assets and liabilities. The ultimate purchase price
allocated to Illinova's regulated and unregulated assets and liabilities by
Energy Convergence may vary from the Illinova assigned values as a result
of various factors, including market movements, differences in long-term
business plans and varying conclusions resulting from assessment of factors
impacting valuation decisions.
(b) To recognize the estimated $200 million cash infusion by Chevron, the
exchange of Chevron's 7,815,363 shares of Dynegy Series A preferred stock
and the conversion of Chevron's 38,789,876 Dynegy common stock shares into
Class B common stock of Energy Convergence. The value of the Class B common
stock is calculated as follows (in millions, except share numbers)
<TABLE>
<S> <C>
Historical cost basis of 7,815,363 shares of Series A Preferred
Stock............................................................. $ 75.4
Par value of 38,789,876 shares of Dynegy common stock.............. 0.4
Historical paid-in capital cost basis of 38,789,876 shares of
Dynegy common stock............................................... 372.3
Assumed Chevron cash infusion (reduction of long-term debt)........ 200.0
------
Class B common stock value......................................... $648.1
======
</TABLE>
(c) To recognize the re-purchase of an aggregate 64.8 million shares of common
stock (consisting of 31.8 million shares each from BG Holdings and NOVA and
1.1 million shares from public shareholders) at $16.50 per share. The pro
ration assumes five percent of the identified Dynegy public shareholders
exercise their right to a cash payment of $16.50 per share of Dynegy common
stock. The value deducted from the par value common stock and paid-in
capital of Dynegy is calculated as follows (in millions, except share
prices):
<TABLE>
<S> <C>
Share price...................................................... $ 16.50
Aggregate BG Holdings, NOVA and public shares assumed exchanged
for cash........................................................ 64.80
--------
Cash distribution (increase in long-term debt)................... 1,069.2
Less: par value of aggregate shares assumed exchanged for cash... 0.6
--------
Value deducted from paid-in capital.............................. $1,068.6
========
</TABLE>
31
<PAGE>
(d) To recognize the exchange of the remaining Dynegy common shares owned by BG
Holdings and NOVA, aggregating 13.9 million Dynegy common shares, for
shares of Energy Convergence Series A preferred stock shares pursuant to
the terms of the merger agreement, accompanied by the estimated cost to
register such shares (in millions, except share prices).
<TABLE>
<S> <C>
Aggregate average cost basis of remaining BG Holdings and Nova
common shares..................................................... $5.11
Assumed remaining common stock shares held by BG Holdings and
NOVA.............................................................. 13.89
-----
Value classified as Series A preferred stock....................... 70.9
Value deducted from par value common stock......................... 0.1
-----
Value deducted from paid-in capital................................ $70.8
=====
</TABLE>
(e) To reflect the reclassification of the net remaining common stock, paid-in-
capital and treasury stock values to Class A common stock due to Energy
Convergence's common stock being without a par value.
(f) To recognize the impact of the proposed sale of the Clinton nuclear
facility to AmerGen. The year-end and interim Illinova historical financial
statements were prepared based on the expectation of plant closure as of
August 31, 1999. The pro forma adjustment reflects the impact on the merged
company's financial position resulting from the Purchase and Sale Agreement
executed by Illinova and AmerGen dated June 30, 1999. In addition, the pro
forma adjustments eliminate items of income and expense (principally
operation and maintenance expense) related to the facility and incurred by
Illinova during 1998 and 1999 based on the assumption that the facility was
sold on January 1, 1998.
(g) To recognize the expected sale of certain Qualified Facilities pursuant to
requirements mandated by the Public Utility Regulatory Policies Act of
1978.
(h) To eliminate the effect of Illinova's adoption of Statement of Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" to standardize accounting policies of the merged company.
(i) To recognize the elimination of compensation expense related to the vesting
of certain stock options held by Dynegy employees pursuant to the
acceleration of vesting terms contained in the merger agreement.
(j) To adjust historical interest expense to reflect the cost of the increased
indebtedness resulting from consummation of the merger. The pro forma
statements assume a 7 percent per annum interest rate on the indebtedness
incurred to consummate the merger under the terms contemplated herein. A
one-eighth percent variance from the assumed rate would alter pre-tax
interest expense by approximately $1.2 million per annum. The pro forma
statements do not include an estimate of costs associated with the merger
financing as such costs are not considered material to Energy Convergence's
pro forma financial position or pro forma results of operations.
(k) To adjust historical depreciation and amortization expense for the
preliminary purchase price allocation reflected herein. Additionally,
depreciation expense for the year ended December 31, 1998, was increased to
reflect the additional amortization that would have been incurred on the
fossil fuel facilities had the quasi-reorganization occurred effective
January 1, 1998.
(l) To recognize the estimated pro forma merger expenses incurred (and
expensed) by Illinova.
(m) To write-up the fossil assets to estimated fair value based on the value
assigned such assets by Illinova in the quasi-reorganization as presented
on a decommissioning basis. Energy Convergence continues to review the
carrying value of Illinova's assets and liabilities. The ultimate purchase
price allocated to Illinova's regulated and unregulated assets and
liabilities by Energy Convergence may vary from the Illinova assigned
values as a result of various factors, including market movements,
differences in long-term business plans and varying conclusions resulting
from assessment of factors impacting valuation decisions. As a result, the
determination and allocation of purchase price contained herein is
considered preliminary.
(n) To recognize the estimated pro forma tax provision on the combined pro
forma adjustments.
32
<PAGE>
THE MERGER
General
We are furnishing this document to the shareholders of Illinova and Dynegy
in connection with the solicitation of proxies by the Illinova board and the
Dynegy board for use at their respective special meetings. At the special
meetings, which will be held on October 11, 1999, shareholders of Illinova and
Dynegy will be asked, among other things, to approve and adopt the merger
agreement.
The merger agreement provides for a business combination of Illinova and
Dynegy that involves the creation of a new holding company, currently named
Energy Convergence, and two separate but concurrent mergers. In one merger, a
wholly-owned subsidiary of Energy Convergence will merge with and into
Illinova. Illinova will be the surviving company in the Illinova merger. In the
other merger, a second wholly-owned subsidiary of Energy Convergence will merge
with and into Dynegy. Dynegy will be the surviving company in the Dynegy
merger. As a result of these two mergers, Illinova and Dynegy will continue to
exist, retaining their respective historical assets and liabilities, but rather
than being independent, publicly traded companies will instead be wholly-owned
subsidiaries of Energy Convergence. Throughout this document we generally refer
to the Illinova merger and the Dynegy merger together as "the merger." Prior to
the merger, Energy Convergence will be renamed Dynegy Inc.
In the merger, Dynegy shareholders, other than Chevron, NOVA and BG
Holdings, will be given the option to receive, in exchange for each share of
Dynegy common stock held, either (1) .69 shares of Energy Convergence Class A
common stock or (2) cash in an amount of $16.50. Each Dynegy shareholder will
receive cash for any fractional share regardless of the shareholder's election.
Approximately 40% of Dynegy's outstanding stock will be converted to cash in
the merger. This will result in conversion of a maximum of approximately 67.6
million shares of Dynegy common stock into cash. The amount of cash available
will be insufficient to satisfy completely cash elections, and the cash will be
prorated among shareholders electing to receive cash. For each 100 shares of
Dynegy common stock for which you elect to receive cash, you will receive cash
consideration with respect to no less than 63 shares of Dynegy common stock and
no more than 84 shares of Dynegy common stock.
In lieu of receiving Class A common stock and cash in the merger, NOVA and
the parent of BG Holdings will receive shares of Energy Convergence Series A
preferred stock and cash. Furthermore, in lieu of any Class A common stock it
would otherwise be entitled to receive in the merger, Chevron will receive
shares of Energy Convergence Class B common stock. Additionally, Chevron will
purchase between $200 million and $240 million of Class B common stock of
Energy Convergence.
In the merger, Illinova shareholders will receive one share of Energy
Convergence Class A common stock for each share of Illinova common stock that
they own.
We have attached a copy of the merger agreement as Appendix I to this
document.
Background of the Merger
Over the past decade, through a series of acquisitions as well as internal
growth, Dynegy has evolved from a natural gas marketing company to become a
leading provider of a broad range of energy products and services. Most
recently, in 1997, Dynegy acquired Destec Energy, Inc., an independent power
producer. Dynegy planned to invest significant amounts of additional capital in
power generation facilities to pursue opportunities presented by deregulation.
Dynegy's management recognized that another large acquisition or business
combination could be desirable to accelerate the rate of increased ownership of
power generation facilities, but that this would require the active support of
Dynegy's three industrial shareholders, BG Holdings, Chevron and NOVA.
These shareholders currently own an aggregate of approximately 75% of
Dynegy's outstanding common stock and they have an agreement governing their
actions as shareholders. Under the agreement, these
33
<PAGE>
shareholders determine the composition of Dynegy's board of directors. Each
industrial shareholder can also block a merger submitted to Dynegy's
shareholders, because each is bound not to vote in favor of a merger unless the
other two also support the transaction. Thus, Dynegy management believed that
the support of BG Holdings, Chevron and NOVA was vital to the success of any
major business combination and that the relative influence and ownership
position each would have upon completion of the transaction would be an
important factor affecting the structure of a successful transaction.
In February 1997, BG plc spun-off its businesses that were complementary to
Dynegy's business to Centrica plc, while in 1998 NOVA transferred portions of
its business that were complementary to Dynegy's business to TransCanada
PipeLines. As a result, the strategic underpinnings of BG Holdings' and NOVA's
investments in Dynegy no longer existed. In August 1998, NOVA announced its
intention to sell its interest in Dynegy. Under its agreement with BG Holdings
and Chevron, NOVA could not sell its shares in Dynegy without offering them to
the other two industrial shareholders, and informal discussions occurred
involving the three industrial shareholders. Based on these discussions, Dynegy
management believed that BG Holdings might also be interested in selling its
Dynegy stake under the right circumstances, while Chevron was interested in
retaining or increasing its ownership position. However, by November 1998, the
three shareholders had not reached any agreement among themselves, nor had NOVA
concluded a transaction with a third party. Dynegy management became concerned
that continuing uncertainty about Dynegy's ownership situation could interfere
with its business plans and concluded that a significant business transaction
could be a means of removing that uncertainty.
In November 1998, Dynegy's management sent a letter to each member of the
Dynegy board of directors relating to the NOVA divestiture effort, which
summarized discussions that had taken place and sought to provide a framework
to address the stock ownership issues. The letter expressed management's desire
to achieve a transaction that would permit any Dynegy shareholder to sell its
interest in Dynegy.
Shortly thereafter, Dynegy's board of directors formed a process committee
to manage this effort. The process committee consisted of Otis Winters (as
Chairman) and Dan Dienstbier, Dynegy's two independent directors, Peter
Robertson, one of Chevron's board designees, Jeffrey Lipton, one of NOVA's
board designees, and Kenneth E. Randolph, Dynegy's Senior Vice President and
General Counsel. In addition, Stephen Brandon, one of BG Holdings' board
designees, also attended the process committee meetings. In December 1998, the
process committee approved the selection of Lehman Brothers, Inc. as Dynegy's
financial advisor and Akin, Gump, Strauss, Hauer & Feld, L.L.P. as Dynegy's
counsel. Subsequently Richards, Layton & Finger was retained as special
Delaware counsel to advise in connection with the responsibilities of the
Dynegy board of directors. In addition, Richards, Layton provided advice as to
the relationship between Dynegy and BG Holdings, NOVA and Chevron. Weil,
Gotshal & Manges LLP was retained as counsel to Dynegy's independent directors,
Messrs. Winters and Dienstbier.
In the meantime, Illinova had been exploring acquisition and merger
candidates, including other utilities and energy service firms, because of its
perception that the utility industry was rapidly consolidating and changing in
other fundamental ways and that it had limited growth opportunities in its
traditional utility business, Illinois Power. For the past few years,
Illinova's management and board of directors considered a number of potential
transactions. Since late 1998, Illinova also received inquiries from a number
of companies as to its interest in being acquired or some other form of
strategic combination. None of these inquiries resulted in a formal offer.
Beginning in late 1997, Illinova initiated discussions with Dynegy
concerning possible joint business opportunities, including ways in which
Dynegy might provide consulting services to Illinova in relation to its power
purchase and sale needs for the summer cooling season. During these
conversations, Dynegy and Illinova discussed the possibility of a more
expansive relationship. Illinova then became an early participant in the
process committee initiative and indicated that it would make a definitive
offer at the appropriate time. As part of this process Illinova retained
financial advisors (Berenson, Minella & Company and Chase Securities Inc.),
legal counsel (Troutman Sanders LLP) and other advisors to assist it in
assessing whether a transaction would be advisable.
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Beginning in December 1998, Lehman Brothers began exploring options for a
strategic transaction consistent with Dynegy's ongoing goals. Lehman Brothers
and the process committee developed a list of companies that might have an
interest in entering into a transaction with Dynegy. From December 1998 through
February 1999, Dynegy entered into confidentiality agreements with a number of
parties and furnished those parties with copies of information concerning
Dynegy. After reviewing those materials, several parties held due diligence
meetings with Dynegy personnel and reviewed preliminary due diligence
materials. Preliminary indications of interest were received from various
parties, including Illinova.
During February and March 1999, Lehman Brothers and Dynegy management held
discussions with each bidder regarding various transaction structures and
issues. Pursuant to a request of these bidders to submit final proposals, on
April 9, 1999, Lehman Brothers received two definitive bid proposals. The first
was from Illinova, which proposed a merger of equals, with shareholders of
Dynegy receiving a combination of cash and stock. The other proposal was an all
cash proposal to acquire 100% of the outstanding capital stock of Dynegy. The
all-cash offeror indicated that while it might consider purchasing less than
100% of Dynegy, it would be at a lower price per share. At that time, Lehman
Brothers reported that among the reasons for other companies not submitting
bids was uncertainty over their ability to complete an acquisition because of
the restrictions imposed by the Dynegy stockholders agreement and the
perception that the bidders could not acquire 100% of the equity of Dynegy.
Lehman Brothers prepared an analysis of the two competing offers which was
presented to a Dynegy board of directors meeting on April 16, 1999. At that
meeting, C.L. Watson, Dynegy's Chairman and Chief Executive Officer, reported
on his conversation with the chief executive officer of the all-cash offeror.
He confirmed that the offeror was seeking to acquire control of Dynegy and
would discount the offer for any continuing minority interest. In addition, if
there were any continuing minority interest, the minority, including any public
shareholders, could not expect greater rights or protection as shareholders
than they would be afforded under applicable law. The Dynegy board of directors
requested that Otis Winters, the Chairman of the process committee, have a
further discussion with the chief executive officer of the all-cash offeror. On
April 17, 1999, Otis Winters and Dynegy's advisors spoke by telephone with the
offeror and its counsel. The offeror reiterated that it would not be interested
in any of BG, NOVA or Chevron retaining its position with rights similar to
those contained in the existing stockholders agreement. At this time, Chevron
informed Dynegy, BG and NOVA that it would not support the cash offer. Chevron
stated that it did not wish to sell out at the price offered and would not
accept being left without rights similar to those afforded in the existing
Dynegy stockholders agreement for its substantial and strategic ongoing
investment in Dynegy.
On Monday, April 19, 1999, the Dynegy board reconvened and concluded that
the all-cash transaction was not feasible without Chevron's support. The Board
authorized Dynegy's officers to proceed with discussions with Illinova. On
April 26, 1999, Lehman Brothers reported to the Dynegy board concerning the
Illinova proposal. The board of directors evaluated the benefits of a possible
strategic combination with Illinova. The board again discussed the other, all-
cash offer, but concluded, again, that it was not a viable alternative. As a
result of the deliberations, the Dynegy board authorized Dynegy to execute a
mutual exclusivity agreement with Illinova. This agreement was executed on May
3, 1999.
Illinova's board of directors considered a possible transaction with Dynegy
on various occasions between January and June 1999, at both its regularly
scheduled meetings and at several special meetings. In addition, it formed an
informal committee of three independent directors to provide management timely
feedback as the structuring and negotiating process proceeded. Representatives
of the board of director's compensation committee held discussions directly
with Dynegy and its compensation committee regarding management makeup and
compensation issues. Finally, members of management had individual discussions
with each of the directors to keep them apprised of the process and to answer
questions. As part of this process, Illinova's management, financial and legal
advisers and strategic consultants made various presentations to the directors
regarding the benefits, detriments and financial fairness of the merger.
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Beginning April 20, 1999 and continuing through the end of May 1999,
Illinova and Dynegy conducted extensive due diligence reviews of each other.
While the two reviews were different due to the differences between the two
businesses and the needs of their respective managements and boards of
directors, both generally included reviews of trading practices and risk
management; environmental risks; employee benefits, employment agreements and
labor relations; regulatory structure; pending litigation and known claims;
legal and financial aspects of generating facilities; and accounting, tax and
financial reporting practices. Of particular concern to Dynegy as a result of
this process was Illinois Power's ownership interest in its Clinton nuclear
facility and the related management agreement with PECO. Dynegy retained a
nuclear energy consultant to assist it with this due diligence and, as
discussed elsewhere in this document, the merger ultimately was conditioned
upon the sale of the Clinton facility.
Simultaneously with the due diligence process the parties (including
Dynegy's major shareholders) negotiated the definitive documentation for the
merger. Although the negotiations included issues typical of all large
transactions, other key issues were (1) Chevron's and Dynegy's requirement that
Illinois Power's Clinton facility be sold prior to the closing of the merger
with a clear limit on any residual liability, (2) NOVA's and BG's desire to
obtain the maximum amount of cash possible in the merger, (3) BG's desire to
transfer its interest by selling the stock of BG Holdings, (4) Chevron's desire
to have significant influence over the management of Energy Convergence in
order to protect its investment in Energy Convergence and Illinova's
countervailing desire to limit Chevron's influence to ensure that a board of
directors substantially independent of major shareholders would control Energy
Convergence, and (5) Chevron's concern regarding the availability of an
exemption from registration under PUHCA and its ability to acquire and operate
"foreign utility companies."
On May 20 and 21, 1999, at a regularly scheduled meeting, Dynegy's board of
directors considered the proposed transaction with Illinova. At that meeting,
Lehman Brothers presented its analysis of the proposed transaction with
Illinova, and, in particular, discussed the varying consideration to be
provided to BG Holdings, NOVA, Chevron and Dynegy's other shareholders.
Similarly, on May 23, 1999, Illinova's board of directors met and considered
the transaction. At that meeting Chase Securities and Berenson Minella
presented their analyses of the transaction. At the meeting, Illinova's board
of directors also considered other strategic options. In particular, with the
assistance of its financial advisors, it estimated the price that its
shareholders would be likely to receive if Illinova were sold. This analysis
suggested that a sale price offer might be higher than that initially realized
through a merger with Dynegy; however, such a potential sale price would be
lower than the value that was ultimately expected to be realized from a merger
with Dynegy (i.e., after revenue enhancements and cost reductions were fully
implemented and some of the longer-term synergies realized). In addition,
because the most likely buyers were expected to be utilities, the Illinova
board considered that substantially greater regulatory delay would likely
result from any sale transaction.
On June 11, 1999, the Dynegy board of directors met to consider the merger
and related transactions. In that meeting, Lehman Brothers provided an oral
opinion to Dynegy's board that the consideration to be received by Dynegy's
public shareholders in the merger was fair from a financial point of view to
such public shareholders. In addition, the opinion stated that the fair market
value of the shares of Class B common stock Chevron will receive per Dynegy
share in connection with the merger and related transactions, and the fair
market value of the shares of Series A preferred stock NOVA and the parent of
BG Holdings will receive per Dynegy share in the merger and related
transactions is not greater than the fair market value of the shares of the
Class A common stock issuable to Dynegy's public shareholders per Dynegy share.
On June 14, 1999, Lehman Brothers delivered its written opinion that was in
conformity with the oral opinions rendered at the Dynegy board meeting on June
11. After discussions concerning the proposed merger and asking various
questions of representatives of Akin Gump and Lehman Brothers, the entire board
of directors of Dynegy unanimously voted to approve the merger.
On June 13, 1999, the Illinova board of directors met to consider the
planned merger. At this meeting Illinova's management and legal advisers
updated the board of directors with respect to events subsequent to the prior
meeting, particularly the negotiations that had taken place with Chevron
regarding corporate
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governance issues. Chase and Berenson Minella reconfirmed their earlier advice
and delivered their oral opinions that the consideration to be received by
Illinova shareholders, taking into account the aggregate merger consideration
to be received by the Dynegy shareholders, was fair, from a financial point of
view, to Illinova shareholders. Subsequently, written opinions consistent with
the oral opinions were delivered. Based upon this process, and the prior
consideration by the board, Illinova's board of directors unanimously approved
the merger and related transactions on June 13, 1999.
The definitive documents were signed on the morning of June 14, 1999, and we
issued a joint press release announcing the transaction.
In conjunction with the announcement of the merger, Illinova entered into an
agreement with a major investment banking firm pursuant to which the investment
banking firm agreed to repurchase Illinova common stock in open market
transactions on Illinova's behalf. The purpose of this arrangement was to
provide market liquidity in the event that Illinova shareholders, upon hearing
of the proposed merger, sold a substantial number of shares following the
announcement, presumably as a result of the perception that the nature of an
investment in the combined enterprise would be different from an investment in
a traditional utility and because of the expected lower dividend rate of the
combined enterprise. The agreement, in general, provides for settlement with
respect to any purchases upon the termination of the agreement. No purchases
were made by the investment banking firm under this agreement and the Illinova
board rescinded the authorization for this agreement at its August board
meeting.
Dynegy Reasons for the Merger; Recommendation of Dynegy Board
Dynegy Reasons for Merger
The last fifteen years have seen enormous change in the energy markets.
Initially this change occurred in the natural gas marketing industry when
various companies, including Dynegy's predecessor, began to market natural gas
and related financial instruments to third parties and trade for their own
account. Over the years, the retail and wholesale market for natural gas has
grown to exceed 145 billion cubic feet per day in North America. Over the last
five years this change in the energy markets has expanded to the electrical
power marketing industry. This industry is currently changing at a dramatic
pace and, as a result, Dynegy's management and board of directors concluded
that successful companies in the energy industry will be required to compete
across the entire energy value chain for both electricity and natural gas--from
generation, to delivery, to marketing and trading to retail.
The merger of Dynegy and Illinova will result in the combination of a strong
utility company with strategically located generating assets, operations,
electric transmission and retail electric and gas distribution capabilities
with one of the leading energy marketers and independent power producers. The
merger provides Dynegy with qualitative and quantitative expansion of its
electric generation capacity, dependable cash flow and an enhanced platform for
further expansion. Dynegy believes that the combined company will be well
positioned to be successful in the increasingly competitive energy marketplace
and will be able to enhance its revenues, reduce its costs and improve its
service. Dynegy expects the merger to enhance shareholder value more than
either company could do on its own.
The factors the Dynegy board of directors considered in evaluating the
merger and the merger agreement included:
. The merger will provide the liquidity needed to allow certain Dynegy
shareholders to reduce the size of their investment. In addition, it is
expected to provide continuing shareholders an investment in a full-
service provider of energy products and services with the flexibility and
resources required to respond to numerous opportunities in the energy
industry.
. The merger will add an additional 6,498 gross megawatts of electricity
generating capacity to Dynegy's current capacity of 7,832 gross megawatts
per year (both figures include current capacity as well as capacity under
construction). This additional capacity is primarily in the Midwestern
United
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States and is expected to allow Dynegy to sell more electricity for its
own account on better terms throughout the North American market.
. The merger is expected to provide Dynegy with a larger platform in the
electricity trading market from which it can expand its trading
operations. This larger platform is expected to provide the linchpin for
Dynegy's strategy to be at the forefront of the restructuring of the
power industry and the convergence of the gas and electricity industries.
. The addition of Illinova's traditional utility business is expected to
provide a stable base of cash flow with which the combined company will
be able to implement its business strategy.
. The merger is expected to be accretive to the earnings per share of the
Dynegy shareholders.
. The overall fairness, from a financial point of view, of the
consideration Dynegy's shareholders are to receive in the merger.
Recommendation of the Dynegy Board
The Dynegy board of directors, by unanimous vote, has approved and adopted
the merger agreement, believes the merger is fair and in the best interests of
Dynegy and Dynegy shareholders and is advisable, and recommends that Dynegy
shareholders vote FOR the approval and adoption of the merger agreement.
In considering the recommendation of the Dynegy board of directors with
respect to the merger agreement, Dynegy shareholders should be aware that
Dynegy's large shareholders and certain members of the Dynegy board of
directors and Dynegy employees have interests in the merger that are different
than, or in addition to, the interests of shareholders of Dynegy generally. The
Dynegy board of directors was aware of these interests and considered them,
among other matters, in approving the merger agreement. See "Interest of
Certain Persons in the Merger."
In engaging in the process of screening and evaluating potential strategic
transactions and in reaching its determination to approve and recommend the
merger agreement, the Dynegy board of directors was motivated by its desire to
position Dynegy to meet the challenges of the changing energy industry
environment. In addition, the Dynegy board believed this would assist the
holders of Dynegy common stock to realize the benefits of the opportunities and
to reduce the risks, presented by such changing environment.
In its deliberations with respect to the merger and the merger agreement,
the Dynegy board of directors consulted with Dynegy management and the
financial and legal advisors to Dynegy and Dynegy's independent directors
consulted with their counsel. The factors considered by the Dynegy board of
directors include those enumerated below. While the Dynegy board of directors
considered all of those factors, it did not make determinations with respect to
each such factor. Rather, the Dynegy board of directors made its judgment with
respect to the merger and the merger agreement based on the total mix of
information available to it, and the judgments of individual directors may have
been influenced to a greater or lesser degree by their individual views with
respect to different factors.
The factors the Dynegy board of directors considered in evaluating the
merger and the merger agreement included the following:
. its knowledge of the business, operations, assets, properties, operating
results and financial condition of Dynegy;
. Dynegy's strategic alternatives, including the prospects of positioning
Dynegy for the future and enhancing long-term shareholder value by
remaining an independent company or by effecting a strategic business
combination with another party;
. information concerning Dynegy's prospects as an independent company;
. information concerning the financial position, results of operations,
businesses, competitive position and prospects of a business combination
with Illinova;
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. the prospects of regulatory approval, at each level of regulation, of a
combination with Illinova;
. the opportunities for revenue enhancements and cost savings as a result
of a combination with Illinova;
. the comparative market capitalization, debt-to-equity ratio and financial
strength of Dynegy as an independent company and a combination of Dynegy
with Illinova;
. the effects of the changing regulatory environment and increased
competition in the energy industry;
. the recent trend in the utility industry toward consolidation and
strategic partnerships that create larger, stronger companies in an
increasingly competitive environment;
. specifically, with respect to a business combination with Illinova:
(a) the exchange ratio and recent trading prices for Dynegy common stock
and Illinova common stock;
(b) the terms of the merger agreement, which provide for reciprocal
representations and warranties, conditions to closing and rights to
termination, balanced rights and obligations and protection for
employees of Dynegy (as discussed under "The Merger Agreement");
(c) the tax and accounting treatment for the merger; and
(d) the presentations made by Lehman Brothers Inc. to the Dynegy board
of directors during the screening process, including information
regarding Dynegy as an independent entity and Dynegy in combination
with Illinova (as well as others) and the opinion of Lehman Brothers
rendered to the Dynegy board of directors on June 14, 1999 that, as
of such date, the exchange ratio was fair, from a financial point of
view, to Dynegy's public shareholders. See "Opinion of Dynegy's
Financial Advisor."
During its deliberations regarding the merger and the merger agreement, the
Dynegy board of directors also analyzed certain risks associated with the
merger. The Dynegy board of directors was advised regarding the risks of
obtaining regulatory approval for the merger at all levels of regulation, the
potential for a negative effect on its credit rating following the merger and
the factors outlined under "Risk Factors--Factors Relating to the Merger."
After reviewing these matters thoroughly, the Dynegy board of directors
determined that the benefits of the merger outweighed any risks entailed in
these matters.
Dynegy believes that the merger will provide strategic and operational
opportunities that would be unavailable to Dynegy as an independent company and
will enable Dynegy and its shareholders to participate in a significantly
larger and more diverse company. Dynegy believes the combined capital,
management, human resources and technical expertise and facilities of Dynegy
and Illinova will be better able to meet the competitive environment for the
delivery of energy and services than would Dynegy as a stand-alone enterprise.
Dynegy believes that the combined entity will be better able, in the long term,
to achieve benefits of increased financial stability and strength, improved and
unified management and efficiencies of operations than would Dynegy as an
independent company.
In addition, Dynegy's Board of Directors considered the risks entailed in
not completing the transaction including the continuing uncertainty regarding
Dynegy's share ownership structure and potential adverse consequences to
employee relations.
Illinova Reasons for the Merger; Recommendation of Illinova Board
Illinova Reasons for Merger
Although Illinova has diversified its business significantly since being
formed as the holding company for Illinois Power, approximately 85% of its
revenues and virtually all of its earnings continue to be produced by the
traditional electric and gas generation, transmission and electric and gas
distribution activities of Illinois
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Power. These activities are focused in Illinois Power's primary service
territory, central and southern Illinois. This territory currently provides
only modest opportunities for the growth of Illinova's business. In addition,
because of the ongoing deregulation of electric utilities in Illinois, Illinois
Power is facing increased competition from providers of electricity, including
other utilities and merchant generators. Similarly, Illinois Power's gas
business is increasingly facing competition as a result of deregulation and the
ability of its traditional customers to purchase gas from other sources.
Consolidation is actively taking place in the electric and gas industries.
Traditional electric utilities are regularly combining with other electric
utilities, as well as with non-regulated energy companies, and, as a result,
are expected to have a more competitive position in the energy marketplace.
Also, natural gas and electricity are more often in direct competition as
energy sources and several mergers recently have been announced that create
entities that can more effectively compete in both industries.
Against this backdrop, Illinova's management and board of directors
concluded that to compete effectively in the electricity and gas industries,
and to enhance shareholder value, Illinova needed to either make one or more
significant acquisitions or combine with a large complementary business. The
merger of Dynegy and Illinova is expected to fulfill this objective and to
produce a more competitive entity that is better able to be a low-cost provider
of energy. In particular:
. Dynegy's energy marketing operations and expertise are expected to
facilitate more profitable sales of Illinova's available generation
capacity and less expensive purchases when Illinova's capacity is
insufficient to meet customer needs.
. Dynegy's natural gas purchasing operations and expertise are expected to
enable Illinova to fulfill its gas needs at a lower cost than Illinova
can on a stand-alone basis.
. Dynegy's merchant generating facilities will help diversify Illinova's
non-regulated generating operations and, together with those operations,
are expected to provide a larger and more competitive platform for future
growth.
. Illinova expects to be able to apply its retail marketing expertise
profitability to Dynegy's predominantly wholesale business.
In addition, many of the reasons for the merger from Dynegy's perspective--
see "Dynegy Reasons for the Merger; Recommendation of the Board"--are equally
applicable from Illinova's perspective as well, although the board of directors
did not view them as being as significant as the reasons described above.
Recommendations of the Illinova Board
The Illinova Board of Directors, by unanimous vote, has approved and adopted
the merger agreement, believes the merger is fair and in the best interests of
Illinova and its shareholders, and recommends that Illinova shareholders vote
FOR approval and adoption of the merger agreement.
This recommendation is based primarily on the board of directors'
conclusions that the merger (1) will fulfill the strategic objectives described
above under "Reasons for the Merger," and (2) will be favorable financially to
Illinova and its shareholders. This second conclusion, in turn, is the product
of substantial financial analysis by Illinova and its financial and other
advisors. In general this analysis suggests that the merger will be accretive
to earnings commencing in 2000. This accretion is primarily the product of the
efficiencies described above and cost savings estimated to result from the
elimination of duplicate administrative and other functions following the
merger. In arriving at its recommendations, Illinova's board of directors
relied significantly upon the advice and opinions of its financial advisors
which are described more fully under "Opinions of Financial Advisors--Opinions
of Illinova Financial Advisors."
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In deciding to recommend the merger to its shareholders, the Illinova board
of directors also considered several potentially unfavorable factors. The most
significant of these were:
. The size of Chevron's ownership interest and its ability to influence
Energy Convergence's management and operations. However, Chevron's
influence will be constrained by a limitation on its board
representation, the establishment of procedures should it elect to
increase (beyond 40%) or decrease the size of its ownership position, and
various federal and state statutes that generally will discourage Chevron
from attempting to assert control over Illinova's transmission and
distribution assets.
. The regulatory approvals necessary for closing. As discussed elsewhere,
the merger and Chevron's proposed ownership of Energy Convergence involve
facts not present in transactions previously approved by the SEC. Should
the merger close prior to obtaining the SEC's approval under PUHCA--which
is permitted--and the SEC subsequently deny that approval (or provide the
approval on unacceptable terms), Chevron can require Energy Convergence
to take various actions including divesting its transmission and
distribution assets.
. The requirement that Illinois Power's Clinton nuclear facility be sold
prior to closing. Although at the time the merger agreement was executed
negotiations to sell the Clinton facility were in process, no definitive
agreement had been executed. Subsequently, however, a definitive
agreement was executed.
. The shift of senior management control from Illinova's senior management
to Dynegy's senior management. Although Illinova's board of directors has
the highest confidence in Dynegy's management, it is significantly more
familiar with its own management. However, Illinova's board concluded
that the proposed combined management team would be fully capable of
executing the business strategy of Energy Convergence.
. An agreement to sell Illinova might provide a larger immediate boost in
stock prices. The board of directors concluded, however, that the long-
term value received by shareholders was likely to be greater with the
Dynegy merger.
Overall, Illinova's board of directors concluded that these factors were
substantially outweighed by the benefits expected to result from the merger.
It is important to note that no one factor was the reason for any individual
director's decision and that each director attached his or her own weight to
the many factors considered. However, based on the total mix of information
available to them, all directors determined to approve and recommend the merger
to Illinova shareholders. They concluded that the strategic, operational and
financial opportunities the transaction presents will enhance Illinova
shareholder value and that shareholders should stand to benefit in the future
by holding ownership interests in the combined entity.
Accounting Treatment
We will account for the merger as a purchase of Illinova by Dynegy. This
accounting treatment is based on various factors present in the merger,
including the majority ownership (and voting control) of Dynegy's shareholders
following the merger, the role of Dynegy's management following the merger
(including the service of C.L. Watson as Chairman and Chief Executive Officer)
and the influence of Chevron because of the size of its ownership interest and
its rights under the shareholder agreement, articles of incorporation and
bylaws. As a result, the consolidated financial statements of Energy
Convergence after the merger will reflect the assets and liabilities of Dynegy
at book value and the assets and liabilities of Illinova at fair values. For
presentation of certain anticipated effects of the accounting treatment on the
consolidated financial position and results of operations of Energy
Convergence, we have included pro forma combined financial statements in this
document.
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Regulatory Matters
A summary of certain material regulatory requirements affecting the merger
is set forth below. Additional material consents from or notifications to
governmental agencies may be necessary or appropriate in connection with the
merger, such as Chevron's application for exemption under PUHCA as more fully
described in "Other Agreements--Shareholder Agreement."
Consummation of the merger is conditioned upon receipt of final orders from
the various government entities described below that do not impose terms or
conditions that would have, or would be reasonably likely to have, a material
adverse effect on the combined company. While we believe that we will receive
the requisite regulatory approvals and clearances for the merger that are
summarized below, there can be no assurance that any such approvals will be
obtained or timely granted, not be appealed by intervenors to the appropriate
courts or contain terms, conditions or qualifications that fail to satisfy the
conditions to the consummation of the merger.
Federal Power Act
The merger is subject to review and approval by the FERC under the Federal
Power Act. On July 23, 1999, we filed a joint application with the FERC
requesting that the FERC approve the merger under Section 203 of the Federal
Power Act. Under Section 203, the FERC will approve a merger if it finds that
merger is "consistent with the public interest." In reviewing a merger, the
FERC generally evaluates whether the merger will (1) adversely affect
competition, (2) adversely affect rates to captive wholesale customers or (3)
impair the effectiveness of regulation. The FERC has, in some cases, imposed
conditions on its approval of a merger. Even after it approves the merger, the
FERC will have continuing jurisdiction over Energy Convergence's power
marketing business and Illinois Power with respect to rates, terms and
conditions for wholesale sales and transmission and with respect to its
dealings with affiliates.
Illinois Commerce Commission
Illinois Power is currently subject to the jurisdiction of the ICC. Illinois
Power has filed notice of the merger with the ICC, and has voluntarily filed an
application to the ICC for approval of the merger with respect to Illinois
Power's gas utility. Following the merger, the ICC will retain applicable
authority over the rates, services provided by, and dividends of Illinois
Power, Illinois Power's transactions with affiliates, and, to varying degrees,
business activities of Illinois Power's affiliates.
Antitrust Considerations
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1978 (the "HSR
Act"), we cannot consummate the merger until we have given notification and
furnished information relating to the operations of Illinova and Dynegy to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and a specified waiting period has expired or is terminated. Both
Illinova and Dynegy filed notification and report forms under the HSR Act on
August 5, 1999 and on August 24, 1999, the Federal Trade Commission granted
early termination of the waiting period. No other actions are required under
the HSR Act.
Material Federal Income Tax Consequences
Tax Opinions. The obligation of Dynegy to consummate the Dynegy merger is
conditioned upon the receipt of a tax opinion from Akin, Gump, Strauss, Hauer &
Feld, L.L.P., counsel to Dynegy. The obligation of Illinova to consummate the
Illinova merger is conditioned upon the receipt of a tax opinion from Troutman
Sanders LLP, counsel to Illinova. Each of these opinions is described below. No
ruling from the Internal Revenue Service ("IRS") with respect to the merger has
been or will be sought, however, and the tax opinions do not prevent the IRS
from adopting a contrary position. The tax opinions described below assume the
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absence of changes in existing facts and rely on customary assumptions,
representations and covenants, including those contained in certificates of
officers of Dynegy, Illinova and others.
Tax Implications to Dynegy Shareholders. Akin, Gump, Strauss, Hauer & Feld,
L.L.P. has provided an opinion to Dynegy that, except as limited by the matters
discussed below under "Assumption and Limitations" and assuming the merger is
completed in the manner contemplated in this document and in accordance with
the merger agreement:
. The Dynegy merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and/or,
taken together with the Illinova merger, as a transfer of property to
Energy Convergence by holders of Dynegy common stock described in Section
351 of the Code.
. Holders of Dynegy common stock who exchange their Dynegy common stock
solely for Energy Convergence Class A common stock in the Dynegy merger
will not recognize gain or loss for federal income tax purposes with
respect to the exchange, except with respect to cash received in lieu of
fractional shares.
. The aggregate tax basis of Energy Convergence Class A common stock
received by a Dynegy shareholder as a result of the Dynegy merger will be
the same as the shareholder's aggregate tax basis in the Dynegy common
stock surrendered in the exchange, increased by any gain recognized on
the exchange and reduced by any tax basis allocable to shares for which
such Dynegy shareholder receives cash, including fractional shares.
. The holding period of the Energy Convergence Class A common stock
received by Dynegy shareholders as a result of the exchange will include
the period during which the shareholder held the Dynegy common stock
exchanged.
. A holder of Dynegy common stock who receives cash in lieu of a fractional
share interest in Energy Convergence Class A common stock will be treated
as having received the fractional shares in the Dynegy merger and then as
having exchanged such fractional shares for cash in a redemption by
Energy Convergence. The cash payment will be treated as a distribution in
payment for the fractional interest redeemed under Section 302 of the
Code, with the result that the holder should generally recognize gain or
loss for federal income tax purposes on the deemed redemption in an
amount equal to the difference between the amount of cash received and
the portion of the tax basis of the share of Dynegy common stock
allocable to the fractional share interest. This gain or loss generally
will be capital gain or loss and will be long-term capital gain or loss
if the share of Dynegy common stock exchanged has been held for more than
one year at the closing of the merger.
. A holder of Dynegy common stock who exchanges all or a portion of his
Dynegy common stock for cash will recognize gain or loss realized on the
exchange but only to the extent of the cash received. The amount of gain
or loss realized will be the difference between the fair market value of
the Energy Convergence Class A common stock and cash received compared to
the holder's tax basis in his Dynegy common stock. Only those holders of
Dynegy stock receiving solely cash in exchange for their Dynegy common
stock will be able to recognize a loss for federal income tax purposes.
The gain or loss generally will be capital gain or loss and will be long
term capital gain or loss if the shares of the Dynegy stock exchanged
have been held for more than one year at the closing of the merger.
Tax Implications to Illinova Shareholders. Troutman Sanders LLP has provided
an opinion to Illinova that, except as limited by the matters discussed below
under "Assumption and Limitations" and assuming the merger is completed in the
manner contemplated in this document and in accordance with the merger
agreement:
. The Illinova merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and/or,
taken together with the Dynegy merger, as a transfer of
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property to Energy Convergence by holders of Illinova common stock
described in Section 351 of the Code.
. Holders of Illinova common stock who exchange their Illinova common stock
solely for Energy Convergence Class A common stock in the Illinova merger
will not recognize gain or loss for federal income tax purposes with
respect to the exchange.
. The aggregate tax basis of Energy Convergence Class A common stock
received by an Illinova shareholder as a result of the Illinova merger
will be the same as the shareholder's aggregate tax basis in the Illinova
common stock surrendered in the exchange.
. The holding period of the Energy Convergence Class A common stock
received by Illinova shareholders as a result of the exchange will
include the period during which the shareholder held the Illinova common
stock exchanged.
. An Illinova shareholder who exercises dissenters' rights of appraisal
with respect to Illinova common stock and who receives payment for that
stock in cash should generally recognize capital gain or loss measured by
the difference between the amount of cash received and the shareholder's
tax basis in such stock.
Tax Implications to Dynegy and Illinova. Neither Dynegy nor Illinova will
recognize any gain or loss for federal income tax purposes on the merger.
Reporting Requirements and Backup Withholding. Each shareholder receiving
Energy Convergence Class A common stock as a result of the merger will be
required to retain records and file with the shareholder's federal income tax
return a statement containing facts relating to the merger.
Backup withholding at the rate of 31% may apply with respect to payments
unless the recipient (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (b) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A shareholder who does not provide Energy
Convergence with its correct taxpayer identification number may have to pay
penalties imposed by the IRS. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against the
shareholder's federal income tax liability provided that any required
information is furnished to the IRS. Energy Convergence will report to
shareholders of Energy Convergence and to the IRS the amount of "reportable
payments" and any amount withheld with respect to Energy Convergence Class A
common stock during each calendar year.
Assumptions and Limitations. The above discussion and the tax opinions of
Akin, Gump, Strauss, Hauer & Feld, L.L.P. and Troutman Sanders LLP assume that
you hold your shares of Dynegy or Illinova stock as capital assets and do not
address all aspects of federal income taxation that may be important to you in
light of your particular circumstances. Additionally, the above discussions
and tax opinions are based on laws, regulations, rulings and decisions in
effect on the date of this document, all of which are subject to change,
possibly with retroactive effect, and to differing interpretations. Further,
the discussion and the tax opinions do not address all aspects of federal
income taxation that may be applicable to holders covered by special rules,
such as:
. holders who are not United States persons;
. financial institutions;
. tax-exempt organizations;
. insurance companies;
. dealers or brokers in securities;
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. holders who held their stock as part of a hedge, appreciated financial
position, straddle or conversion transaction; or
. holders who acquired their Dynegy or Illinova shares upon the exercise of
employee stock options or otherwise as compensation.
Further, the discussion and the tax opinions address neither the federal
income tax consequences of the merger to holders of Dynegy common stock that
also hold a contractual right to require Dynegy to repurchase their stock, nor
the tax consequences on Chevron, NOVA and BG Holdings of the transactions
contemplated by the merger agreement.
The discussion above and the tax opinions address the material federal
income tax consequences of the merger to holders not covered by special rules,
but does not purport to be a complete analysis or description of all potential
federal income tax consequences of the merger. In addition, the discussion
above and the tax opinions do not address tax consequences which may vary with,
or are contingent on, individual circumstances. Moreover, this discussion and
the tax opinions do not address any non-income tax or any foreign, state or
local tax consequences of the merger. This discussion and the tax opinions do
not address the tax consequences of any transaction other than the merger. We
strongly urge you to consult with your tax advisor to determine the particular
United States federal, state, local or foreign income or other tax consequences
of the merger to you.
Illinova Shareholders' Rights to Dissent
The following discussion is directed to the shareholders of Illinova. If you
do not vote for the merger agreement, you have the right to dissent and obtain
cash payment for your shares instead of receiving shares of Energy Convergence
Class A common stock if the merger occurs. The following is a summary of the
provisions of Section 11.70 of the Illinois Business Corporation Act, which
specifies the procedures that you must follow to receive such payment. Section
11.70 is set forth in its entirety in Appendix II attached to this document,
and this summary is qualified by reference to that Section. Should you wish to
exercise your dissenters' rights, you should carefully review Section 11.70.
Your rights will be lost if you do not satisfy each step.
Illinova has attempted to furnish to you in this document the material
information necessary to enable you to evaluate the merger and to determine
whether to exercise your dissenters' rights. To exercise your dissenters'
rights, you must (1) deliver a written demand for payment for your shares to
Illinova before the vote on the merger agreement at the Illinova special
meeting, and (2) not vote in favor of the merger. If you vote for the merger
agreement, you will not be entitled to dissent and demand payment for your
shares. A vote against the merger agreement will not satisfy the above
requirement that a written demand for payment be delivered to Illinova. Please
note that a proxy card that is returned without indicating a vote with respect
to the merger agreement will be deemed a vote for the merger agreement.
If you choose to dissent, within the later of (a) 10 days after the
effective date of the merger or (b) 30 days after you deliver a written demand
for payment to Illinova, Illinova will send to you Illinova's opinion as to the
estimated fair value of your shares, Illinova's balance sheet as of the end of
its fiscal year ended December 31, 1998, its income statement for its fiscal
year ended December 31, 1998, and its latest interim financial statements. You
will also receive either a commitment to pay for your shares at their estimated
fair value, plus accrued interest, or, if there is a public market for the
shares where they can be readily sold, instructions to sell your shares within
ten days after delivery of Illinova's opinion. If the merger occurs, Illinova
shall pay to each dissenter who transmits to Illinova the certificate or other
evidence of ownership the amount Illinova estimates to be the fair value of
such dissenter's shares, plus accrued interest, accompanied by a written
explanation of how the interest was calculated.
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If you do not sell your shares within the ten-day period after being so
instructed by Illinova, you will be deemed to have sold your shares at their
average closing price on the NYSE during that ten-day period. If you do not
agree with Illinova's opinion regarding the estimated fair value of the shares
or the amount of interest due, you can preserve your appraisal rights by
notifying Illinova in writing, within 30 days from Illinova's delivery of its
opinion, of your estimate of fair value and accrued interest. You then may
demand payment for the difference between your estimate of fair value and
interest due and either the amount of the payment by Illinova or, if you sold
the shares, the proceeds of such sale or, if you were instructed to sell your
shares but did not do so, the estimated proceeds of a sale.
If you and Illinova are unable to agree on the fair value of the shares and
accrued interest within 60 days from delivery to Illinova of your estimate of
fair value and accrued interest, Illinova will either pay the difference in
value that you demanded with interest or file a petition in the Circuit Court
of Decatur County, State of Illinois, requesting the court to determine the
fair value of the shares and the interest due. Illinova will make all
dissenters, whether or not residents of Illinois, whose demands remain
unsettled, parties to the proceeding and will serve all parties with a copy of
the petition. Shareholders who do not live in Illinois may be served by
registered or certified mail or by publication as required by law. The court
may appoint one or more persons as appraisers to receive evidence and to
determine the fair value.
If the court's determination of fair value and interest due exceeds the
amount offered by Illinova, the proceeds that the shareholder received in a
sale, or proceeds the shareholder was deemed to have received if the
shareholder did not sell the shares when Illinova instructed, then each
dissenting shareholder made a party to the proceeding is entitled to judgment
for the difference, plus interest.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of the appraisers. Fees and expenses of
counsel and experts for any party are excluded. If the fair value of the shares
as determined by the court materially exceeds the amount of Illinova's
estimate, or if no estimate was made, then all or any part of such expenses may
be assessed against Illinova. If your estimated fair value materially exceeds
the fair value that the court determined, then all or any part of such expenses
may be assessed against you. Under certain circumstances, the court may also
assess the fees and expenses of counsel and experts to you or Illinova.
Financing the Transaction
We estimate that the cash payments to Dynegy shareholders in the merger will
aggregate approximately $1.06 billion. In addition, at the time of the merger
we expect to refinance up to $200 million of debt outstanding under Illinova's
revolving credit facility. We anticipate that this cash consideration plus any
cash merger costs will be funded initially through borrowings under one or more
newly established bank credit facilities and through the issuance of between
$200 million to $240 million of Energy Convergence Class B common stock to
Chevon as described in "Other Agreements--Chevron Subscription Agreement."
Shortly following the merger, Energy Convergence anticipates repaying or
refinancing a substantial portion of the initial debt with proceeds from an
issuance of equity securities, proceeds from additional issuances of public
debt, proceeds from potential asset sales and cash flow from operations. Energy
Convergence is in the process of entering into a definitive agreement with a
financial institution to lead the syndication of the initial borrowings, but
has not entered into any definite agreements with respect to the actual
borrowings and has not entered into any such agreements regarding subsequent
issuance of equity or debt securities or the potential sale of any assets. With
respect to any of these financial transactions, there can be no assurance that
any such borrowing, issuance or sale of assets can be concluded or that the
borrowing, issuance or sale will be on favorable terms.
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OPINIONS OF FINANCIAL ADVISORS
Opinion of Dynegy's Financial Advisor
Dynegy engaged Lehman Brothers to act as Dynegy's financial advisor in
connection with the merger. Dynegy instructed Lehman Brothers, in its role as a
financial advisor, to evaluate the fairness, from a financial point of view, of
the merger consideration to be received by the public shareholders of Dynegy.
In addition, Dynegy instructed Lehman Brothers to address the relative fair
market value of the Series A preferred stock to be issued to British Gas
Atlantic and NOVA and the Class B common stock of Energy Convergence to be
issued to Chevron in comparison to the fair market value of the stock
consideration being offered to the public shareholders.
On June 11, 1999, Lehman Brothers delivered its oral opinion to the Dynegy
board (subsequently confirmed in writing on June 14, 1999) to the effect that
as of such dates and based upon and subject to certain matters stated therein,
from a financial point of view, the merger consideration to be offered to the
public shareholders of Dynegy in the merger is fair to the public shareholders.
In addition, on June 11, 1999, Lehman Brothers delivered its oral opinion to
the Dynegy board (subsequently confirmed in writing on June 14, 1999) to the
effect that as of such dates and based upon and subject to certain matters
stated therein, including specifically Lehman Brothers' analysis of (i) the
fair market value of the Series A preferred stock based on assumptions Lehman
Brothers believed were reasonable and the effect on such value of the terms
pursuant to which the Series A preferred stock will be issued, which include,
among other things, certain restrictions on the transfer of such shares, and
(ii) the fair market value of the Class B common stock and the effect on such
value of the terms pursuant to which the Class B common stock will be issued,
which include, among other things, certain restrictions on the transfer of such
shares, from a financial point of view, (a) the fair market value of the shares
of Series A preferred stock to be issued to British Gas Atlantic and NOVA for
each share of Dynegy common stock is not greater than the fair market value of
the stock consideration to be offered to the public shareholders of Dynegy for
each share of Dynegy common stock in the merger and (b) the fair market value
of the shares of Class B common stock to be issued to Chevron for each share of
Dynegy common stock is not greater than the fair market value of the stock
consideration to be offered to the public shareholders for each share of Dynegy
common stock in the merger.
The full text of the written opinion of Lehman Brothers, which sets forth
the assumptions made, factors considered and limitations upon the review
undertaken by Lehman Brothers in rendering its opinion, is included as Appendix
III to this document, and is incorporated herein by reference. The following is
a summary of Lehman Brothers' opinion and the methodology Lehman Brothers used
to render its fairness opinion.
No limitations were imposed by Dynegy on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Dynegy board as to the form or amount of the
consideration to be received by Dynegy's shareholders in the merger, which was
determined through arm's-length negotiations between the parties. In arriving
at its opinion, Lehman Brothers did not ascribe a specific range of values to
Dynegy or Illinova but made its determination as to the fairness of the merger
consideration and the relative fair market value of both the Series A preferred
stock to be issued to British Gas Atlantic and NOVA and the Class B common
stock to be issued to Chevron in comparison to the fair market value of the
stock consideration to be offered to the public shareholders on the basis of
the financial and comparative analyses described below. Lehman Brothers'
opinion is for the use and benefit of the Dynegy board and was rendered to the
Dynegy board in connection with its consideration of the merger. Lehman
Brothers' opinion does not constitute a recommendation to any shareholder of
Dynegy as to how such shareholder should vote with respect to the merger or
whether to elect to receive the cash consideration and/or the stock
consideration.
Lehman Brothers was not requested to opine as to, and its opinion does not
address, Dynegy's underlying business decision to proceed with or effect the
merger.
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In arriving at its opinion, Lehman Brothers reviewed and analyzed:
. the merger agreement, the terms of the Series A preferred stock, the
terms of the Class B common stock, the amended and restated articles of
incorporation of Energy Convergence, the statement of resolution
establishing the Series A preferred stock, the bylaws of Energy
Convergence, various other agreements to be entered into by one or more
of the three large shareholders of Dynegy with one or both of Dynegy and
Illinova in connection with the merger, and the specific terms of the
merger, including corporate governance provisions set forth therein;
. such publicly available information concerning Dynegy and Illinova that
Lehman Brothers believed to be relevant to its analysis, including,
without limitation, each of the periodic reports and proxy statements
filed by Dynegy and Illinova since January 1, 1998 (including the audited
and unaudited financial statements included in such reports and
statements);
. internal non-public financial and operating information with respect to
the respective businesses, operations and prospects of Dynegy and
Illinova as furnished to Lehman Brothers by Dynegy and Illinova,
respectively, including financial projections based on the respective
business plans of Dynegy and Illinova and the amounts and timing of the
cost savings and operating synergies expected to result from a
combination of the businesses of Dynegy and Illinova;
. a trading history of Dynegy's common stock from June 11, 1998 to June 10,
1999 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant, including Illinova;
. a trading history of Illinova's common stock from June 11, 1998 to June
10, 1999 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant, including Dynegy;
. a comparison of the historical financial results and present financial
condition of Dynegy with those of other companies that Lehman Brothers
deemed relevant;
. a comparison of the historical financial results and present financial
condition of Illinova with those of other companies that Lehman Brothers
deemed relevant;
. the potential pro forma impact of the merger on Dynegy (including the
cost savings and operating synergies expected by management of Dynegy to
result from a combination of the businesses of Dynegy and Illinova);
. the potential pro forma impact of the merger on Illinova (including the
cost savings and operating synergies expected by management of Illinova
to result from a combination of the businesses of Dynegy and Illinova);
. the relative contribution of Dynegy and Illinova to the historical and
pro forma financial condition and operating results of Energy Convergence
following consummation of the merger;
. a comparison of the financial terms of the merger with the financial
terms of certain other transactions that Lehman Brothers deemed relevant;
. the fair market value of the Class B common stock and the effect on such
value of the terms pursuant to which the Class B common stock will be
issued, which included, among other things, certain restrictions on the
transfer of such shares; and
. the fair market value of the Series A preferred stock based on
assumptions Lehman Brothers believed were reasonable and the effect on
such value of the terms pursuant to which the Series A preferred stock
will be issued, which include, among other things, certain restrictions
on the transfer of such shares.
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In addition, Lehman Brothers:
. had discussions with the managements of Dynegy and Illinova concerning
their respective businesses, operations, financial conditions, assets and
prospects and the cost savings and operating synergies and strategic
benefits expected by the managements of Dynegy and Illinova to result
from a combination of the businesses of Dynegy and Illinova; and
. undertook such other studies, analyses and investigations as Lehman
Brothers deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by Lehman
Brothers without assuming any responsibility for independent verification of
such information and further relied upon the assurances of the managements of
Dynegy and Illinova that they were not aware of any facts or circumstances that
would make such information inaccurate or misleading. With respect to the
financial projections of Dynegy, Illinova and the combined company following
the consummation of the merger and the cost savings and operating synergies
expected to result from a combination of the businesses of Dynegy and Illinova,
upon advice of the managements of Dynegy and Illinova, Lehman Brothers assumed
that such projections and cost savings estimates had been reasonably prepared
on a basis reflecting the then best currently available estimates and judgments
of the managements of Dynegy and Illinova, as the case may be, as to the future
financial performance of Dynegy, Illinova and the combined company, and that
each of Dynegy and Illinova would perform, and the combined company, will
perform, substantially in accordance with such projections and cost savings
estimates. In arriving at its opinion, Lehman Brothers did not conduct a
physical inspection of the properties and facilities of Dynegy or Illinova and
did not make or obtain from third parties any evaluations or appraisals of the
assets or liabilities of Dynegy or Illinova. Upon advice of Dynegy and its
legal and accounting advisors, Lehman Brothers assumed that (i) the merger will
qualify for accounting purposes as an acquisition of Illinova by Dynegy under
generally accepted accounting principles and (ii) the merger will qualify as a
tax free transaction to the shareholders of Dynegy who receive only stock
consideration. Lehman Brothers' opinion necessarily is based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of its opinion letter.
In addition, Lehman Brothers did not express any opinion as to the prices at
which shares of Class A common stock of Energy Convergence actually will trade
following consummation of the merger and the opinion of Lehman Brothers should
not be viewed as providing any assurance that the market value of the shares of
Class A common stock of Energy Convergence to be held by shareholders of Dynegy
after the merger will be in excess of the market value of the shares of common
stock of Dynegy owned by such shareholders at any time prior to announcement or
consummation of the merger.
In connection with rendering its opinion, Lehman Brothers performed certain
financial, comparative and other analyses as described below. The preparation
of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial and comparative analysis and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its fairness opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the opinion.
Any estimates contained in the analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
In connection with rendering its opinion, Lehman Brothers also considered
the fact that the public shareholders of Dynegy will each have the opportunity
to receive the stock consideration for all of their equity
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in Dynegy in lieu of receiving any cash consideration given that British Gas
Atlantic and NOVA would have agreed to accept the cash consideration for their
equity in Dynegy, to the extent cash is available.
Valuation Analysis Used to Derive Equity Value Ranges and Implied Exchange
Ratios. Lehman Brothers prepared valuations of both Dynegy and Illinova. The
valuations of the separate businesses were analyzed before the consideration of
any cost savings or operating synergies resulting from the merger. In
determining valuation, Lehman Brothers used various methodologies, including
discounted cash flow analysis, comparable transactions analysis, comparable
company trading analysis and segment valuation analysis. Each of these
methodologies was used to generate a reference enterprise value range for both
Dynegy and Illinova. The enterprise value range for each company was adjusted
for appropriate on and off balance sheet assets and liabilities to arrive at a
common equity value range (in aggregate dollars and dollars per common share)
for each company. The per share equity value ranges were then used to evaluate
the exchange ratio in the merger. In addition, the implied equity value ranges
for Dynegy were used to evaluate the cash consideration in the merger. The
various valuation analyses are summarized below.
The methodologies noted above and the implied equity value ranges and
exchange ratios derived therefrom are included in the following table. This
table should be read together with the more detailed descriptions set forth
below. In particular, in applying these methodologies to the particular
businesses, operations and prospects of Dynegy and Illinova, and the particular
circumstances of the merger, Lehman Brothers made qualitative judgments as to
the significance and relevance of each analysis. In addition, Lehman Brothers
made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Dynegy or Illinova. Accordingly, the methodologies and the
implied equity value ranges and exchange ratios derived therefrom set forth in
the table must be considered as a whole and in the context of the narrative
description of the financial analyses, including the assumptions underlying
these analyses. Considering the implied equity value ranges and exchange ratios
set forth in the table without considering the full narrative description of
all the financial analyses, including the assumptions underlying these
analyses, could create a misleading or incomplete view of the process
underlying, and conclusions represented by Lehman Brothers' opinion.
<TABLE>
<CAPTION>
Cash Implied
Summary Description Consideration/Dynegy Exchange
Valuation Methodology of Valuation Methodology Energy Value Range Ratio Range
--------------------- --------------------------------- -------------------- ------------
<S> <C> <C> <C>
Discounted Cash Flow Net present valuation of $14.80-$20.82 0.503-1.374
Analysis management projections of after-
tax cash flows
Comparable Transactions Market valuation benchmark based $14.32-$19.14 0.487-0.858
Analysis on consideration paid in selected
comparable transactions
Comparable Company Market valuation benchmark based $14.32-$20.26 0.512-1.222
Trading Analysis on common stock trading multiples
of selected comparable companies
Segment Valuation Build up of total enterprise $13.81-$20.03 N.A.
Analysis value based on the valuation of
each business segment of a
company determined by reference
to the discounted cash flow
analysis, comparable transactions
analysis and comparable company
trading analysis performed with
respect to each segment
Historical Common Stock Analysis of the relative daily $13.42-$19.06 0.620--0.668
Trading Analysis historical closing prices of each
company over selected time
periods
</TABLE>
Discounted Cash Flow Analysis. Lehman Brothers prepared an after-tax cash
flow model for the period from January 1, 1999 to December 31, 2003 for both
Dynegy and Illinova utilizing information and projections
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provided by both companies. With respect to the Dynegy discounted cash flow
analysis, Lehman Brothers used discount rates of 12% to 15% and terminal value
earnings before interest, taxes, depreciation and amortization (EBITDA)
multiples of 8.0x to 10.0x. The discount rates were based on Lehman Brothers'
review of the financial terms of similar transactions in the sector of
wholesale gas and power companies focused on the marketing and trading of
natural gas, power, and coal, and the generation of electricity, and in the
sector of midstream companies with a focus on the gathering and processing of
natural gas and the transportation, fractionation and storage of natural gas
liquids. The terminal value multiples were selected based on the trading
multiples of similar publicly traded companies and the multiples of recent
completed or proposed acquisitions of similar assets and companies. With
respect to the Illinova discounted cash flow analysis, Lehman Brothers used
discount rates of 6% to 8% and terminal EBITDA multiples of 8.0x to 9.5x. The
discount rates used were based on Lehman Brothers' review of the financial
terms of similar transactions in the sector of public utility companies focused
on the generation, transmission, distribution and sale of electric energy and
the distribution, transportation and sale of natural gas. The terminal value
multiples were selected based on current trading multiples of similar publicly
traded companies and the multiples from recent completed or proposed
acquisitions of similar assets and companies.
This methodology resulted in an implied valuation of $14.80 to $20.82 per
share of Dynegy common stock and valuations for Dynegy and Illinova that imply
a range of exchange ratios of 0.503 to 1.374 shares of Illinova common stock
per share of Dynegy common stock.
Comparable Transactions Analysis. With respect to Dynegy, Lehman Brothers
reviewed certain publicly available information on selected midstream
transactions which were announced or took place from March of 1995 to June of
1999 including, but not limited to:
. Equitable Resources Inc./American Electric Power Company Inc.,
. Union Pacific Fuels Inc./Duke Energy Corp.,
. Continental Natural Gas Inc./CMS Energy Corp.,
. Pacificorp/El Paso Energy Corp.,
. Tejas Gas Corp./Shell Oil Company,
. USX-Delhi Corp./Koch Industries, Inc.,
. Valero Energy Corp./PG&E Corporation,
. TPC Corporation/Pacificorp,
. Teco Pipeline Company/PG&E Corporation,
. Chevron U.S.A. Production Company/NGC Corporation,
. Mobil Corporation/PanEnergy Corp.,
. Transok Inc./Tejas Gas Corp.,
. Cornerstone Natural Gas, Inc./El Paso Energy Corp.,
. Hadson Corporation/LG&E Energy Corp., and
. Trident NGL, Inc./Natural Gas Clearinghouse.
Lehman Brothers also reviewed certain publicly available information on
selected electric-natural gas convergence transactions which were announced or
took place from August of 1996 to June of 1999 including, but not limited to:
. Sonat Inc./El Paso Energy Corp.,
. Consolidated Natural Gas Co./Dominion Resources, Inc.,
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. KN Energy, Inc./Sempra Energy,
. Duke Energy Corp./CMS Energy Corp.,
. Enserch Corporation/Texas Utilities Company,
. PanEnergy Corp./Duke Power Company, and
. NorAm Energy Corp./Houston Industries Incorporated.
For each transaction, relevant transaction multiples were analyzed including
the total purchase price (equity purchase price plus assumed obligations)
divided by (i) latest twelve month (LTM) and forward EBITDA; and (ii) LTM and
forward earnings before interest and taxes (EBIT). The appropriate LTM and
forward EBITDA multiple ranges were determined to be 11.0x to 13.0x and 9.0x to
11.0x, respectively. The appropriate LTM and forward EBIT multiple ranges were
determined to be 17.0x to 20.0x and 13.0x to 16.0x, respectively.
With respect to Illinova, Lehman Brothers reviewed certain publicly
available information on selected public utility transactions which were
announced or took place from April of 1996 to November of 1998 including, but
not limited to:
. MidAmerican Energy Company/CalEnergy Company, Inc.,
. Orange and Rockland Utilities, Inc./Consolidated Edison Company,
. KU Energy Corporation/LG&E Energy Corp.,
. Kansas City Power & Light Company/Western Resources, Inc.,
. Potomac Electric Power Company/Baltimore Gas & Electric Company, and
. CILCORP Inc./The AES Corporation.
For each transaction, relevant transaction multiples were analyzed including
the total purchase price (equity purchase price plus assumed obligations)
divided by (i) LTM and forward EBITDA; (ii) LTM and forward EBIT; and (iii) net
property, plant and equipment (PP&E). In addition, relevant transaction
multiples were analyzed for the equity purchase price by dividing the equity
purchase price by (i) LTM and forward net income and (ii) net book value. The
appropriate LTM and forward EBITDA multiple ranges were determined to be 8.5x
to 10.0x and 8.0x to 9.0x, respectively. The appropriate EBIT multiple ranges
were determined to be 12.0x to 13.5x and 11.0x to 13.0x, respectively. The
appropriate PP&E multiple ranges were determined to be 1.3x to 1.4x. The
appropriate net income multiple ranges were determined to be 17.0x to 19.0x and
16.0x to 18.0x, respectively. The appropriate net book value multiple ranges
were determined to be 1.8x to 2.2x.
This methodology resulted in an implied valuation of $14.32 to $19.14 per
share of Dynegy common stock and valuations for Dynegy and Illinova that imply
a range of exchange ratios of 0.487 to 0.858 shares of Illinova common stock
per share of Dynegy common stock.
Because the market conditions, rationale and circumstances surrounding each
of the transactions analyzed were specific to each transaction and because of
the inherent differences between the businesses, operations and prospects of
Dynegy and Illinova and the acquired businesses analyzed, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on
the quantitative results of the analysis and, accordingly, also made
qualitative judgments concerning differences between the characteristics of
these transactions and the merger that would affect the acquisition values of
Dynegy and Illinova and such acquired companies.
Comparable Company Trading Analysis. With respect to Dynegy, Lehman Brothers
reviewed the public stock market trading multiples for selected independent
power producing companies including The AES Corporation and Calpine
Corporation; selected electric-natural gas convergence companies including Duke
Energy Corp. and Enron Corp.; and selected midstream companies including Aquila
Gas Pipeline Corp.,
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Mitchell Energy and Development Corp. and Western Gas Resources Inc. Using
publicly available information, Lehman Brothers calculated and analyzed the
adjusted capitalization multiples of historical and projected EBITDA and EBIT
and the common equity market value multiples of historical and projected cash
flow from operations and net income. The adjusted capitalization of each
company was obtained by adding its long-term debt to the sum of the market
value of its common equity, the value of its preferred stock (market value if
publicly traded, liquidation value if not) and the book value of any minority
interest minus its cash balance. The appropriate LTM, projected 1999 and
projected 2000 EBITDA multiple ranges were determined to be 10.0x to 12.0x,
8.5x to 10.0x and 7.0x to 9.0x, respectively. The appropriate LTM, projected
1999 and projected 2000 EBIT multiple ranges were determined to be 15.0x to
18.0x, 13.0x to 15.0x and 11.5x to 13.5x, respectively. The appropriate LTM,
projected 1999 and projected 2000 cash flow from operations multiple ranges
were determined to be 9.0x to 11.0x, 8.5x to 10.5x and 8.5x to 10.5x,
respectively. The appropriate LTM, projected 1999 and projected 2000 net income
multiple ranges were determined to be 25.0x to 30.0x, 19.0x to 25.0x and 15.0x
to 20.0x, respectively.
With respect to Illinova, Lehman Brothers reviewed the public stock market
trading multiples for selected public utility companies including DPL Inc.,
Interstate Energy Co., IPALCO Enterprises, Inc., NiSource, Inc., Unicom Corp.
and Wisconsin Energy Corp. Using publicly available information, Lehman
Brothers calculated and analyzed the adjusted capitalization multiples of
historical and projected EBITDA and EBIT and the common equity market value
multiples of historical and projected cash flow from operations and net income.
The adjusted capitalization of each company was obtained by adding its long-
term debt to the sum of the market value of its common equity, the value of its
preferred stock (market value if publicly traded, liquidation value if not) and
the book value of any minority interest minus its cash balance. The appropriate
LTM, projected 1999 and projected 2000 EBITDA multiple ranges were determined
to be 8.5x to 10.5x, 7.0x to 8.5x and 6.5x to 8.5x, respectively. The
appropriate LTM, projected 1999 and projected 2000 EBIT multiple ranges were
determined to be 13.0x to 15.0x, 11.0x to 13.0x and 10.0x to 12.0x,
respectively. The appropriate LTM, projected 1999 and projected 2000 cash flow
from operations multiple ranges were determined to be 5.0x to 7.0x, 3.0x to
5.0x and 3.0x to 5.0x, respectively. The appropriate LTM, projected 1999 and
projected 2000 net income multiple ranges were determined to be 13.0x to 17.0x,
12.0x to 16.0x and 10.0x to 14.0x, respectively.
This methodology resulted in an implied valuation of $14.32 to $20.26 per
share of Dynegy common stock and valuations for Dynegy and Illinova that imply
a range of exchange ratios of 0.512 to 1.222 shares of Illinova common stock
per share of Dynegy common stock.
Because of the inherent differences between the businesses, operations and
prospects of Dynegy and Illinova and the businesses, operations and prospects
of the companies included in the comparable company groups, Lehman Brothers
believed that it was inappropriate to, and therefore did not, rely solely on
the quantitative results of the analysis and, accordingly, also made
qualitative judgments concerning differences between the financial and
operating characteristics of Dynegy and Illinova and companies in the
comparable company groups that would affect the public trading values of Dynegy
and Illinova and such comparable companies.
Segment Valuation Analysis. Lehman Brothers performed a discounted cash flow
analysis, comparable transactions analysis and comparable company trading
analysis of the segmented operations of Dynegy utilizing information and
projections provided by Dynegy. With respect to Dynegy, Lehman Brothers
segmented Dynegy's operations into electric-natural gas convergence and
midstream services. The segment valuation analysis yielded a valuation of
$13.81 to $20.03 per share of Dynegy common stock. No segment valuation
analysis was performed for Illinova due to the nature of its operations.
Historical Common Stock Trading Analysis. Lehman Brothers reviewed the daily
historical closing prices of Dynegy common stock and Illinova common stock for
the period from June 11, 1998 to June 10, 1999. Lehman Brothers analyzed the
ratio of the June 10, 1999 closing share price for Dynegy to the corresponding
closing share price of Illinova. In addition, Lehman Brothers reviewed the
ratio of the closing share prices for Dynegy and Illinova based on 5-day, 10-
day, 20-day, 30-day, 60-day and one-year averages, respectively, as of
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June 10, 1999. This analysis implied exchange ratios ranging from 0.620 to
0.668 shares of Illinova common stock per share of Dynegy common stock.
Contribution Analysis. Lehman Brothers analyzed the relative income
statement contribution of Dynegy and Illinova to Energy Convergence based on
1998 through 2000 historical and projected financial data and assuming no cost
savings or operating synergies. This analysis indicated that Dynegy will
contribute approximately 47% to 54% of Energy Convergence's net income, 43% to
49% of Energy Convergence's cash flow from operations and 48% to 55% of Energy
Convergence's EBITDA for the years 1998 through 2000. Dynegy shareholders will
receive approximately 51% of Energy Convergence's combined equity in connection
with the merger.
Pro Forma Merger Consequences Analysis. Lehman Brothers also prepared a pro
forma merger model which incorporated Dynegy's and Illinova's financial
projections for the years 1999 through 2003 as well as the companies' estimates
of future cost savings and operating synergies expected to result from the
merger. Lehman Brothers then compared the earnings per share of Dynegy and
Illinova on a standalone basis to the earnings per share attributable to
Dynegy's and Illinova's interest in pro forma Energy Convergence. The merger is
accretive to both Dynegy's and Illinova's pro forma earnings in each of the
years 1999 through 2003.
Series A Preferred Stock. To evaluate the fair market value of the Series A
preferred stock to be issued to British Gas Atlantic and NOVA in comparison to
the fair market value of the stock consideration being offered to the public
shareholders of Dynegy, Lehman Brothers reviewed the terms of the Series A
preferred stock. In its analyses, Lehman Brothers assumed: Energy Convergence's
senior debt rating would range from BBB- to BBB; Energy Convergence's dividend
yield would be approximately 3%; the yield on a 30-Year Treasury Bond would be
equal to 5.99%; any new issue of perpetual preferred stock by Energy
Convergence would yield a spread to the 30-Year Treasury Bond of 200 to 300
basis points; and Energy Convergence's common stock would have a standard
deviation of 25% to 35%. All of these assumptions were discussed with and
reviewed by the managements of Dynegy and Illinova. Lehman Brothers calculated
a theoretical value of the Series A preferred stock based on the terms and the
above outlined assumptions. The resulting theoretical value of the Series A
preferred stock ranged from 96% to 105% of par value. In evaluating the fair
market value of the Series A preferred stock, Lehman Brothers also considered
the effect on such value of the terms pursuant to which the Series A preferred
stock will be issued, which include, among other things, certain restrictions
on the transfer of such shares.
Class B Common Stock. To evaluate the fair market value of the Class B
common stock to be issued to Chevron in comparison to the fair market value of
the stock consideration being offered to the public shareholders of Dynegy,
Lehman Brothers reviewed the terms of the Class B common stock. Lehman Brothers
considered, among other matters, the following:
The Class A common stock and the Class B common stock have equivalent
economic rights under Energy Convergence's charter; these equivalent rights
include equal sharing of dividends and distributions and equal sharing in the
assets of Energy Convergence upon liquidation;
. the Class A common stock and the Class B common stock will vote together
as a single class on all matters coming before Energy Convergence's board
except for the election of directors;
. in the matter of the election of directors, holders of Class B common
stock are entitled to elect three members (or 21%) of the 14 member
Energy Convergence board while holders of Class A common stock are
entitled to elect the balance of the Energy Convergence board (currently
an additional 11 directors, or 79%); Lehman Brothers noted that initially
the Class B common stock will represent approximately 28% of the common
equity in Energy Convergence;
. all holders of Class A common stock of Energy Convergence are entitled to
cumulative voting in the election of directors and since holders of Class
B common stock will own approximately 28% of Energy Convergence's equity,
absent the separate class vote in the election of directors, holders of
Class B common stock would be entitled to elect four of Energy
Convergence's fourteen directors;
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. the Class B common stock shares are subject to substantial restrictions
on transfer under both Energy Convergence's charter and a shareholder
agreement between Energy Convergence and Chevron;
. should directors designated by holders of the Class B common stock take
certain actions to block transactions Energy Convergence's board
otherwise desires to pursue, Energy Convergence has specified buy-out
rights to eliminate the Class B common stock; and
. shares of Class B common stock will automatically convert into shares of
Class A common stock upon the occurrence of certain events, including
transfers by Chevron outside the Chevron-affiliated group or if Chevron
reduces its ownership in Energy Convergence below 15%.
Lehman Brothers is an internationally recognized investment banking firm
engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Dynegy board selected Lehman Brothers because of its expertise, reputation
and familiarity with Dynegy and because its investment banking professionals
have substantial experience in transactions comparable to the merger.
Lehman Brothers has previously rendered certain financial advisory and
investment banking services to Dynegy, for which it has received customary
compensation. Pursuant to the terms of an engagement letter agreement dated
December 8, 1998 between Lehman Brothers and Dynegy, Dynegy has agreed to pay
Lehman Brothers a transaction fee upon successful completion of the merger
equal to a percentage of Dynegy's implied enterprise value on the closing date
of the merger. The weighted average of this percentage based on Illinova's
common share price on June 11, 1999 was 0.38%, representing a total transaction
fee of approximately $15.9 million. During the course of this engagement,
Dynegy paid Lehman Brothers $100,000 every three months, and, upon delivery of
Lehman Brothers' fairness opinion, Dynegy paid Lehman Brothers a fee of
$500,000; these amounts will be credited against the transaction fee. In
addition, Dynegy has agreed to reimburse Lehman Brothers for its reasonable
expenses incurred in connection with its engagement, and to indemnify Lehman
Brothers and certain related persons against certain liabilities in connection
with its engagement, including certain liabilities which may arise under
federal securities laws.
Lehman Brothers was engaged by Illinova to provide certain services to
Illinova following the announcement of the merger, for customary compensation.
Lehman Brothers also has performed various investment banking services for
Illinova in the past and has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers actively trades in
the debt and equity securities of Dynegy and Illinova for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Opinions of Illinova's Financial Advisors
Opinion of Berenson Minella & Company
Illinova retained Berenson Minella & Company as a financial advisor in
connection with the merger. In connection with such engagement, Illinova
requested Berenson Minella to render an opinion to its board of directors as to
whether or not the consideration to be received by the Illinova shareholders
(taking into account the aggregate merger consideration, as defined in the
Berenson Minella opinion) is fair, from a financial point of view, to the
holders of Illinova common stock.
In connection with the Illinova board's consideration of the merger
agreement and the merger, Berenson Minella delivered its opinion on June 13,
1999, to the effect that, based upon its review and subject to the various
assumptions, qualifications, and limitations set forth therein, as of the date
thereof, the consideration to be received by the Illinova shareholders (taking
into account the aggregate merger consideration) is fair, from a financial
point of view, to the holders of Illinova common stock.
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A copy of the Berenson Minella opinion, which sets forth the assumptions
made, matters considered and certain limitations on the scope of review
undertaken by Berenson Minella, is attached as Appendix IV to this document.
Illinova shareholders are urged to read the opinion in its entirety.
The Berenson Minella opinion is directed only to the fairness of the
consideration to be received by the Illinova shareholders (taking into account
the aggregate merger consideration) from a financial point of view. The
Berenson Minella opinion was prepared at the request and for the information of
the Illinova board of directors and does not constitute a recommendation to
Illinova to enter into the merger agreement or a recommendation to any
shareholder of Illinova to vote in favor of the merger. The Berenson Minella
opinion does not address Illinova's underlying business decision to effect the
merger or the relative merit of the merger as compared to other alternative
transactions or business strategies thereto. The Berenson Minella opinion does
not constitute an opinion as to the prices at which the Illinova common stock
or the Dynegy common stock will trade following the announcement of the merger
or an opinion as to at what price the Energy Convergence Class A common stock
will trade following the consummation of the merger. The Berenson Minella
opinion is not and should not be construed in any way as a legal, accounting,
or tax opinion.
The consideration to be received by the Illinova shareholders and the
aggregate merger consideration were determined in arms-length negotiations
between Illinova and Dynegy, BG Holdings, Chevron, and NOVA. Illinova did not
place any limitations upon Berenson Minella with respect to the procedures
followed or factors considered in rendering the Berenson Minella opinion.
In preparing its opinion, Berenson Minella, among other things: (i) reviewed
drafts of the merger agreement and certain other voting, subscription,
registration rights, stock purchase, and shareholder agreements to be entered
into simultaneously therewith, as well as drafts of the amended and restated
articles of incorporation, bylaws, and statement of resolution establishing
series of Series A convertible preferred stock of Energy Convergence, each
draft received and reviewed by Berenson Minella on June 12, 1999; (ii)
reviewed, and discussed with members of management of Illinova and Dynegy,
certain publicly available business and financial information relating to
Illinova and Dynegy that Berenson Minella deemed relevant; (iii) reviewed, and
discussed with members of management of Illinova and Dynegy, certain
information, including expected operational and financial performance data;
(iv) reviewed, and discussed with members of management of Illinova and Dynegy,
forecasts with respect to Dynegy, as revised by management of Illinova taking
into account the Purvin & Gertz Inc. (P&G) commodity price forecasts for
natural gas, natural gas liquids, and crude oil; (v) reviewed the historical
stock prices and trading volumes of Illinova common stock and Dynegy common
stock; (vi) reviewed certain publicly available information regarding publicly
traded companies Berenson Minella deemed reasonably comparable to Illinova and
Dynegy, respectively; (vii) reviewed certain publicly available information
regarding merger and acquisition transactions Berenson Minella deemed relevant;
(viii) performed discounted cash flow analyses based on the financial forecasts
and the P&G forecasts, for both Illinova and Dynegy, as applicable, and for the
combined company giving effect to the merger; (ix) reviewed the terms of
certain publicly traded convertible preferred securities Berenson Minella
deemed relevant; (x) participated, to a limited extent, in certain discussions
and negotiations among representatives of Illinova and Dynegy and their
respective financial and legal advisors; (xi) reviewed the potential pro forma
impact of the merger; and (xii) reviewed such other information, performed such
other analyses, and took into account such other factors as Berenson Minella
deemed relevant.
In preparing its opinion, Berenson Minella assumed and relied upon the
accuracy and completeness of all information provided to Berenson Minella by
and on behalf of Illinova and Dynegy and did not assume any responsibility for
independent verification of such information or for any independent valuation
or appraisal of any assets of Illinova or Dynegy, nor was Berenson Minella
furnished with any such valuations or appraisals. Berenson Minella did not
assume any obligation to, and accordingly did not, conduct any physical
inspection of the properties or facilities of Illinova or Dynegy. Berenson
Minella assumed, without independent investigation, the accuracy of all
representations and statements made by officers and management of Illinova and
Dynegy. With respect to the forecasts and the cost savings and related expenses
and synergies expected to result from the merger furnished to or discussed with
Berenson Minella by Illinova or Dynegy, Berenson Minella assumed
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and relied upon the fact that they were reasonably prepared and reflect the
best currently available estimates and good faith judgments of Illinova's and
Dynegy's management as to the expected future financial performance of Illinova
and Dynegy, respectively. Berenson Minella assumed that the merger will qualify
as a tax-free reorganization for U.S. federal income tax purposes. Based on
discussions with Illinova and Dynegy and the accountants to Illinova and
Dynegy, Berenson Minella assumed that the transaction will be accounted for as
an acquisition of Illinova by Dynegy for financial reporting purposes. Berenson
Minella assumed that the terms of any future agreements between Energy
Convergence and BG Holdings, Chevron, or NOVA will be commercially reasonable
and the product of arms-length negotiations. In addition, Berenson Minella
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the merger.
The Berenson Minella opinion is necessarily based upon economic, market, and
other conditions as they existed on and could be evaluated, and on the
information made available to Berenson Minella, as of the date of the Berenson
Minella opinion.
The following is a summary of the material financial and comparative
analyses performed by Berenson Minella in arriving at the Berenson Minella
opinion delivered to the Illinova board of directors on June 13, 1999.
In its analysis, Berenson Minella calculated the implied valuation of Dynegy
in the merger based upon the aggregate merger consideration assuming, among
other things, the closing price of Illinova common stock on June 11, 1999
($25.31). Berenson Minella noted that, using these assumptions, (i) the
weighted average value of Dynegy, per share of Dynegy common stock, on a fully-
diluted basis, was calculated to be $17.10 (the "Dynegy merger valuation"), and
(ii) the implied value per share of Dynegy common stock of the common stock
component of the aggregate merger consideration was calculated to be $17.47.
Discounted Cash Flow Analysis. Berenson Minella derived estimated valuation
ranges for Dynegy and Illinova by performing DCF analyses.
In the case of Dynegy, Berenson Minella performed a DCF analysis separately
considering each of Dynegy's four business segments: power marketing, power
generation, gas marketing, and mid-stream services, based on the P&G forecasts.
The DCF was calculated assuming discount rate ranges of 14%-15%, 7.0%-8.0%,
10%-11%, and 8.0%-9.0% for power marketing, power generation, gas marketing,
and mid-stream services, respectively. The DCF was comprised of the sum of the
net present values of (i) the projected unlevered free cash flows for the years
1999-2003 for each Dynegy business segment, and (ii) the year 2003 terminal
value assuming (a) a range of multiples of EBITDA of 8.0x-10.0x and 5.5x-6.5x
for power generation and mid-stream services, respectively, and (b) free cash
flow perpetuity growth rate ranges of 3.5%-4.5% and 6.0%-7.0% for gas marketing
and power marketing, respectively. This analysis resulted in an implied equity
value range per share of Dynegy common stock of $20.90-$23.65.
In the case of Illinova, Berenson Minella performed a DCF analysis
considering Illinova's regulated businesses, Illinois Power, and separately
considering Illinova's unregulated businesses, which unregulated businesses are
relatively small with respect to earnings contribution in comparison to
Illinois Power. The DCF was calculated assuming a discount rate range of 6.5%-
7.5% for Illinois Power and discount rates ranging from 6.5%-20.0% for the
components of Illinova's unregulated businesses, as Berenson Minella deemed
appropriate. The DCF was comprised of the sum of the net present values of (i)
the projected unlevered free cash flows for the years 1999-2003 for Illinois
Power and the unregulated businesses, as provided by Illinova, and (ii) the
year 2003 terminal value assuming (a) a range of multiples of EBITDA of 7.5x-
8.5x for Illinois Power, and (b) free cash flow perpetuity growth rates ranging
from 0.0%-8.5% for the components of the unregulated businesses, as Berenson
Minella deemed appropriate. This analysis resulted in an implied equity value
range per share of Illinova common stock of $24.15-$32.25.
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Based on the estimated valuation ranges of Dynegy and Illinova set forth
above, Berenson Minella noted that the implied common stock exchange ratio
ranges from 0.65 to 0.98 (as compared to the exchange ratio of 0.69 for Dynegy
common stock in the merger).
Berenson Minella performed a pro forma DCF analysis on Energy Convergence
based on the following: (i) the implied DCF value of Dynegy as indicated above,
(ii) the implied DCF value of Illinova as indicated above, (iii) the implied
DCF value of the cost savings and related expenses and synergies projected by
Illinova and Dynegy to result from the merger from 1999-2003, calculated using
(a) discount rates ranging from 10.5% to 11.5%, and (b) a 2003 terminal value
assuming free cash flow perpetuity growth rates ranging from 2.0%-4.0%, and
(iv) the pro forma impact of the merger and the other transactions contemplated
in the merger agreement and the ancillary agreements thereto. This analysis
resulted in an implied equity value range per share of Energy Convergence
common stock of $36.35-$43.60. Berenson Minella noted that, not including any
of the cost savings and related expenses and synergies projected by Illinova
and Dynegy to result from the merger, the implied equity value range per share
of Energy Convergence common stock was $29.20-$36.00.
Comparable Publicly Traded Company Analysis. Using publicly available
information, Berenson Minella compared certain financial and operating
information and ratios (described below) for Dynegy and Illinova, respectively,
with the corresponding financial and operating information and ratios for
separate groups of publicly traded companies that Berenson Minella deemed to be
reasonably comparable to Dynegy and Illinova, respectively.
The companies included in the Dynegy comparable company analysis were:
. The AES Corporation,
. Calpine Corporation,
. The Coastal Corporation,
. Enron Corp.,
. Midcoast Energy Resources, Inc.,
. PG&E Corporation,
. Reliant Energy, Inc.,
. Tosco Corporation,
. Valero Energy Corporation, and
. Western Gas Resources, Inc.
The companies included in the Illinova comparable company analysis were:
. Alliant Energy Corporation,
. Ameren Corporation,
. Conectiv, Inc.,
. Pinnacle West Capital Corporation,
. Public Service Company of New Mexico, and
. Puget Sound Energy, Inc.
Berenson Minella derived an estimated valuation range for Dynegy by
comparing: (i) current market price to projected 1999 earnings per share for
the Dynegy public comparables, which ranged from 10.7x-34.5x (as compared to
22.8x for Dynegy assuming the Dynegy merger valuation and the P&G forecasts),
(ii) current market price to projected 2000 earnings per share for the Dynegy
public comparables, which ranged from
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9.1x-29.7x (as compared to 17.8x for Dynegy), (iii) enterprise value to
projected 1999 EBITDA for the Dynegy public comparables, which ranged from
5.4x-14.2x (as compared to 10.6x for Dynegy), (iv) enterprise value to
projected 2000 EBITDA for the Dynegy public comparables, which ranged from
4.6x-12.4x (as compared to 8.9x for Dynegy), and (v) current market value to
book value for the Dynegy public comparables, which ranged from 1.0x-9.2x (as
compared to 2.5x for Dynegy). All 1999 and 2000 earnings projections for the
Dynegy public comparables were obtained from publicly available sources. Using
the above analyses and other factors Berenson Minella deemed appropriate,
Berenson Minella estimated an equity value range per share of Dynegy common
stock of $14.00-$20.00 based on the Dynegy public comparables.
Berenson Minella derived an estimated valuation range for Illinova by
comparing: (i) current market price to projected 1999 earnings per share for
the Illinova public comparables, which ranged from 10.1x-13.6x (as compared to
15.8x for Illinova assuming the closing price of Illinova common stock on June
11, 1999 and the Illinova forecasts), (ii) current market price to projected
2000 earnings per share for the Illinova public comparables, which ranged from
9.9x-12.8x (as compared to 12.6x for Illinova), (iii) enterprise value to
projected 1999 EBITDA for the Illinova public comparables, which ranged from
5.8x-7.6x (as compared to 8.0x for Illinova), (iv) enterprise value to
projected 2000 EBITDA for the Illinova public comparables, which ranged from
5.6x-7.6x (as compared to 7.1x for Illinova), and (v) current market value to
book value for the Illinova public comparables, which ranged from 0.9x-1.8x (as
compared to 1.5x for Illinova). All 1999 and 2000 earnings projections for the
Illinova public comparables were obtained from publicly available sources.
Using the above analyses and other factors Berenson Minella deemed appropriate,
Berenson Minella estimated an equity value range per share of Illinova common
stock of $20.50-$25.50 based on the Illinova public comparables.
Based on the estimated valuation ranges of Dynegy and Illinova set forth
above, Berenson Minella noted that the implied common stock exchange ratio
ranges from 0.55 to 0.98 (as compared to the exchange ratio of 0.69 for Dynegy
common stock in the merger).
No public company utilized as a comparison in the analyses described above
is identical to Dynegy or Illinova. Accordingly, an analysis of publicly traded
comparable companies is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or the company to which
they are being compared.
Selected Precedent Merger and Acquisition Transactions Analysis. Using
publicly available information, Berenson Minella compared certain financial and
operating information and ratios (described below) for Dynegy and Illinova,
respectively, with the corresponding financial and operating information and
ratios for separate groups of selected announced merger and acquisition
transactions involving companies that Berenson Minella deemed to be reasonably
comparable to Dynegy and Illinova, respectively.
The transactions considered in the Dynegy precedent transactions analysis
included:
. NiSource/Columbia Energy,
. El Paso Energy/Sonat,
. Sempra/KN Energy,
. ONEOK-Southern Union (contested bid)/Southwest Gas,
. BEC Energy/Commonwealth Energy,
. National Power/Avon Energy (Midlands Electricity),
. Duke Energy/UPFuels (Union Pacific Resources),
. AES/CILCORP,
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. UtiliCorp/Aquila Gas Pipeline,
. TEPPCO Partners/DETTCO (Duke Energy),
. CalEnergy/MidAmerican Energy,
. Shell/Tejas Gas,
. PacifiCorp/TPC Corp.,
. NGC/Destec Energy (Dow Chemical), and
. PG&E/Valero Natural Gas
The transactions considered in the Illinova precedent transactions analysis
included:
. UtiliCorp/Empire District,
. Northern States Power/New Century Energies,
. UtiliCorp/St. Joseph Light & Power,
. BEC Energy/Commonwealth Energy,
. Scottish Power/PacifiCorp,
. AES/CILCORP,
. CalEnergy/MidAmerican Energy,
. Nevada Power/Sierra Pacific Resources,
. American Electric Power/ Central & South West,
. LG&E Energy/KU Energy,
. Ohio Edison/Centerior Energy,
. Delmarva Power & Light/Atlantic Energy, and
. WPL Holdings/Interstate Power
Berenson Minella derived an estimated valuation range for Dynegy by
comparing: (i) enterprise value to latest twelve months EBITDA for the acquired
companies in the Dynegy transaction comparables, which ranged from 6.9x-23.4x
(as compared to 12.6x for Dynegy assuming the Dynegy merger valuation), and
(ii) enterprise value to latest twelve months EBIT for the acquired companies
in the Dynegy transaction comparables, which ranged from 9.2x-30.9x (as
compared to 19.1x for Dynegy). Using the above analyses and other factors
Berenson Minella deemed appropriate, Berenson Minella estimated an equity value
range per share of Dynegy common stock of $16.00-$24.00 based on the Dynegy
transaction comparables.
Berenson Minella derived an estimated valuation range for Illinova by
comparing: (i) enterprise value to latest twelve months EBITDA for the acquired
companies in the Illinova transaction comparables, which ranged from 5.7x-9.7x
(as compared to 8.0x for Illinova assuming the closing price of Illinova common
stock on June 11, 1999 and the Illinova forecasts for 1999; comparison was made
with the Illinova forecasts for 1999 due to the large number of significant,
unusual items affecting Illinova's latest twelve month earnings), (ii)
enterprise value to latest twelve months EBIT for the acquired companies in the
Illinova transaction comparables, which ranged from 8.6x-15.4x (as compared to
13.2x for Illinova), and (iii) common equity value per share to latest twelve
months earnings per share for the acquired companies in the Illinova
transaction comparables, which ranged from 9.4x-19.3x (as compared to 15.8x for
Illinova). Using the above analyses and other factors Berenson Minella deemed
appropriate, Berenson Minella estimated an equity value range per share of
Illinova common stock of $30.00-$35.00 based on the Illinova transaction
comparables.
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Based on the estimated valuation ranges of Dynegy and Illinova set forth
above, Berenson Minella noted that the implied common stock exchange ratio
ranges from 0.46 to 0.80 (as compared to the exchange ratio of 0.69 for Dynegy
common stock in the merger).
None of the comparable merger and acquisition transactions or other business
combinations utilized for comparison purposes is identical to the merger.
Accordingly, an analysis of comparable precedent transactions is not
mathematical; rather, it involves complex considerations and judgments
concerning companies and other factors that could affect the public trading
value of the companies selected for the precedent transactions analysis or the
company to which they are being compared.
Pro Forma Merger Analysis. Berenson Minella analyzed the pro forma impact of
the merger and the other transactions contemplated in the merger agreement and
the ancillary agreements thereto, on the earnings per share of Illinova common
stock for the years 2000-2003. Berenson Minella made a number of assumptions at
the direction of Illinova management, including, among other things: (i) an
assumed closing date of December 31, 1999, (ii) that Energy Convergence will
complete a $400 million equity offering of primary shares on the first day of
2001, and (iii) that Energy Convergence will pay a common dividend of $0.60 per
share of common stock per year through the 2000-2003 period. Berenson Minella
assumed, at the direction of Illinova management, the Illinova forecasts, the
P&G forecasts, and the cost savings and related expenses and synergies
projected by Illinova and Dynegy to result from the merger. This analysis
indicated that the merger would result in accretion to Illinova's fully-diluted
earnings per share of 11.0% in 2000, 27.0% in 2001, 37.3% in 2002, and 53.7% in
2003. Berenson Minella noted that, not including any of the cost savings and
related expenses and synergies projected by Illinova and Dynegy to result from
the merger, the merger would be 24.1% dilutive to Illinova's fully-diluted
earnings per share in 2000, 2.0% dilutive in 2001, 9.9% accretive in 2002, and
26.8% accretive in 2003.
The summary set forth above does not purport to be a complete description of
the analyses performed by Berenson Minella in arriving at the Berenson Minella
opinion. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances, and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Berenson Minella did not place particular reliance or weight on
any individual analysis. Accordingly, Berenson Minella believes that its
analysis must be considered as a whole and that considering any portion of such
analysis and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the Berenson Minella opinion. In its analyses Berenson Minella made numerous
assumptions with respect to industry performance, general business and economic
conditions, and other matters, many of which are beyond the control of Illinova
and Dynegy. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses may actually be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty.
The Illinova board of directors selected Berenson Minella to act as a
financial advisor because of its experience and expertise. Berenson Minella has
a nationally recognized merger and acquisition advisory business. As part of
its investment banking business, Berenson Minella is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, and private placements.
Pursuant to a letter agreement dated December 15, 1998, Illinova agreed to
pay Berenson Minella (i) a $250,000 retainer fee, and (ii) a transaction fee of
$5,000,000, against which the amount referred to in clause (i) will be
credited. The transaction fee is payable in three installments as follows: (a)
25% upon the execution of the merger agreement, (b) 25% upon the public
announcement of the merger, and (c) any remaining unpaid portion upon the
closing of the merger. In addition, pursuant to a letter agreement dated May
23, 1999, Illinova agreed to pay Berenson Minella a fee of $500,000 upon the
delivery of its fairness opinion to the Illinova board
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of directors. Illinova also agreed to reimburse Berenson Minella for its
reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) and to indemnify Berenson Minella and certain related
parties from and against certain liabilities that may arise out of its
engagement and the rendering of its opinion.
Berenson Minella has, in the past, provided financial advisory services to
Illinova and has received fees for the rendering of such services.
Opinion of Chase Securities, Inc.
Illinova retained Chase to act as a financial advisor in connection with the
merger and to render its written opinion as to the fairness, from a financial
point of view, to the holders of Illinova common stock of the consideration to
be paid to the holders of Illinova common stock, taking into account the
aggregate merger consideration to be paid to the holders of Dynegy common
stock. On June 13, 1999, Chase rendered its opinion to the Illinova board to
the effect that, as of such date, the consideration to be paid to the holders
of Illinova common stock, taking into account the aggregate merger
consideration to be paid to the holders of Dynegy common stock was fair, from a
financial point of view, to the holders of Illinova common stock.
A copy of the Chase opinion, which sets forth the assumptions made, matters
considered and certain limitations on the scope of review undertaken by Chase,
is attached as Appendix V to this document. Illinova shareholders are urged to
read the opinion in its entirety.
In conducting its investigation and analysis and in arriving at its opinion,
Chase reviewed information and took into account financial and economic factors
it deemed relevant under the circumstances. Among other things Chase:
. reviewed a draft of the merger agreement in the form provided to Chase
and assumed that the final form of the merger agreement did not vary in
any regard that was material to Chase's analysis;
. reviewed certain publicly available business and financial information
that Chase deemed relevant relating to Illinova and Dynegy and the
respective industries in which they operate;
. reviewed certain internal non-public financial and operating data
provided to Chase relating to such businesses;
. discussed with members of Illinova's and Dynegy's senior management,
Illinova's and Dynegy's operations, historical financial statements and
future prospects, before and after giving effect to the merger, as well
as their views of the business, operational and strategic benefits and
other implications of the merger, including, solely with respect to the
members of Illinova's management, their views of the expected synergies,
and such other matters as Chase deemed necessary or appropriate;
. compared the financial and operating performance of Illinova and Dynegy
with publicly available information concerning certain other companies
Chase deemed comparable and reviewed the relevant historical stock prices
and trading volumes of Illinova common stock, Dynegy common stock and
certain publicly traded securities of such other companies;
. reviewed the financial terms of certain recent business combinations and
acquisition transactions Chase deemed reasonably comparable to the merger
and otherwise relevant to Chase's inquiry; and
. made such other analyses and examinations as Chase deemed necessary or
appropriate.
Chase assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for Chase, or
publicly available, for purposes of Chase's opinion. Chase neither made nor
obtained any independent evaluations or appraisals of the assets or liabilities
of Illinova or Dynegy and did not conduct a physical inspection of the
properties and facilities of Illinova or Dynegy. Chase assumed that the
information
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and the expected synergies provided to or discussed with Chase by or on behalf
of Illinova and Dynegy were reasonably determined on bases reflecting the best
currently available estimates and judgments of the managements of Illinova and
Dynegy as to the future financial performance of Illinova or Dynegy, as the
case may be, and the expected synergies.
For purposes of rendering its opinion, Chase assumed, in all respects
material to its analysis:
. that the representations and warranties of each party contained in the
merger agreement were true and correct;
. that each party would perform all of the covenants and agreements
required to be performed by it under the merger agreement; and
. that all conditions to the consummation of the merger would be satisfied
without waiver thereof.
Chase also assumed:
. that all material governmental, regulatory or other consents and
approvals would be obtained; and
. that in the course of obtaining any necessary governmental, regulatory or
other consents and approvals, or any amendments, modifications or waivers
to any documents to which either of Illinova or Dynegy are party, as
contemplated by the merger agreement, no restrictions would be imposed or
amendments, modifications or waivers made that would have any material
adverse effect on the contemplated benefits to Illinova of the merger.
Chase's opinion necessarily was based on market, economic and other
conditions as they existed and could be evaluated on the date of its opinion.
Chase's opinion was limited to the fairness, from a financial point of view, to
the holders of Illinova common stock of the consideration to be paid to the
holders of Illinova common stock, taking into account the aggregate merger
consideration to be paid to the holders of Dynegy common stock. Chase expressed
no opinion as to the merits of the underlying decision by Illinova to engage in
the merger. Chase also expressed no opinion as to the potential trading range
of Energy Convergence Class A common stock after the effectiveness of the
merger.
The following is a summary of certain analyses performed by Chase in
connection with rendering its opinion.
Historical Common Stock Performance. Chase's analysis of Dynegy's and
Illinova's common stock performance consisted of a historical analysis of
closing prices and trading volumes over the period of June 12, 1998 to June 11,
1999. During that period, based on closing prices of the New York Stock
Exchange, Dynegy common stock achieved a high closing price of $20.19 and a low
of $9.38 and Illinova common stock achieved a high closing price of $31.00 and
a low of $20.75.
Relative Stock Price Performance. Chase performed a historical analysis of
closing prices from June 12, 1998 to June 11, 1999 of Dynegy common stock, the
S&P Natural Gas Index and the S&P 500. In addition, Chase performed a
historical analysis of closing prices of Illinova common stock, the S&P
Electric Index and the S&P 500 for the same time period.
The following table presents the change in performance from the beginning to
the end of the period for these groups.
<TABLE>
<CAPTION>
Percentage
Change from
June 12, 1998 to
June 11, 1999
----------------
<S> <C>
Illinova Common Stock.................................... -16.15%
Dynegy Common Stock...................................... +31.14%
S&P Natural Gas Index.................................... +28.59%
S&P Electric Companies Index............................. + 0.31%
S&P 500.................................................. +17.73%
</TABLE>
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Comparative Company Analysis. Chase reviewed certain publicly available
financial information as of the most recently reported period and stock market
information as of June 11, 1999 for Dynegy and selected publicly traded
companies. Chase reviewed financial information including the price per share
to LTM earnings per share and forecasted 1999 earnings per share multiples, the
enterprise value to LTM EBITDA multiple and price per share to book value per
share for the Dynegy comparable companies. The financial information was based
on a compilation of earnings projections by I/B/E/S mean earnings estimates,
the book value as of the period ending March 31, 1999 and the LTM EBITDA for
the period ending March 31, 1999. Chase reviewed these Dynegy comparable
company multiples and other factors it deemed appropriate and determined that
the price per share to 1998 earnings per share and forecasted 1999 earnings per
share multiples were the appropriate multiples to value shares of Dynegy. Chase
also determined which range of multiples from within the broader set of Dynegy
comparable company multiples were appropriate to use to value shares of Dynegy.
The tables below summarize these determinations and the relevant statistics for
Dynegy as of June 11, 1999.
Dynegy Comparable Companies
<TABLE>
<CAPTION>
Integrated Independent Power Gas Gatherers
Pipeline Producer Integrated Energy And Processors
- ---------- ------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Columbia
Energy
Group AES Corp Dominion Resources Inc. MidCoast Energy Resources
El Paso
Energy
Corp Calpine Corp Duke Energy Western Gas Resources
Enron
Corp Trigen Energy Corp Enron Corp
KN
Energy
Inc. Reliant Energy Inc.
Oneok
Inc. NiSource Inc.
Sonat
Inc. Northern States Power Co.
Williams
Cos,
Inc. PG&E Corp
Southern Co.
Williams Cos, Inc.
</TABLE>
<TABLE>
<CAPTION>
Appropriate
Multiples from
Dynegy
Comparable Companies Dynegy
-------------------- ------
<S> <C> <C>
Price per share to 1998 EPS................... 19x-26x 28.3x
Price per share to forecasted 1999 EPS........ 18x-25x 23.1x
</TABLE>
The equity values per share were calculated by multiplying these ranges by
the Dynegy 1998 EPS and forecasted 1999 EPS. Based on this analysis, Chase
calculated the per share equity values for Dynegy from $12.50 to $17.00 based
on 1998 EPS and $14.40 to $20.00 (rounded to the nearest 0.10) based on 1999
forecasted EPS.
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In addition, Chase reviewed certain publicly available financial information
as of the most recently reported period and stock market information as of June
11, 1999 for Illinova and selected publicly traded companies. Chase reviewed
financial information including the price per share to LTM earnings per share
and forecasted 1999 earnings per share multiples, the enterprise value to LTM
EBITDA and forecasted 1999 EBITDA multiples for the Illinova comparable
companies. The financial information was based on earnings projections in
analyst research reports for comparable companies and management projections
for Illinova and the LTM EBITDA for the period ending March 31, 1999. Chase
reviewed these Illinova comparable company multiples and other factors it
deemed appropriate and determined that the price per share to forecasted 1999
earnings per share and forecasted 1999 EBITDA multiples were the appropriate
multiples to value shares of Illinova. Chase also determined which range of
multiples from within the broader set of Illinova comparable company multiples
were appropriate to use to value shares of Illinova. The tables below summarize
these determinations and the relevant statistics for Illinova as of June 11,
1999.
Illinova Comparable Companies
Alliant
Ameren Corporation
DPL Inc.
DTE Energy Co.
IPALCO
Wisconsin Energy Corp.
<TABLE>
<CAPTION>
Appropriate
Multiples from
Illinova
Comparable Companies Illinova
-------------------- --------
<S> <C> <C>
Price per share to forecasted 1999 EPS.... 12x-14x 15.8x
Transaction value to forecasted 1999
EBITDA................................... 7.5x-8.0x 8.0x
</TABLE>
The equity values per share were calculated by multiplying these ranges by
the Illinova forecasted 1999 EPS and forecasted 1999 EBITDA, the product of
which was reduced by the amount of total debt and preferred stock minus cash on
hand and then divided by the number of Illinova diluted shares outstanding.
Projections for 1999 were provided by Illinova management. Based on this
analysis, Chase calculated per share equity values for Illinova from $19.30 to
$22.50 based on 1999 forecasted earnings and $21.00 to $25.00 for 1999
forecasted EBITDA.
Precedent Transaction Analysis. Chase analyzed publicly available
information for 16 transactions involving acquisitions of businesses and/or
assets in the utilities industry that had been completed or were pending since
April 15, 1996. Chase used these 16 transactions in its valuation analysis of
Dynegy. The precedent transactions were chosen based on a review of acquired
companies and/or assets that were representative of convergence transactions
(the combining of electric and natural gas companies), the type of transaction
the combination of Dynegy and Illinova represents.
The precedent transactions were (acquiror/target):
. Energy East Corporation/Connecticut Energy Corporation;
. El Paso Energy Corp/Sonat Inc.;
. Dominion Resources/Consolidated Natural Gas Co.;
. Sempra Energy/KN Energy;
. Scana Corp/PSC of North Carolina;
. Carolina Power & Light/North Carolina Natural Gas;
. CMS Energy Corp/Panhandle Eastern Pipeline Co.;
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. NIPSCO/Bay State Gas Co.;
. LG&E Energy Corp/KU Energy Corp.;
. PacifiCorp Holdings Inc./TPC Corp.;
. NGC Group (Dynegy)/Destec Energy Inc.;
. Brooklyn Union Gas Co./Long Island Lighting Co. (LILCO);
. Duke Power Co./PanEnergy Corp.;
. Enova Corp/Pacific Enterprises;
. Houston Industries/NORAM Energy Corp.; and
. Texas Utilities/Enserch Corp.
Chase reviewed financial information including the purchase price to net
income multiple and the transaction value to EBITDA multiple for the Dynegy
precedent transactions. Chase reviewed these Dynegy precedent transaction
multiples and other factors it deemed appropriate and determined which range of
multiples from within the broader set of Dynegy precedent transaction multiples
to use to value shares of Dynegy. The table below summarizes this analyses.
<TABLE>
<CAPTION>
Appropriate Multiples
from Dynegy
Precedent Transactions
----------------------
<S> <C>
Price per share to forecasted 1999 EPS............. 23x-27x
Transaction value to forecasted 1999 EBITDA........ 10x-12x
</TABLE>
Chase applied these multiples from the Dynegy precedent transactions to
Dynegy's corresponding and financial and market statistics. Based on this
analysis, Chase calculated per share equity values for Dynegy from $18.40 to
$22.00 based on forecasted 1999 EPS and $17.00 to $22.00 (rounded to the
nearest 0.10) based on forecasted 1999 EBITDA.
In addition, Chase analyzed publicly available information for 17
transactions involving acquisitions of businesses and/or assets in the
utilities industry that had been completed or were pending since August 14,
1995. Chase used these 17 transactions in its valuation analysis of Illinova.
The precedent transactions were chosen based on a review of acquired companies
and/or assets that had general business, operating and financial
characteristics representative of companies in the industry in which Illinova
operates.
The precedent transactions were (acquiror/target):
. Northern States Power Co./New Century Energies Inc.;
. UtiliCorp United Inc./St. Joseph Light & Power Co.;
. New England Electric System/Eastern Utilities Associates;
. National Grid/New England Electric;
. Scottish Power PLC/PacifiCorp.;
. BEC Energy/Commonwealth Energy System;
. AES Corp/CILCORP Inc.;
. CalEnergy Co. Inc./MidAmerican Energy Holdings Co.;
. Consolidated Edison Inc./Orange and Rockland Utilities;
. Sierra Pacific Resources Corp/Nevada Power Co.;
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. Central & South West Corp/American Electric Power Co.;
. Ohio Edison Co./Centerior Energy Corp.;
. Delmarva Power & Light/Atlantic Energy Inc.;
. Western Resources Inc./Kansas City Power & Light Co.;
. WPL Holdings Inc./IES Industries Inc.;
. Public Service Co. of Colorado/Southwestern Public Service Co.; and
. Union Electric Co./CIPSCO Inc.
Chase reviewed financial information including the purchase price to net income
multiple and the transaction value to EBITDA multiple for the Illinova
precedent transactions. Chase reviewed these Illinova precedent transaction
multiples and other factors it deemed appropriate and determined which range of
multiples from within the broader set of Illinova precedent transaction
multiples to use to value shares of Illinova. Chase also determined that it
would be appropriate to use Illinova's forecasted 1999 EPS and forecasted 1999
EBITDA to value shares of Illinova. Projections for 1999 were provided by
Illinova management. The table below summarizes this analyses.
<TABLE>
<CAPTION>
Appropriate Multiples
from Illinova
Precedent Transactions
----------------------
<S> <C>
Price per share to forecasted 1999 EPS............. 16x-19x
Price per share to forecasted 1999 EBITDA.......... 8x-9x
</TABLE>
Chase applied these multiples from the Illinova precedent transactions to
Illinova's corresponding and financial and market statistics. Based on this
analysis, Chase calculated per share equity value for Illinova from $25.70 to
$30.50 based on forecasted 1999 EPS and $25.00 to $33.00 (rounded to the
nearest 0.10) based on forecasted 1999 EBITDA.
Chase noted that none of the precedent transactions reviewed was identical
to the merger and that, accordingly, the analysis of the precedent transactions
necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics of the target companies
and/or assets and other factors (including the general market conditions
prevailing in the equity capital markets at the time of the transaction) that
would affect the acquisition values of the precedent transactions.
Discounted Cash Flow Analysis. Chase performed a discounted cash flow
analysis of Dynegy and Illinova, each on a stand-alone basis. Illinova supplied
a 10 year projection through 2010 and Dynegy supplied a 5 year projection
through 2003. In connection with this analysis, Chase assumed a range of
terminal EBITDA multiples of 9.0x to 11.0x and discount rates of 9% to 12% for
Dynegy and a range of terminal EBITDA multiples of 8.0x to 10.0x and discount
rates of 5% to 6.5% for Illinova. From these calculations and various
sensitivities, Chase compiled a range it determined was appropriate to value
Dynegy and Illinova. Based on this analysis, Chase calculated the per share
equity values for Dynegy from $20.00 to $25.00 and for Illinova from $27.00 to
$34.50 (rounded to the nearest 0.10).
Pro Forma Analysis of the Merger. Chase reviewed the pro forma impact of the
merger on Illinova's earnings per share for the fiscal years 2000 through 2002.
The analysis was performed based on the following assumptions:
. Purvin & Gertz commodity price forecast for Dynegy's natural gas liquids
business;
. Chevron contributing $200 million of new equity at closing;
. all convertible preferred stock held by British Gas Atlantic Holdings and
NOVA converts to Energy Convergence Class A common stock at the end of
2000;
. Energy Convergence issues $400 million of new equity at the end of 2000;
and
. Dynegy stock options convert into Energy Convergence options at
transaction value.
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Based on this analysis on an EPS basis, the merger would be accretive by at
least 12.7%, 24.4% and 36.0% to Illinova's earnings for the fiscal years 2000
through 2002.
Convertible Preferred Analysis. Chase conducted an analysis of comparable
convertible preferred stock public and private issuances of both private and
public companies. Chase's review showed that the terms of the Series A
preferred stock to be issued by Energy Convergence in the merger was fairly
priced and had favorable terms compared to the terms of comparable private and
public convertible share issuances.
The foregoing summary does not purport to be a complete description of the
analyses performed by Chase. The preparation of a fairness opinion is a complex
process and is not susceptible to partial analyses or summary description.
Chase believes that its analyses must be considered as a whole, and that
selecting portions of such analyses without considering all analyses and
factors would create an incomplete view of the processes underlying its
opinion. Chase did not attempt to assign specific weights to particular
analyses. Analyses based upon forecasts of future results are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by such analyses and do not necessarily reflect the prices at
which companies may actually be sold, and such estimates are inherently subject
to uncertainty. None of the comparative companies is identical to Dynegy or
Illinova, and none of the precedent transactions is identical to the proposed
merger. Accordingly, an analysis of the comparative companies and precedent
transactions is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
and other factors.
Pursuant to an engagement letter dated April 2, 1999 between Illinova and
Chase, Illinova agreed to pay Chase a success fee of $5,000,000, $2,500,000 of
which has already been paid, and the other $2,500,000 will be paid upon
consummation of the merger. Illinova also agreed to pay to Chase a financial
advisory fee of $3,000,000, $1,500,000 of which has already been paid, and the
other $1,500,000 will be paid upon consummation of the merger. These fees are
payable regardless of the conclusions reached by Chase in its fairness opinion.
Illinova has also agreed to indemnify Chase, its affiliates and their
respective directors, officers, employees and agents and controlling persons
against certain liabilities relating to or arising out of its engagement,
including liabilities under the federal securities laws. In the past, The Chase
Manhattan Corporation and its affiliates, including Chase, have provided
commercial and investment banking services to Illinova and Dynegy, for which
they have received customary compensation. Chase, as part of its investment
banking business, is engaged in the evaluation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Illinova retained Chase because of Chase's experience and
expertise in the valuation of businesses and their securities in connection
with mergers and acquisitions. In the ordinary course of business, Chase and
its affiliates may from time to time trade securities of Illinova and Dynegy
for its own account and for accounts of its customers and, accordingly, may at
any time hold a long or short positions in such securities.
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DIRECTORS AND MANAGEMENT OF ENERGY CONVERGENCE FOLLOWING THE MERGER
Directors and Executive Officers
As of the effective time of the merger, the Energy Convergence board will
have fourteen members, with seven members designated by the Dynegy board and
seven members designated by the Illinova board. Dynegy and Illinova will select
their designees from the members of their respective boards. Chevron will
select three of Dynegy's designees. Mr. Watson will be one of Dynegy's
designees and Mr. Bayless will be one of Illinova's designees. All of the
directors will serve until Energy Convergence's next annual meeting of
shareholders following the effective time. Additionally, after the merger Mr.
Watson will serve as Chairman of the Board, President and Chief Executive
Officer of Energy Convergence. The Energy Convergence board will elect the
remaining officers of Energy Convergence based on the recommendation of the
President and Chief Executive Officer.
Committees of the Board of Directors
The composition of the committees of the Energy Convergence board as of the
effective time will be as designated prior to the effective time in a manner
consistent with Energy Convergence's bylaws and reasonably acceptable to
Illinova and Dynegy, with the objective being, except as noted below, that the
committees have approximately equal representation from among the Dynegy
director designees and the Illinova director designees. The composition of the
compensation/nomination committee as of the effective time of the merger will
be two non-employee directors designated by Dynegy and one non-employee
director designated by Illinova. Except for the compensation/nomination
committee, Chevron is entitled to designate one member of each committee.
INTERESTS OF DYNEGY AND ILLINOVA EXECUTIVE OFFICERS
AND DIRECTORS AND DYNEGY SHAREHOLDERS IN THE MERGER
In considering the respective recommendations of the Dynegy board and the
Illinova board with respect to the merger, you should be aware that officers of
Dynegy and Illinova, including some officers who are also directors, and the
directors of Dynegy have interests in the merger that are different from, or in
addition to yours. The Illinova and Dynegy boards of directors were aware of
these interests and considered them, among other matters, in approving the
merger.
Interests of Dynegy Directors, Executive Officers and Shareholders
Dynegy's three large shareholders each designated three of the thirteen
current directors of Dynegy. Stephen J. Brandon, Paul Nicholas Woollacott and
Stanley I. Rubenfeld were designated by BG Holdings; Jeffrey M. Lipton, Jack S.
Mustoe and A. Terence Poole were designated by NOVA; and Darald W. Callahan,
Peter J. Robertson and Patricia A. Woertz were designated by Chevron.
In connection with executing the merger agreement, Chevron and Energy
Convergence entered into a subscription agreement by which Chevron agreed to
purchase between $200 million and $240 million of Energy Convergence Class B
common stock immediately after the merger. The Chevron subscription agreement
provides that immediately after the merger Chevron will purchase a minimum of
$200 million worth of Class B common stock for a price equal to the lesser of
(a) the market price of Dynegy common stock divided by 0.69 and (b) $23.91. In
addition, to the extent that BG Holdings and NOVA would not receive cash
consideration for at least 75% of their Dynegy shares, Chevron has agreed to
purchase up to an additional $40 million worth of Class B common stock at the
same purchase price. For a further description of the Chevron subscription
agreement, see "Other Agreements--Chevron Subscription Agreement."
In connection with the Chevron subscription agreement, Chevron and Energy
Convergence entered into a shareholder agreement by which the relationship
between Chevron and Energy Convergence both before and
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after the merger will be governed. The Chevron shareholder agreement grants
Chevron certain rights in connection with ensuring that Chevron will be exempt
from the requirements of PUHCA and will not be deemed, either as a result of
the merger or afterwards, to be a public utility holding company under PUHCA.
The shareholder agreement also provides that several conditions to the merger,
to the extent that they involve determinations by Dynegy, will not be deemed
satisfied until they have been approved by Chevron. In addition, the
shareholder agreement governs Chevron's rights with respect to the amount of
Energy Convergence stock it can own, the ramifications of it making objections
to certain proposed actions by Energy Convergence under its bylaws, and certain
other transactions. For a further description of the Chevron shareholder
agreement, see "Other Agreements--Shareholder Agreement."
As part of the transactions contemplated by the Chevron subscription
agreement, Dynegy and Chevron agreed that all shares of Energy Convergence
issued to Chevron in the merger would be Class B common stock. The Energy
Convergence Class B common stock to be issued in the merger will have the
following characteristics among others:
. each share of Energy Convergence Class B common stock held by any entity
other than Chevron or an affiliate of Chevron will immediately convert
into one share of Energy Convergence Class A common stock;
. the holders of the Class B common stock have the right to elect three
directors to serve on Energy Convergence's board of directors;
. if the directors elected by the holders of the Class B common stock
present at the meeting vote against the following transactions, then,
subject to the Chevron shareholder agreement, Energy Convergence will not
be able to effect such transactions:
. adoption of amendments to Energy Convergence's articles of
incorporation or bylaws that would substantially and adversely affect
the rights of the holders of the Class B common stock;
. issuance of any new shares of Energy Convergence where the
consideration would exceed the greater of $1.0 billion or one-quarter
of the aggregate market value of Energy Convergence's common stock;
. any disposition (other than to a venture in which Energy Convergence
has a majority interest) of all or substantially all of Energy
Convergence's liquids business or gas marketing business so long as
there are any substantial agreements in effect between Chevron and
Energy Convergence relating to such businesses;
. any merger or consolidation of Energy Convergence or any subsidiary,
any joint venture, liquidation or dissolution or bankruptcy
proceeding, or any purchase of assets or issuance of stock, any of
which would have a fair market value of the greater of $1.0 billion or
one-quarter of the aggregate market value of Energy Convergence's
common stock; or
. any material transaction the subject of which has a fair market value
of the greater of $1.0 billion or one-quarter of the market value of
the Energy Convergence's common stock.
The Class B shares will automatically convert into shares of Class A common
stock on the date Chevron and its affiliates cease to own at least 15% of the
outstanding voting power of Energy Convergence.
Under Energy Convergence's articles of incorporation and the shareholder
agreement with Chevron, Energy Convergence may not sell petroleum products
(other than natural gas) intended for consumption or resale in certain parts of
Africa, most of Asia, Australia and other areas of the Pacific west of the
International Date Line, without the consent of 85% of the outstanding shares
of Class A and Class B common stock of Energy Convergence, voting together as a
single class. However, Energy Convergence will be permitted to conduct such
activities without shareholder approval as permitted by a scope of business
agreement between Dynegy and Chevron. In addition, this restriction on business
activity will terminate when the scope of business agreement terminates.
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In connection with the merger, British Gas Atlantic Holdings BV entered into
a stock purchase agreement by which it would participate in the merger
indirectly by selling 100% of the capital stock of BG Holdings, which holds all
of the Dynegy stock beneficially owned by British Gas Atlantic, to Energy
Convergence immediately prior to the effective time of the merger. The
consideration to be paid to British Gas Atlantic will be a combination of
Energy Convergence Series A preferred stock and cash. The cash to be paid to
British Gas Atlantic will be prorated as if British Gas Atlantic had retained
BG Holdings and BG Holdings had elected to receive 100% cash consideration in
the merger. Pursuant to this agreement, British Gas Atlantic and Energy
Convergence agreed to indemnify each other for certain losses they may incur in
connection with their respective ownership of BG Holdings.
In the merger NOVA will receive a combination of Series A preferred stock
and cash instead of a combination of Class A common stock and cash. The
aggregate liquidation preference of the Series A preferred stock to be issued
to NOVA and British Gas Atlantic will equal the value (based on the market
price of Illinova common stock for the five consecutive trading days prior to
the election date in the merger) of the number of shares of Energy Convergence
Class A common stock which would have been issued to NOVA and BG Holdings under
the merger agreement had they both elected to receive only cash in the merger.
Each share of Series A preferred stock will have the following characteristics
among others:
. It will have a liquidation preference over the Class A and Class B common
stock of $50 per share plus accrued and unpaid dividends.
. It will be entitled to receive a preferential cash dividend of $3.00 per
year.
. It will be convertible into the number of shares of Class A common stock
equal to the quotient of (a) the liquidation preference, plus any accrued
but unpaid dividends, and (b) the product of the value of a share of
Illinova common stock (based on the market price of such common stock for
the 5 trading days prior to the election date in the merger) and a
conversion premium. The conversion premium will be 1.22, but if Energy
Convergence's unsecured senior debt is rated less than investment grade,
then the parties will agree on what the conversion premium will be,
except that it will be no greater than 1.18.
. It will be entitled to the number of votes equal to the number of shares
of Class A common stock into which it is convertible multiplied by the
conversion premium.
In connection with their agreement to enter into the voting agreements and
receive Series A preferred stock or Class B common stock, as applicable,
British Gas Atlantic, NOVA and Chevron entered into registration rights
agreements with Energy Convergence.
In considering the recommendation of the Dynegy board of directors regarding
the merger, Dynegy shareholders should be aware that in addition to those
interests discussed above, certain Dynegy officers and directors have
employment agreements, interests under benefit plans and other arrangements
that provide them with interests in the merger and related transactions that
are different from, and in addition to, the interests of Dynegy's shareholders
generally. Options issued under Dynegy's Employee Equity Option Plan and held
by certain employees who enter into new employment agreements after June 14,
1999, will become immediately exercisable upon the closing of the merger. In
addition, options issued under Dynegy's 1991 Stock Option Plan will become
immediately exercisable upon closing of the merger.
Certain Dynegy directors received special bonuses for their work on the
process committee of the Dynegy board prior to and after the signing of the
merger agreement. J. Otis Winters and Daniel L. Dienstbier were the only
independent members of the process committee. The process committee spearheaded
Dynegy's efforts in the negotiation of the merger agreement as well as Dynegy's
dealings with Lehman Brothers and its other advisors. See "The Merger--
Background of the Merger." To recognize their efforts, in July and August 1999
Dynegy paid Mr. Winters, the chairman of the process committee, a special bonus
of $43,200, and Dynegy paid Mr. Dienstbier a special bonus of $30,000.
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In connection with the merger, Energy Convergence will enter into a three-
year employment agreement with Mr. C.L. Watson to serve as the Chairman and
Chief Executive Officer of Energy Convergence. This agreement will supersede
Mr. Watson's previous employment agreement with Dynegy. The agreement will
provide for an annual base salary of $1,500,000, a target bonus of 100% of base
salary and a maximum cash award of 200% of base salary (with any amount in
excess thereof to be paid in the form of options or other non-cash
compensation). Mr. Watson will be eligible to receive annual grants of options
pursuant to the Dynegy Inc. 2000 Long Term Incentive Plan. In addition, Mr.
Watson will receive an initial grant at closing of the merger of approximately
230,000 options (subject to adjustment depending on the price of Energy
Convergence's stock on the date of closing) with an exercise price equal to the
market price of Energy Convergence's stock on the date of closing of the
merger. Otherwise, the material terms of the agreement are expected to be
generally consistent with the terms of his current employment agreement.
Interests of Illinova Directors and Executive Officers
Illinova Stock Options. Illinova has issued stock options to its officers
pursuant to its 1992 Long-Term Incentive Compensation Plan. The plan provides
the Illinova board of directors with the discretion to accelerate the vesting
of options granted under this plan. In light of the merger and as permitted by
the merger agreement, the Illinova board of directors accelerated the vesting
of non-qualified options issued under this plan so that such unvested options
will vest upon closing of the merger. In addition, the Illinova board extended
the exercise period so that the options remain exercisable for a period of one
year for all employees other than Mr. Bayless. The number of vested Illinova
stock options beneficially owned by the five most highly compensated executive
officers of Illinova for the year ended December 31, 1998 increased as a result
of the accelerated vesting from 97,750 stock options to 327,750 stock options.
Illinova Deferred Compensation Plan. Under the Illinova Executive Deferred
Compensation Plan, immediately upon a change in control of Illinova, each
participant of the plan will receive a lump sum payment equal to 110% of the
officer's account balance as of the date of the change in control. For purposes
of this plan, a change in control of Illinova will occur upon completion of the
merger.
Illinova Non-Employee Director Compensation. Illinova maintains a
Comprehensive Deferred Stock Plan for Outside Directors pursuant to which
eligible non-employee directors are paid retirement income based on the then
market value of the Illinova common stock, plus dividend equivalents, when
their service as an Illinova board member terminates. Each non-employee
director of Illinova who no longer serves as a director following completion of
the merger is eligible to receive these benefits under the plan. Illinova
outside directors also receive an annual award of stock units, the balance of
which is paid to the director in cash, either in a lump sum or in installments
as the director elects, when his or her position as a director terminates. The
amount of this payment is based on the then market value of Illinova common
stock, plus dividend equivalents. Illinova also maintains a Deferred
Compensation Plan for Certain Directors. Under this plan, outside directors may
elect to defer all or any portion of their fees and stock grants until
termination of their services as directors. Following termination, directors
will be paid their deferred fees and stock grants in cash, either in a lump sum
or in installments, in an amount based upon the Illinova common stock share
price on the last business day of the month before termination.
Incentive Compensation. The Illinova board modified Illinova's incentive
compensation plans to provide for (1) the possibility that the merger will
occur prior to the end of 1999 (in which event year-end results will be
projected based upon year-to-date results in order to determine the benefits
that have been earned), and (2) waiver of the obligation that employment
continue subsequent to the measurement period in order for the benefits to be
earned. Previously some plans required that the employees remain employed for a
three year cycle for which the incentive compensation goals were established.
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Change in Control Employee Retention Agreements. Illinova has in place
existing change in control retention agreements with 21 executive officers of
Illinova. If the officer's employment is terminated in a "termination event"
following a change in control of Illinova, the officer will be entitled to the
following payments and benefits:
. three times the officer's base salary;
. three times the officer's annual incentive bonus; and
. continued participation in all benefit plans which provide health, life
or disability insurance or similar coverage, for a period of 36 months
following termination, or, if earlier, until the officer reaches age 65
or becomes employed by another employer; provided that, if the officer
was 50 years of age or older at the time of termination, then coverage
under the benefit plans will continue until the officer becomes 55, at
which time, he or she will be eligible to receive the benefits extended
to Illinova employees who elect early retirement.
In addition, under their respective change in control agreements, Charles E.
Bayless, President and Chief Executive Officer, George W. Miraben, Senior Vice
President and Chief Administrative Officer, and William B. Conway, Jr., Senior
Vice President and Chief Legal Officer, are entitled to the following
additional benefits if their employment is terminated in a "termination event"
following a change in control:
. forgiveness of all principal and interest payments due on promissory
notes with Illinova (these promissory notes have current outstanding
principal balances of $400,000 for Mr. Bayless and $250,000 for each of
Messrs. Conway and Miraben); and
. vesting of all benefits under the Supplemental Pension Plan.
All payments to officers under the employee retention agreements are subject
to reduction in order to avoid triggering any excise tax under Section 4999 of
the Internal Revenue Code, with the exception of any forgiveness of interest
payments in connection with the promissory notes between Illinova and each of
Mr. Bayless, Mr. Miraben and Mr. Conway.
A change in control of Illinova for purposes of Illinova's employee
retention agreements will occur upon completion of the merger. A "termination
event" means:
. termination of the officer by Illinova without good cause, as that term
is used in Illinova's employee retention agreements, within two years
following a change in control;
. termination by the officer with good reason, as that term is used in
Illinova's employee retention agreements, within two years following a
change in control; or
. termination of the officer at the request of a potential acquiror of
Illinova prior to a change in control.
It is presently estimated, based upon certain assumptions and information
available as of a recent date, that if the employment of the five most highly
compensated executive officers of Illinova was terminated immediately following
the merger under circumstances entitling those persons to severance benefits
under their retention agreements, those persons would be entitled to cash
severance benefits of approximately $6.9 million. It is also presently
estimated that the cash severance benefits payable to all other Illinova
officers under Illinova's retention agreements because of termination following
the merger would be approximately $12.1 million.
Indemnification and Insurance
The merger agreement requires Energy Convergence to provide indemnification
and liability insurance arrangements for officers and directors of Dynegy and
Illinova.
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THE MERGER AGREEMENT
The following summarizes the material terms of the merger agreement, a copy
of which we have attached as Appendix I to this document and is incorporated
into this document by reference. We urge you to read the merger agreement in
its entirety for a more complete description of the terms and conditions of the
merger.
The Merger
In the merger, shareholders of Dynegy and Illinova will receive different
consideration for their shares, and in particular, different holders of Dynegy
stock will receive different consideration for their shares. As a result, in
the merger or in related transactions, British Gas Atlantic and NOVA will
receive a combination of cash and Energy Convergence Series A convertible
preferred stock, and Chevron will receive Energy Convergence Class B common
stock. All other Dynegy shareholders will receive cash or Energy Convergence
Class A common stock, or a combination of the two. All Illinova shareholders
will receive Energy Convergence Class A common stock.
Conversion of Shares
The Illinova Shares:
. Each share of Illinova common stock will be converted into one share of
Energy Convergence Class A common stock.
. Under Illinois law, Illinova shareholders are entitled to dissenter's
rights. See "The Merger -- Dissenters' Rights."
The Dynegy Shares:
. Conversion by Shareholders other than BG, Chevron and NOVA. Each share of
Dynegy common stock not held by BG Holdings, NOVA and Chevron will, at
the shareholder's option, be converted into .69 shares of Energy
Convergence Class A common stock or $16.50 in cash. However, Energy
Convergence will pay cash for only approximately 40% of the total number
of Dynegy outstanding shares. This will result in conversion of a maximum
of approximately 67.6 million shares of Dynegy common stock into cash and
will result in some pro ration of the cash. If you are a public
shareholder of Dynegy, for each 100 shares of Dynegy common stock for
which you elect to receive cash, you will receive cash consideration with
respect to no less than 63 shares of Dynegy common stock and no more than
84 shares of Dynegy common stock. All remaining shares of Dynegy common
stock held by shareholders other than the three large shareholders will
be converted into .69 shares of Energy Convergence Class A common stock.
. Fractional Shares. Any fractional shares of Dynegy common stock will be
converted into cash at the rate of $16.50 per share regardless of the
shareholder's election. See "-- Fractional Shares."
. Chevron. Each outstanding share of Dynegy preferred stock, all of which
Chevron owns, and each share of Dynegy common stock that Chevron owns
will be converted into .69 shares of Energy Convergence Class B common
stock.
. NOVA. NOVA will receive a combination of cash and shares of Energy
Convergence Series A convertible preferred stock, instead of Energy
Convergence Class A common stock, in exchange for the shares of Dynegy
common stock that NOVA holds. The proportion of Series A convertible
preferred stock and cash received will be determined through the same
proration process discussed above.
. BG Holdings. Through the BG stock purchase agreement, British Gas
Atlantic will receive a combination of cash and shares of Energy
Convergence Series A convertible preferred stock, instead of Energy
Convergence Class A common stock, in exchange for the sale of all of the
outstanding stock
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of BG Holdings to Energy Convergence. The proportion of Series A
convertible preferred stock and cash received will be determined through
the same proration process discussed above.
Election of Consideration by Dynegy Shareholders
Shortly before the closing of the merger, Dynegy shareholders will be sent
an election form pursuant to which they can elect to receive either stock or,
subject to pro ration, cash in the merger. These election forms will be due
two business days before the closing--Dynegy will publicly announce this date
once it is established--and until that time the elections may be changed. If
the closing is delayed a new due date will be established and announced.
Dynegy shareholders will be required to send completed and signed election
forms to Dynegy's exchange agent, Chase Mellon Shareholder Services LLC. If a
Dynegy shareholder does not submit an election form he will be deemed to have
elected to receive stock.
Exchange of Stock Certificates
Within five business days after the effective date of the merger, an
exchange agent will mail you a letter of transmittal and instructions for
exchanging your Dynegy or Illinova stock certificates for shares of Energy
Convergence Class A common stock. Dynegy shareholders will also receive cash
instead of any fractional shares, in addition to the shareholder's cash
election, if any. The exchange agent for Dynegy shareholders is Chase Mellon
Shareholder Services, LLC and the exchange agent for Illinova shareholders is
Illinova Corporation Shareholder Services.
Chevron will surrender certificates of Dynegy preferred stock and common
stock, and will receive Energy Convergence Class B common stock. NOVA will
surrender certificates of Dynegy common stock and will receive a combination
of cash and Energy Convergence Series A convertible preferred stock. British
Gas Atlantic will transfer all outstanding shares of BG Holdings stock to
Energy Convergence and will receive a combination of cash and Energy
Convergence Series A convertible preferred stock.
No Further Ownership Rights in Dynegy Stock or Illinova Stock. All shares
of Energy Convergence stock and cash paid in exchange for certificates of
Dynegy stock or Illinova stock will be considered to have been exchanged in
full payment for your shares. After the closing of the merger, Dynegy's and
Illinova's transfer agents will not register transfers of shares that were
outstanding before the closing. If shares of Dynegy stock or Illinova stock
are presented to Dynegy, Illinova or Energy Convergence for any reason, the
certificates will be canceled and converted according to the terms of the
merger agreement.
Fractional Shares. Energy Convergence will not issue fractional shares of
common stock to Dynegy shareholders in the merger. Instead of fractional
shares, Energy Convergence will pay cash without interest to holders of Dynegy
common stock at a rate of $16.50 per share of Dynegy common stock who would
otherwise have received a fraction of a share of Energy Convergence Class A
common stock, Class B common stock or Series A convertible preferred stock.
Failure to Exchange. If you have not exchanged your Dynegy or Illinova
stock certificates within one year after the effective date of the merger, you
will have to contact Energy Convergence to exchange your Dynegy or Illinova
stock for Energy Convergence stock and cash and you may only look to Energy
Convergence as a general creditor to exchange such certificates. If you have
not exchanged your Dynegy or Illinova stock certificates within six years
after the effective date of the merger, any consideration to which you are
entitled will become the property of Energy Convergence to the extent
permitted by applicable law.
Dividends and Distributions. Energy Convergence will not pay to a
shareholder any dividends it declared or any cash payable at the election of
the shareholder or in lieu of fractional shares until the shareholder has
exchanged the Dynegy or Illinova share certificates for shares of Energy
Convergence. Following surrender of any Dynegy or Illinova certificates you
may hold, Energy Convergence will pay you, without interest, the amount of any
dividends declared by Energy Convergence to which you are entitled and any
cash payable in lieu of issuing fractional shares of Energy Convergence stock.
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Lost Certificates. If your stock certificates of Dynegy or Illinova are
lost, stolen, or destroyed before the closing of the merger, you must submit an
affidavit of that fact and, if required by Energy Convergence, you must post a
bond in a reasonable amount as determined by Energy Convergence as indemnity
against any potential claim regarding the lost certificates. In exchange for
lost, stolen or destroyed stock certificates, after you have made the affidavit
and posted the bond, the exchange agent will issue to you shares of Energy
Convergence stock and any cash payable for fractional shares. The exchange
agent will also pay any unpaid dividends and distributions on shares of Energy
Convergence stock that are deliverable upon the Energy Convergence stock.
Representations and Warranties
The merger agreement contains customary representations and warranties of
Dynegy and Illinova relating to various aspects of the respective businesses
and financial statements of the parties and other matters, including, among
other things, corporate organization, SEC filings and authorization of the
merger. The representations and warranties expire at the effective time of the
merger.
Material Covenants
Conduct of Business
From the date of the merger agreement until the closing, Illinova and Dynegy
have agreed to continue to operate their respective businesses according to
their customary course of business, subject to exceptions included in the
merger agreement.
Additional Covenants
The merger agreement also provides that, from the date of the merger
agreement until the closing, Illinova and Dynegy and their respective
subsidiaries will not, without the consent of the other:
. amend their charters or bylaws;
. declare, set aside or pay dividends on or make other distributions on any
of its stock, except for dividends consistent with past practice, or
intercompany dividends from subsidiaries;
. repurchase, redeem or otherwise acquire any shares of their stock or
other securities other than intercompany acquisitions of stock;
. merge or consolidate with any other entity or make any new material
acquisitions of assets in excess of $20,000,000 individually or
$75,000,000 in the aggregate, or enter into a new line of business;
. dispose of material assets outside the ordinary course of business with
an aggregate fair market value exceeding $20,000,000 singularly or
$75,000,000 in the aggregate other than sales of petroleum liquids,
electricity, gas and coal in the ordinary course of business;
. settle any material tax audit, make or change any material tax election
or file any material amended tax return;
. issue any stock or securities convertible into shares of stock, with some
exceptions;
. incur indebtedness outside the ordinary course of business or pursuant to
existing credit arrangements;
. fail to make any required contribution to any employee benefit plan,
increase the compensation or other benefits of, or modify employment or
severance agreements with, any officer or former employee, with some
exceptions;
. settle litigation outside the ordinary course of business;
. make any material change in their accounting policies except as required
by GAAP;
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. take any action that would give rise to a claim under the WARN Act;
. change the terms of current agreements with brokerage firms unless more
favorable terms will result;
. engage in certain hedging activities outside the ordinary course of
business;
. materially change employee benefit plans;
. elect cash payments in exchange for terminating awards under employee
stock option plans; or
. engage in activities that would change their status under PUHCA, or
impair the exemption status of Illinova, Energy Convergence or any of
their subsidiaries under PUHCA.
No Solicitation
Pursuant to the merger agreement each of Dynegy and Illinova has agreed that
it will not solicit, initiate or encourage any proposal for a merger or similar
transaction. This includes engaging in negotiations with or giving any
nonpublic information to any person that has made or may be considering making
such a proposal.
However, if required by their fiduciary duties under law, the merger
agreement permits Dynegy and Illinova to furnish information to, and enter into
negotiations with, any party that has indicated its willingness to make an
unsolicited proposal for a merger or similar transaction if the board of either
Dynegy or Illinova has determined that the third party has the good faith
intent to proceed with negotiations and the financial capability to consummate
such a proposal.
Each company has agreed to inform the other of any merger or similar
proposal or any discussions or negotiations regarding such a proposal. Each
company has also agreed to use all reasonable efforts to keep the other party
informed of the status and terms of any developments with respect to such
discussions or negotiations.
Stock Plans
After the closing of the merger, each outstanding option to purchase
Illinova common stock or Dynegy common stock will become an option to acquire
Energy Convergence Class A common stock. The terms and conditions of the
replacement Energy Convergence option will be the same as the pre-existing
Dynegy or Illinova option it replaces. The option will be for the number of
shares of Energy Convergence Class A common stock the option holder would have
been entitled to receive in the merger if the holder had exercised the option
immediately before the merger and had elected to receive all stock.
With respect to Energy Convergence options which replace Dynegy options, the
exercise price per share after the merger will be equal to the exercise price
immediately before the merger divided by 0.69.
The exercise price per share of each Energy Convergence option that replaces
an Illinova option will be equal to the exercise price per share prior to the
merger.
For both Dynegy and Illinova stock options, for any option to which Section
421 of the tax code applies because of the qualifications under Section 422 or
423 of the tax code, the exercise price, the number of shares purchasable
pursuant to the Illinova stock option and the terms and conditions of exercise
of the Dynegy and/or Illinova stock options will comply with Section 424(a) of
the tax code.
As of the record dates for the shareholders' meetings, options to acquire
816,650 shares of Illinova common stock and 15,207,740 shares of Dynegy common
stock were outstanding.
Energy Convergence will reserve for issuance a sufficient number of shares
of Energy Convergence Class A common stock for delivery under the Illinova
stock plans and the Dynegy stock plans. As soon as practicable after the
closing of the merger, Energy Convergence will file or amend one or more
statements on Form S-8 for
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the shares of Energy Convergence Class A common stock subject to the options
and will use reasonable efforts to maintain the effectiveness of that
registration statement for as long as the options remain outstanding.
Director and Officer Indemnification
Energy Convergence will indemnify the present and former directors and
officers of Dynegy, Illinova and their respective subsidiaries and fiduciaries
under their benefit plans against all losses, damages, costs or expenses
(including attorneys' fees), liabilities or amounts paid in settlement arising
out of actual or alleged actions or omissions existing at or before the
effective date of the merger. The indemnification will be to the fullest extent
permitted under Illinois law or Energy Convergence's articles of incorporation
and bylaws in effect on the date of such indemnification and Dynegy's and
Illinova's indemnification obligations in effect as of the date of the merger
agreement. Energy Convergence will also be obligated to advance expenses as
incurred to the fullest extent permitted by law. The determination of
compliance with the indemnification requirements will be made by independent
counsel mutually acceptable to Energy Convergence and the indemnified person.
For six years after the effective date of the merger, Energy Convergence
will maintain Illinova's and Dynegy's existing directors' and officers'
liability insurance policies covering the existing directors and officers to
the extent related to liabilities prior to the merger. The coverage will be at
least as favorable as the existing coverages. However, Energy Convergence will
not be required to spend over 150% of the higher of the annual premium paid by
Dynegy or Illinova for its existing coverage.
Employee Matters; Benefit Plans
Dynegy and Illinova will evaluate their personnel needs and consider
continuing the employment of certain employees (including employees of their
respective subsidiaries) on a case-by-case basis. Dynegy, Illinova, and their
respective subsidiaries will not, with respect to any executive officers who
receive more than $200,000 aggregate salary and bonus, amend any existing
employment contracts, grant any options, restricted stock or similar benefits
or otherwise materially modify the financial aspects of employment
arrangements, except to the extent contractually obligated to.
After the merger, Energy Convergence initially will provide the employees of
Dynegy and Illinova who are retained by Energy Convergence after the merger
with the same base salary as before the merger until Energy Convergence
determines to change such employees' salaries. Energy Convergence will permit
employees to continue to participate in the same employee benefit plans after
the merger, except to the extent those plans are terminated in which event
Energy Convergence will take the actions necessary to enable the employees to
participate in comparable plans.
Conditions to Obligations to Effect the Merger
The obligations of Illinova and Dynegy to effect the merger are subject to
fulfillment or waiver of the following conditions:
. approval of the Illinova merger by the Illinova shareholders and the
Dynegy merger by the Dynegy shareholders;
. the absence of any statute, judgment, injunction, order or other legal
restraint prohibiting, restraining, enjoining or restricting the
consummation of the merger;
. the absence of any statute, judgment, injunction, order or other legal
restraint restricting or awarding any monetary recovery with respect to
Chevron's ownership or voting of its shares of Energy Convergence Class B
common stock;
. receipt of approvals and completion of filings with government entities
or regulatory bodies, including any exemption under PUHCA;
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. approval for listing on the NYSE of the shares of Energy Convergence
Class A common stock to be issued in the merger and upon exercise of
Illinova options;
. the purchase of the stock of BG Holdings by Energy Convergence
contemplated by the stock purchase agreement will have closed; and
. the ancillary agreements, including the voting agreements, registration
rights agreements, BG Holdings stock purchase agreement and the related
guaranty of British Gas Overseas Holdings, Chevron subscription
agreement, and the shareholder agreement, shall have been executed and
delivered by the other parties and shall be in full effect.
In addition to the above, the obligation of Illinova to complete the merger
is subject to the satisfaction or waiver of the following conditions:
. Dynegy has materially performed all obligations required to be performed
by it under the merger agreement;
. the representations and warranties of Dynegy in the merger agreement are
true and correct both as of the date of the merger agreement and the
effective date of the merger, except inaccuracies resulting solely from
conditions generally existing in the natural gas or electricity marketing
industry, the petroleum liquids industry or the electric power generation
industry after the date of the merger agreement;
. all actions to be taken by Dynegy and all documents, instruments and
certificates to be delivered by Dynegy in connection with the merger are
satisfactory to Illinova;
. from the date of the merger agreement through the closing of the merger,
there has not occurred a material adverse effect on the business of
Dynegy; and
. Dynegy has taken appropriate action so that the ownership interest of
Energy Convergence in Dynegy "qualifying cogeneration facilities" or
"qualifying small power production facilities" as those terms are defined
in Public Utility Regulatory Policies Act of 1978, will not result in a
material adverse effect on the business of Dynegy.
Similarly, the obligation of Dynegy to complete the merger is subject to the
satisfaction or waiver of the following conditions:
. Illinova has materially performed all obligations required to be
performed by it under the merger agreement;
. the representations and warranties of Illinova in the merger agreement
are true and correct both as of the date of the merger agreement and the
effective date of the merger, except inaccuracies resulting solely from
conditions generally existing in the electric utility or gas distribution
industries after the date of the merger agreement;
. from the date of the merger agreement through the closing of the merger,
there has not occurred a material adverse effect on the business of
Illinova;
. all actions to be taken by Illinova and all documents, instruments and
certificates to be delivered by Illinova in connection with the merger
are satisfactory to Dynegy;
. Illinova has sold the Clinton nuclear facility on terms contemplated by
the merger agreement or otherwise on terms satisfactory to Dynegy and
Chevron;
. after filing an application for exemption or exclusion from registration
under PUHCA, Chevron shall either have received an exemption or exclusion
order from the SEC or have not received an adverse ruling or objection
from the SEC with respect to Chevron's proposed exemption or exclusion.
If an
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objection is received, Chevron has agreed to file a revised application,
provided that the parties to the shareholder agreement among Energy
Convergence, Dynegy, Illinova and Chevron agree upon any appropriate
modifications to the shareholder agreement, within 90 days after the
receipt of an objection from the SEC; and
. the ICC has issued a certification under Section 33 of PUHCA allowing
Chevron, its parent, or any subsidiary company of such parent to acquire
and maintain an interest in the business of one or more "foreign utility
companies" as defined in PUHCA, or Illinova has provided evidence
reasonably satisfactory to Dynegy and Chevron that such certification is
unnecessary.
Termination
The merger agreement may be terminated at any time before the effective
time of the merger, whether before or after approval by the shareholders of
Dynegy or Illinova:
a) by mutual written consent of Dynegy and Illinova; or
b) by either Dynegy or Illinova if:
. the merger has not occurred by May 31, 2000;
. the other party is in material breach of the merger agreement and this
breach is not cured in all material respects within 20 business days
after notice of the breach;
. any law, rule or regulation makes completion of the merger illegal or
if any final and nonappealable judgment, injunction, order or decree
of a court or other governmental authority of competent jurisdiction
restrains or prohibits the completion of the merger;
. the Dynegy or Illinova shareholders fail to approve the merger at a
duly held meeting of shareholders;
. the board of the other party withdraws, modifies or changes its
recommendation of the merger agreement or the merger in a manner
adverse to the other party or the board recommends any merger or
similar proposal to its shareholders or resolves to do any of the
foregoing;
. a tender offer or exchange offer for 50% or more of the outstanding
shares of capital stock of the other party entitled to vote for
directors is begun, and the board of the other party does not
recommend that its shareholders not tender their shares into the
tender or exchange offer; or
. if the other party accepts a superior proposal and pays the applicable
termination fee to the other party as described below.
The term "superior proposal" means an unsolicited bona fide proposal made
by a third party relating to a merger or similar proposal on terms that the
applicable board determines it cannot reject in favor of the merger, based on
applicable fiduciary duties and the advice of its outside counsel.
Termination Fees and Expenses
The merger agreement provides that, except as provided below, all expenses
incurred by the parties will be borne by the party that has incurred such
expenses. If the merger agreement is terminated for any reason, Illinova and
Dynegy will share equally the expenses relating to this document and all
regulatory filing fees.
If Dynegy or Illinova terminates the merger agreement because the approval
of Dynegy's or Illinova's respective shareholders is not obtained, then the
party whose shareholders have not approved the merger will pay the other
party's reasonably documented expenses up to $7.5 million.
The merger agreement provides for the payment by either party to the other
of a termination fee of $85 million, plus expenses up to $7.5 million, if the
merger agreement is terminated in the following circumstances:
Payment of a Termination Fee by Dynegy. If the merger agreement is
terminated, Illinova will be entitled to a termination fee:
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. immediately upon termination by Illinova if the Dynegy board:
a) withdraws, modifies or changes its recommendation of the merger
agreement or the merger in a manner adverse to Illinova and there is
currently outstanding or there has been outstanding a Dynegy
acquisition proposal that a nationally recognized investment bank
believes is reasonably capable of being consummated,
b) does not recommend that the Dynegy shareholders not tender or
exchange their shares pursuant to a tender offer or exchange offer
for 50% or more of the outstanding Dynegy common stock, and the
merger fails to occur, or
c) accepts a superior proposal;
. upon the occurrence of the events described below, if the Dynegy board:
a) withdraws, modifies or changes its recommendation of the merger
agreement or the merger in a manner adverse to Illinova,
b) recommends any acquisition proposal to the Dynegy shareholders, or
c) does not recommend that the Dynegy shareholders not tender or
exchange their shares pursuant to a tender offer or exchange offer
for 50% or more of the outstanding Dynegy common stock; or
. upon the occurrence of the events described below, in the event of a
material breach of the merger agreement by Dynegy.
If the merger agreement is terminated under any of the circumstances set
forth in the second or third bullet points above Dynegy will only be obligated
to pay Illinova the termination fee if within 18 months after such termination:
. Dynegy consummates a transaction that would constitute an acquisition
proposal,
. Dynegy enters into a definitive agreement providing for an acquisition
proposal that has been approved by the Dynegy board, or
. any person or "group" acquires beneficial ownership or the right to
acquire beneficial ownership of 50% or more of the Dynegy voting stock
and Dynegy has taken any action for the benefit of such person
facilitating the acquisition by such person or group of such beneficial
ownership.
Dynegy will not be obligated to pay Illinova a termination fee under any
circumstance if the Illinova board withdraws, modifies or changes its
recommendation of the merger agreement or the merger or if the Illinova
shareholders fail to approve the merger agreement and the merger.
Payment of a Termination Fee by Illinova. If the merger agreement is
terminated, Dynegy will be entitled to a termination fee:
. immediately upon termination by Dynegy if the Illinova board:
a) withdraws, modifies or changes its recommendation of the merger
agreement or the merger in a manner adverse to Illinova and there is
currently outstanding or there has been outstanding an Illinova
acquisition proposal that a nationally recognized investment bank
believes is reasonably capable of being consummated,
b) does not recommend that the Illinova shareholders not tender or
exchange their shares pursuant to a tender offer or exchange offer
for 50% or more of the outstanding Illinova common stock, and the
merger fails to occur, or
c) accepts a superior proposal;
. upon the occurrence of the events described below, if the Illinova board:
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a) withdraws, modifies or changes its recommendation of the merger
agreement or the merger in a manner adverse to Dynegy,
b) recommends any other acquisition proposal to the Illinova
shareholders, or
c) does not recommend that the Illinova shareholders not tender or
exchange their shares pursuant to a tender offer or exchange offer
for 50% or more of the outstanding Illinova common stock; or
. upon the occurrence of the events described below, in the event of a
material breach of the merger agreement by Illinova.
If the merger agreement is terminated under any of the circumstances set
forth in the second and third bullet points above Illinova will only be
obligated to pay Dynegy the termination fee if within 18 months after such
termination:
. Illinova consummates a transaction that would constitute an acquisition
proposal,
. Illinova enters into a definitive agreement providing for an acquisition
proposal that has been approved by the Illinova board, or
. any person or "group" acquires beneficial ownership or the right to
acquire beneficial ownership of 50% or more of the Illinova voting stock
and Illinova has taken any action for the benefit of such person
facilitating the acquisition by such person or group of such beneficial
ownership.
Illinova will not be obligated to pay Dynegy a termination fee under any
circumstance if the Dynegy board withdraws, modifies or changes its
recommendation of the merger agreement or the merger or if the Dynegy
shareholders fail to approve the merger agreement and the merger.
The term "acquisition proposal" means any offer or proposal for, or any
indication of interest in, (1) a merger or business combination involving
Dynegy or Illinova or (2) any of their subsidiaries, or the acquisition of a
substantial equity interest in, or a substantial portion of the assets of,
either Dynegy or Illinova (other than the merger). With respect to Dynegy, any
offer, proposal or indication of interest with respect to Dynegy's business
related to the fractionation and processing of natural gas to produce natural
gas liquids, and the transporting and marketing of natural gas liquids is not
an "acquisition proposal."
Amendment and Waiver
The merger agreement may be amended or supplemented in writing before the
effective date of the merger by Dynegy and Illinova except as otherwise
provided by law.
However, after the Illinova shareholders approve the merger agreement, there
may not be any change to the conversion ratio of Energy Convergence stock to
either Dynegy stock or Illinova stock or the termination date of the merger
agreement, or any other change that is materially adverse to the Illinova
shareholders, without further approval of the Illinova shareholders. Likewise,
after the Dynegy shareholders approve the merger agreement, there may not be
any change to the conversion ratio, the amount or nature of consideration
payable in the merger per share of Dynegy stock or the termination date of the
merger agreement, or any other change that is materially adverse to the Dynegy
shareholders, without further approval of the Dynegy shareholders.
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OTHER AGREEMENTS
The following summarizes the material terms of the voting agreements between
Illinova and each of Chevron, BG Holdings and NOVA, the BG Holdings stock
purchase agreement, the British Gas Atlantic/NOVA registration rights
agreement, the Chevron subscription agreement, the Chevron shareholder
agreement and the Chevron registration rights agreement.
Voting Agreements
Each of Chevron, BG Holdings and NOVA entered into voting agreements with
Illinova relating to voting of its Dynegy stock. Chevron, BG Holdings and NOVA
hold collectively approximately 76% of the voting power of the outstanding
capital stock of Dynegy. Therefore, acting together they are able to control
the vote of the Dynegy shareholders on the merger proposal.
The voting agreements provide that, unless the board of directors of Dynegy
withdraws its recommendation for the merger, each of Chevron, BG Holdings and
NOVA:
. will attend in person or by proxy the Dynegy special meeting or any other
Dynegy shareholders' meeting held for the purpose of acting on the merger
agreement and vote all shares of Dynegy common stock for approval and
adoption of the merger agreement, the merger, and any related actions;
. will timely execute and deliver any written consent in favor of the
approval and adoption of the merger agreement, the merger, and any
related actions; and
. will vote against any offer or proposal for a merger or other business
combination involving Dynegy or its subsidiaries other than the merger
and any offer or proposal relating to the acquisition of Dynegy's
fractionation and processing of natural gas and the transporting and
marketing of such natural gas liquids.
Additionally, under their respective voting agreements each of BG Holdings
and NOVA granted Illinova an irrevocable proxy to vote shares of Dynegy common
stock at any meeting of Dynegy shareholders relating to the merger.
Chevron, BG Holdings and NOVA also agreed not to sell, pledge, encumber,
grant any proxy or enter into any voting or similar agreement with respect to,
transfer or otherwise dispose of, any Dynegy shares.
The voting agreements will terminate upon
. the termination of the merger agreement, or
. any amendment or change to the merger agreement that
. changes the exchange ratio in the merger,
. changes the amount and nature of the merger consideration payable per
share of Dynegy stock,
. changes the termination date of the merger agreement, or
. materially adversely affects a party to the voting agreement.
BG Holdings Stock Purchase Agreement
Energy Convergence and British Gas Atlantic Holdings BV entered into a stock
purchase agreement under which Energy Convergence will acquire all of the
outstanding stock of BG Holdings immediately before the closing of the merger.
BG Holdings will become a subsidiary of Energy Convergence and will continue to
hold shares of Dynegy common stock after the merger. In exchange for the stock
of BG Holdings, Energy Convergence will pay to British Gas Atlantic the amount
of cash and stock that BG Holdings would have
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received in the merger if BG Holdings had elected to receive cash in the
merger, except that Energy Convergence will issue shares of Series A preferred
stock to British Gas Atlantic instead of the shares of Class A common stock
that would be otherwise issued in the merger.
To insulate Energy Convergence from any potential liabilities arising from
the operations of BG Holdings prior to the merger, the stock purchase agreement
provides for British Gas Atlantic to indemnify Energy Convergence with respect
to certain unreserved liabilities of BG Holdings immediately prior to the
closing of the merger, including tax liabilities. Similarly, the stock purchase
agreement provides that Energy Convergence will indemnify British Gas Atlantic
with respect to certain liabilities of BG Holdings arising as a result of the
merger and after the merger, including tax liabilities.
British Gas Atlantic/NOVA Registration Rights Agreement
Energy Convergence has granted British Gas Atlantic and NOVA registration
rights for shares of Series A preferred stock and shares of Class A common
stock issued or issuable upon conversion of the Series A preferred stock held
by each of them following the merger. Starting nine months after the merger,
British Gas Atlantic and NOVA have the right on four occasions to require
Energy Convergence to initiate a registered public offering for all the shares
requested to be sold by each of British Gas Atlantic or NOVA. British Gas
Atlantic and NOVA may collectively exercise their rights to request a
registration once during each 180 day period. Additionally, British Gas
Atlantic and NOVA have the right, collectively, to participate in and sell
shares of stock held by them during any public offering of Energy Convergence
stock whether offered by Energy Convergence or any other shareholder. For a
period of three years after the merger, Energy Convergence is prohibited from
granting to other shareholders registration rights superior to those granted to
British Gas Atlantic and NOVA without also offering such superior registration
rights to British Gas Atlantic and NOVA. Additionally, British Gas Atlantic and
NOVA are entitled to priority over Chevron with respect to certain of their
registration rights.
Chevron Subscription Agreement
Chevron entered into a subscription agreement with Energy Convergence in
which Chevron agreed to purchase additional shares of Class B common stock for
an aggregate purchase price of between $200 million to $240 million. The
aggregate amount of Chevron's purchase will depend on the amount of cash
available in the merger to pay to British Gas Atlantic under the BG Holdings
stock purchase agreement and to NOVA under the merger agreement. To the extent
British Gas Atlantic and NOVA would receive less than 75 percent cash in
exchange for shares of BG Holdings and Dynegy common stock in the merger,
Chevron will increase its investment from $200 million up to a maximum of $240
million. Chevron will purchase the additional shares of Class B common stock
for a per share purchase price equal to the lesser of (a) $23.91 or (b) the 20-
day average closing price of the Dynegy common stock for the period ending two
business days prior to the closing of the merger divided by 0.69.
Shareholder Agreement
Chevron has entered into a shareholder agreement with Energy Convergence,
Illinova and Dynegy governing certain aspects of the relationship of Chevron
and Energy Convergence both before and after the merger.
The shareholder agreement requires Chevron to file with the SEC an
application seeking an exemption or exclusion from the registration
requirements under PUHCA that would otherwise apply to Chevron by virtue of its
ownership interest in Energy Convergence. The shareholder agreement addresses
what happens if the SEC staff denies or objects to the application or supports
the application subject to certain modifications. If, prior to the closing of
the merger, the SEC denies or objects to the application, the parties will
explore modifications to their agreements to address the bases for the SEC
objections. If the parties cannot agree on a modification of their agreements,
any party may terminate the shareholder agreement, which will automatically
terminate the
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merger agreement. Additionally, if the PUHCA exemption application is denied or
conditionally granted after the closing of the merger, Energy Convergence is
obligated to take all necessary actions to ensure that Chevron will qualify for
an exemption under PUHCA. These actions may include a divestiture of Energy
Convergence's public utility assets.
The shareholder agreement also provides that the merger will not occur
unless the Clinton nuclear facility has been sold upon the terms set forth in
the merger agreement or otherwise on terms acceptable by Chevron. Additionally,
under the shareholder agreement the merger will not occur unless the ICC has
issued a certification allowing Chevron and its affiliates to own or acquire
interests in one or more "foreign utility companies" as defined in PUHCA or
Illinova has provided evidence reasonably satisfactory to Chevron that such
certification is unnecessary.
The shareholder agreement contains rights relating to and limitations on
acquisitions of common stock by Chevron. Chevron is entitled to preemptive
rights to acquire shares of common stock in proportion to its existing
ownership of Energy Convergence stock, whenever Energy Convergence issues
shares of stock or securities convertible into stock. In addition, Chevron may
freely acquire up to 40% of the outstanding voting securities of Energy
Convergence. However, should any acquisition by Chevron require Chevron to
register under PUHCA, Energy Convergence has no obligation to take any action
to avoid that registration. If Energy Convergence subsequently redeems or
repurchases any shares, Chevron is not required to reduce its ownership
interest, even if Chevron's resulting ownership interest is in excess of 40%.
Any shares of Class A common stock acquired by Chevron will automatically
convert into Class B common stock.
If Chevron acquires more than 40% of the voting securities, it must make an
offer to acquire all of the outstanding stock of Energy Convergence. For the
first year after the merger closes, Chevron may not make any such offer (or a
related acquisition) unless a third person seeks to acquire a 15% voting
interest in Energy Convergence. Thereafter, Chevron may make such an offer at
any time. Any offer by Chevron for all of the outstanding stock is subject to
an auction process. The shareholder agreement contains detailed provisions
governing the auction but, in general, Chevron at its election may either (1)
participate in the auction without any special priority or other rights vis-a-
vis other bidders, or (2) not participate in the auction and instead have the
right to purchase all of the outstanding stock of Energy Convergence at 105% of
the bid selected by Energy Convergence's board of directors. If Chevron agrees
to purchase Energy Convergence at 105% of the selected bid, the purchase
agreement will contain customary termination provisions including a 5%
termination fee. If Chevron is not the successful bidder under either process,
it is obligated to vote in favor of the bid or tender its Energy Convergence
shares, as the case may be. However, if Chevron is the successful bidder, but
Energy Convergence subsequently terminates the agreement (and pays Chevron the
5% termination fee), Chevron is free to tender for any and all stock of Energy
Convergence and to pursue any rights and remedies available to it, and Chevron
would not be required to support any alternative transaction which Energy
convergence might then wish to pursue. Except in conjunction with a permitted
offer, Chevron may not become a participant in the solicitation of proxies
concerning any acquisition of voting securities of Energy Convergence.
The shareholder agreement generally prohibits Chevron from selling or
transferring any shares of Class B common stock for a period of one year
following the closing of the merger, except a transfer to an affiliate of
Chevron or if Chevron is required to sell or transfer any shares by any
governmental regulatory authority. After the one year restriction, Chevron may
sell or transfer shares of Class B common stock in the following transactions:
. in a widely-dispersed public offering, or
. a sale to an unaffiliated third party, provided that Energy Convergence
is given the opportunity to purchase, or to find a different buyer to
purchase, the shares proposed to be sold by Chevron.
Upon the sale or transfer to any person other than an affiliate of Chevron,
the shares of Class B common stock are automatically converted into shares of
Class A common stock.
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The shareholder agreement provides that Energy Convergence may require
Chevron and its affiliates to sell all of the shares of Class B common stock
under certain circumstances. These rights are triggered if Chevron or its board
designees block--which they are entitled to do under Energy Convergence's
bylaws--any of the following transactions two times in any 24 month period or
three times over any period of time:
. the issuance of new shares of stock where the aggregate consideration to
be received exceeds the greater of $1 billion or one-quarter of Energy
Convergence's total market capitalization,
. any disposition of substantially all of the gas marketing or liquids
lines of business as conducted by Dynegy prior to the closing of the
merger,
. any merger, consolidation, joint venture, liquidation, dissolution,
bankruptcy, acquisition of stock or assets, or issuance of common or
preferred stock, any of which would result in payment or receipt of
consideration having a fair market value exceeding the greater of $1
billion or one-quarter of Energy Convergence's total market
capitalization, or
. any other transaction or series of related transactions having a fair
market value exceeding the greater of $1 billion or one-quarter of Energy
Convergence's total market capitalization.
However, upon the occurrence of one of these triggering events and in lieu
of selling the Class B common stock, Chevron may elect to retain the shares of
Class B common stock but forfeit its right and the right of its board designees
to block the transactions listed above.
A block consists of a vote against a proposed transaction by either (a) all
of Chevron's representatives on the board of directors present at the meeting
where the vote is taken (if the transaction would otherwise be approved by the
board of directors) or (b) any of the Class B common stock held by Chevron and
its affiliates if the transaction otherwise would be approved by at least two-
thirds of all other shares entitled to vote on the transaction, excluding
shares held by management, directors or subsidiaries of Energy Convergence.
In general, if Energy Convergence exercises its rights to cause Chevron to
sell its shares, the process Chevron must follow to sell the shares--and
Illinova's rights to purchase the shares--are similar to those applicable to
other sales by Chevron.
The shareholder agreement also prohibits Energy Convergence from taking the
following actions:
. issuing any shares of Class B common stock to any person other than
Chevron and its affiliates,
. amending any provisions in the articles of incorporation or bylaws which,
in each case, contain or implement the special rights of holders of Class
B common stock, without the consent of the holders of the shares to Class
B common stock or the three directors elected by such holders,
. adopting a shareholder rights plan, "poison pill" or similar device that
prevents Chevron from exercising its rights to acquire shares of common
stock or from disposing of its shares when required by Energy
Convergence, and
. acquiring, owning or operating a nuclear power facility, other than being
a passive investor in a publicly-traded company that owns a nuclear
facility.
The provisions of the shareholder agreement terminate as follows:
. The limitations on acquisitions and transfers by Chevron, the buyout
rights, the restrictions on certain actions of Energy Convergence and
Chevron's preemptive rights all terminate on the date Chevron and its
affiliates cease to own shares representing at least 15% of the
outstanding voting power of Energy Convergence. At such time all of the
shares of Class B common stock held by Chevron would convert to shares of
Class A common stock, and
. The remaining provisions (primarily relating to PUHCA) terminate on the
date Chevron and its affiliates cease to own shares representing at least
10% of the outstanding voting power of Energy Convergence.
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Chevron Registration Rights Agreement
Energy Convergence has granted Chevron registration rights for the Class A
common stock underlying the Class B common stock to be held by Chevron
following the merger. Starting one year after the merger, Chevron has the right
on eight occasions to require Energy Convergence to initiate a public offering
for all the shares requested to be sold by Chevron. Chevron may exercise its
rights to request a registration once during any 180 day period. Additionally,
Chevron has the right to participate in and sell shares of stock held by it
during any public offering of Energy Convergence stock whether offered by
Energy Convergence or any other shareholder. In the Chevron registration rights
agreement, Chevron has made certain agreements with British Gas Atlantic and
NOVA by which British Gas Atlantic and NOVA will have preferential rights with
respect to registrations in which Chevron may participate for two years after
the effective time of the merger. For a period of three years after the merger,
Energy Convergence may not grant registration rights to other shareholders
superior to those granted to Chevron without also offering such superior
registration rights to Chevron.
Affiliate Agreements
Mr. C.L. Watson and Mr. Stephen Bergstrom executed affiliate agreements in
connection with the merger in which they each agreed to elect to receive stock
consideration in the merger in exchange for their shares of Dynegy common
stock.
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OWNERSHIP OF DYNEGY, ILLINOVA AND ENERGY CONVERGENCE
The following tables contain information about the beneficial ownership of
Energy Convergence capital stock, on a pro forma basis as if the merger has
been completed, by the persons listed based on their ownership of Dynegy
capital stock or Illinova common stock as of July 30, 1999. With respect to the
persons listed in the Dynegy table, the pro forma beneficial ownership of
Energy Convergence capital stock listed for each person includes only shares of
capital stock of Energy Convergence issued in exchange for the shares of Dynegy
capital stock held by that person. With respect to the persons listed in the
Illinova table, the pro forma beneficial ownership of Energy Convergence
capital stock listed for each person includes only shares of Class A common
stock of Energy Convergence issued in exchange for the shares of Illinova
common stock held by such person. Unless otherwise indicated, to our knowledge,
each person listed below has sole voting and investment power over their shares
of capital stock, unless each person shares ownership with his spouse.
The following tables assume that 5% of the public shareholders of Dynegy
elect to receive cash consideration in the merger in exchange for their shares
of Dynegy common stock, resulting in approximately 144.0 million shares of
capital stock being outstanding. The tables also assume that Chevron and the
officers and directors of Dynegy will elect to receive stock in the merger and
that BG Holdings and NOVA will, in effect, elect to receive cash. The following
tables also assume a conversion premium of 1.22 for the shares of Series A
preferred stock. The actual number of shares of Energy Convergence Class A
common stock that will be outstanding after the merger, calculated on a fully-
diluted basis, will range from approximately 142.2 million to approximately
144.2 million, depending on the number of shares of Dynegy common stock
electing to receive cash in the merger. Throughout this document various
percentages and outstanding share numbers assume these factors.
The following tables contain information about the beneficial ownership of
Dynegy common stock and Illinova common stock of:
. Each person known to us to own beneficially more than 5% of the
outstanding shares of Dynegy or Illinova common stock;
. The chief executive officer and four other most highly compensated
executive officers of Dynegy and Illinova;
. Each director of Dynegy and Illinova; and
. All directors and executive officers of Dynegy and Illinova as groups.
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DYNEGY
<TABLE>
<CAPTION>
Dynegy Beneficial Pro forma Beneficial Ownership
Ownership of Energy Convergence
--------------------- -----------------------------------------
Common and Class A Class B Series A
Preferred common common preferred
Name of Beneficial Owner Stock Percent stock stock stock Percent
- ------------------------ ---------- ------- --------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
BG plc (1) (2).......... 38,789,876 25.0 -- -- 4,694,508 3.9
British Gas Atlantic
Holdings BV
BG Holdings, Inc.
100 Thames Valley Park
Drive
Reading, Berkshire RG6
1PT
Chevron Corporation
(1).................... 46,605,239(3) 28.6 -- 40,521,250(4) -- 27.8
Chevron U.S.A. Inc.
575 Market Street
San Francisco, CA 94105
NOVA Chemicals
Corporation (1) (5).... 38,789,876 25.0 -- -- 4,694,508 3.9
NOVA Gas Services (U.S.)
Inc.
645 Seventh Avenue, SW,
23rd Floor
Calgary, Alberta T2P
5C6
C. L. Watson (6)........ 9,099,700 5.8 6,278,793 -- -- 4.3
Stephen W. Bergstrom
(7).................... 2,236,330 1.4 1,543,067 -- -- *
John U. Clarke (8)...... 22,546 * 15,556 -- -- *
Kenneth E. Randolph
(9).................... 1,211,316 * 838,808 -- -- *
Dan W. Ryser (10)....... 25,625 * 17,681 -- -- *
Stephen J. Brandon...... -- -- -- -- -- --
Stanley I. Rubenfeld.... -- -- -- -- -- --
Paul Nicholas
Wollacott.............. -- -- -- -- -- --
Jeffrey M. Lipton (11).. 10,760 * 7,424 -- -- *
Jack S. Mustoe (12)..... 3,272 * 2,257 -- -- *
A. Terence Poole (12)... 6,642 * 4,582 -- -- *
Darald W. Callahan...... -- -- -- -- -- --
Peter J. Robertson...... -- -- -- -- -- --
Patricia A. Woertz...... -- -- -- -- -- --
Daniel L. Dienstbier.... 12,487 * 8,616 -- -- *
J. Otis Winters (13).... 16,814 * 11,601 -- -- *
Executive officers and
directors of Dynegy as
a group (17 persons)... 12,679,071 8.1 8,748,558 -- -- 6.0
</TABLE>
- --------
* Less than 1%.
(1) BG Holdings, NOVA Gas and Chevron U.S.A. are parties to a stockholders
agreement, which provides that, among other things, the parties thereto
will vote their Dynegy common stock, subject to certain conditions, to
elect certain designees as directors of Dynegy and against certain
corporate transactions--such as the merger--unless all three shareholders
approve it. Approximately 75% or 116,369,628 shares of Dynegy common stock
are subject to the stockholders agreement. This agreement will terminate
upon the merger.
(2) These shares are owned of record by BG Holdings, Inc. BG plc, through
subsidiaries, indirectly owns 100% of the capital stock of British Gas
Atlantic Holdings BV, which, in turn, directly owns 100% of the capital
stock of BG Holdings. Consequently, each of these parties may be deemed to
beneficially own all of the shares of Dynegy common stock owned of record
by BG Holdings.
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<PAGE>
(3) These shares are owned of record by Chevron U.S.A. Inc. Chevron
Corporation beneficially owns 100% of the capital stock of Chevron U.S.A.
Consequently, both of these parties may be deemed to beneficially own all
of the shares of Dynegy common stock and preferred stock owned of record
by Chevron U.S.A. Includes 7,815,363 shares of Dynegy Series A
participating preferred stock held of record by Chevron U.S.A. Each share
of preferred stock may be converted into one share of Dynegy common stock
at the option of Chevron U.S.A. upon the occurrence of certain events or
automatically upon the sale by Chevron U.S.A. to a non-affiliate.
(4) Assumes the purchase by Chevron under the subscription agreement with
Energy Convergence of $200 million of Class B common shares at $23.91 per
share.
(5) These shares are owned of record by NOVA Gas Services (U.S.) Inc. NOVA
Chemicals Corporation, through subsidiaries, indirectly owns 100% of the
capital stock of NOVA Gas. Consequently, both of these parties may be
deemed to beneficially own all of the shares of Dynegy common stock owned
of record by NOVA Gas.
(6) Includes 7,163,531 shares of Dynegy Common Stock held of record by
Wincrest Ventures L.P., a limited partnership, of which Mr. Watson and his
wife are the sole shareholders of the corporate general partner and of
which his wife and certain trusts established by Mr. Watson for the
benefit of his three children, of which Mr. Watson or his wife are the
sole trustees, and a corporation, of which Mr. Watson and the trusts are
the sole shareholders, are the sole limited partners. Mr. Watson may be
deemed to beneficially own all of the shares of Dynegy common stock held
by Wincrest. Includes 85,326 shares of Dynegy common stock owned by
certain trusts established by Mr. Watson for the benefit of his wife, his
three children and himself. Includes 1,850,843 shares of Dynegy common
stock issuable upon the exercise of employee stock options held by Mr.
Watson that are exercisable within 60 days of July 30, 1999. Excludes
approximately 3,729 shares of Dynegy common stock held by the Trustee of
the Dynegy Inc. Profit Sharing/401(k) Savings Plan (the "401(k) Plan") as
of July 30, 1999, for the account of Mr. Watson. In September 1999, Mr.
Watson transferred 220,000 shares of Dynegy common stock to a limited
partnership of which he is a limited and not a general partner. Mr. Watson
disclaims beneficial ownership of these shares.
(7) Includes 580,563 shares of Dynegy common stock that are owned by trusts
established by Mr. Bergstrom for the benefit of his two minor children.
Mr. Bergstrom's father is the sole trustee of such trusts. Mr. Bergstrom
disclaims beneficial ownership of all of the shares of Dynegy common stock
held by such trusts. Includes 56,099 shares of Dynegy common stock
issuable upon the exercise of employee stock options held by Mr. Bergstrom
that are exercisable within 60 days of July 30, 1999. Excludes
approximately 3,918 shares of Dynegy common stock held by the Trustee of
Dynegy's 401(k) Plan as of July 30, 1999 for the account of Mr. Bergstrom.
In September 1999, Mr. Bergstrom transferred 220,000 shares of Dynegy
common stock to a limited partnership of which he is a limited and not a
general partner. Mr. Bergstrom disclaims beneficial ownership of these
shares.
(8) Includes 19,456 shares of Dynegy common stock issuable upon the exercise
of employee stock options that are exercisable within 60 days of July 30,
1999. Excludes approximately 1,841 shares of Dynegy common stock held by
the Trustee of Dynegy's 401(k) Plan as of July 30, 1999, for the account
of Mr. Clarke.
(9) Includes 54,089 shares of Dynegy common stock issuable upon the exercise
of employee stock options held by Mr. Randolph that are exercisable within
60 days of July 30, 1999. Excludes approximately 3,647 shares of Dynegy
common stock held by the Trustee of Dynegy's 401(k) Plan as of July 30,
1999 for the account of Mr. Randolph.
(10) Includes 15,625 shares of Dynegy common stock issuable upon the exercise
of employee stock options held by Mr. Ryser that are exercisable within 60
days of March 25, 1999. Excludes approximately 3,253 shares of Dynegy
common stock held by the Trustee of Dynegy's 401(k) Plan as of July 30,
1999 for the account of Mr. Ryser.
(11) Includes 800 shares of Dynegy common stock owned by Mr. Lipton's wife. In
August 1999, Mr. Lipton disposed of all of the shares they beneficially
owned.
(12) In August 1999, Messrs. Mustoe and Poole disposed of all of the shares
they beneficially owned.
(13) Includes 10,586 shares of Dynegy common stock held by Mr. Winters and
6,228 shares issuable to Mr. Winters upon the exercise of an immediately
exercisable warrant.
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Illinova
<TABLE>
<CAPTION>
Illinova
Beneficial Pro forma Beneficial Ownership
Ownership(1) of Energy Convergence(1)
----------------- ----------------------------------
Class
Class A B Series A
Common common common preferred
Name of Beneficial Owner Stock Percent stock stock stock Percent
------------------------ --------- ------- --------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Management and
Research Corporation
(1)...................... 6,662,300 9.5 6,662,300 -- -- 4.6
82 Devonshire Street
Boston, MA 02109
Hotchkis & Wiley, a
division of Merrill Lynch
Asset Management, L.P.
(2)...................... 5,234,758 7.5 5,234,758 -- -- 3.6
725 South Figueroa
Street, Ste. 400
Los Angeles, CA 90017
Franklin Resources, Inc.
(3)...................... 4,829,400 6.9 4,829,400 -- -- 3.3
777 Mariners Island Blvd.
San Maleo, CA 94403
The Prudential Insurance
Company of America (4)... 3,486,400 5.0 3,486,400 -- -- 2.4
75 Broad Street
Newark, NJ 07102
Charles E. Bayless (5).... 19,320 * 22,770 -- -- *
Larry F. Altenbaumer (6).. 38,009 * 38,009 -- -- *
David W. Butts (7)........ 20,614 * 20,614 -- -- *
Alec G. Dreyer (8)........ 18,757 * 18,757 -- -- *
Paul L. Lang (9).......... 34,701 * 34,701 -- -- *
J. Joe Adorjan............ 2,300 * 2,300 -- -- *
C. Steven McMillan........ 2,600 * 2,600 -- -- *
Robert M. Powers.......... 9,850 * 9,850 -- -- *
Sheli Z. Rosenberg........ 1,674 * 1,674 -- -- *
Walter D. Scott........... 6,775 * 6,775 -- -- *
Joe J. Stewart............ 1,500 * 1,500 -- -- *
Ronald L. Thompson........ 3,878 * 3,878 -- -- *
Marilou von Ferstel....... 4,667 * 4,667 -- -- *
John D. Zeglis............ 2,770 * 2,770 -- -- *
Executive officers and
directors of Illinova as
a group (14 persons)..... 167,415 * 170,865 -- -- *
</TABLE>
- --------
* Less than 1%.
(1) Per its Form 13F for the quarter ended June 30, 1999. Adviser subsidiaries
of Fidelity Management and Research Corporation have sole voting power for
1,675,300 shares and no voting power for 4,987,000 shares and shared
dispositive power for 6,662,300 shares.
(2) With sole voting and dispositive power, per its Form 13F for the quarter
ended June 30, 1999.
(3) Per its Form 13F for the quarter ended June 30, 1999. Adviser subsidiaries
of Franklin Resources, Inc. have sole voting and shared dispositive power.
(4) With shared voting and dispositive power, per its Form 13F for the quarter
ended June 30, 1999.
(5) Includes 16,667 shares of Illinova common stock issuable upon exercise of
stock options. Pro forma beneficial ownership of Energy Convergence Class
A common stock includes the conversion in the merger of 5,000 shares of
Dynegy common stock beneficially owned by Mr. Bayless.
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<PAGE>
(6) Includes 31,800 shares of Illinova common stock issuable upon exercise of
other stock options.
(7) Includes 19,400 shares of Illinova common stock issuable upon exercise of
stock options. Also includes 139 shares of Illinova common stock owned by
family members.
(8) Includes 15,750 shares of Illinova common stock issuable upon exercise of
stock options.
(9) Includes 30,800 shares of Illinova common stock issuable upon exercise of
stock options and 933 shares of Illinova common stock owned by Mr. Lang's
wife.
DESCRIPTION OF ENERGY CONVERGENCE CAPITAL STOCK FOLLOWING THE MERGER
The following summarizes the terms of the capital stock of Energy
Convergence immediately following the merger.
Authorized Capital Stock
The authorized capital stock of Energy Convergence consists of
. 300,000,000 shares of Class A common stock, no par value,
. 120,000,000 shares of Class B common stock, no par value, and
. 70,000,000 shares of preferred stock, no par value.
Common Stock
Following the merger, approximately 96 million shares of Class A common
stock will be outstanding and approximately 41 million shares of Class B common
stock will be outstanding. Issuances of shares of Class B common stock are
limited to issuances to Chevron and its affiliates. Prior to the merger, Energy
Convergence will apply to the New York Stock Exchange to have the Class A
common stock listed on the NYSE when issued in and after the merger.
Voting
Generally, holders of Class B common stock vote together with holders of
Class A common stock as a single class on every matter acted upon by the
shareholders except the following matters:
. the holders of Class B common stock vote as a separate class for the
election of three directors of Energy Convergence, while the holders of
Class A common stock vote as a separate class for the remaining directors
of Energy Convergence;
. any amendment to the special corporate governance rights of Class B
common stock, must be approved by a majority of the directors elected by
holders of Class B common stock attending a meeting where such amendment
is considered and a majority of all of the directors of Energy
Convergence or by 66 2/3 percent of the outstanding shares of Class B
common stock voting as a separate class, and the affirmative vote of a
majority of the shares of Class A and Class B common stock, voting
together as a single class; and
. any amendment to the provision of the articles of incorporation
addressing the voting rights of holders of Class A and Class B common
stock requires the approval of 66 2/3 percent of the outstanding
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shares of Class B common stock voting as a separate class, and the
affirmative vote of a majority of the shares of Class A and Class B
common stock, voting together as a single class.
Holders of Class A and Class B common stock are entitled to one vote per
share on all matters to be voted upon by the shareholders generally. Holders
of Class A common stock may cumulate votes in connection with the election of
directors. The election of directors and all other matters will be by a
majority of votes represented and entitled to vote, except as otherwise
provided by law.
Dividends; Liquidation
Subject to the preferences of the preferred stock, holders of Class A and
Class B common stock have equal ratable rights to dividends out of funds
legally available for that purpose, when and if dividends are declared by the
board of directors. Holders of Class A common stock and Class B common stock
are entitled to share ratably, as a single class, in all of the assets of
Energy Convergence available for distribution to holders of shares of common
stock upon the liquidation, dissolution or winding up of the affairs of Energy
Convergence, after payment of Energy Convergence's liabilities and any amounts
to holders of preferred stock.
Conversion
A share of Class B common stock automatically converts into a share of
Class A common stock upon the transfer to any person other than Chevron or an
affiliate of Chevron. Additionally, any shares of Class A common stock
acquired by Chevron or one of its affiliates automatically convert into Class
B common stock. However, each share of Class B common stock will automatically
convert into a share of Class A common stock if the holders of all Class B
common stock cease to own collectively 15 percent of the outstanding common
stock of Energy Convergence.
Additional Rights
Holders of Class A and Class B common stock generally are not entitled to
preemptive rights, subscription rights, or redemption rights, except that,
Chevron, who will hold shares of Class B common stock after the merger, is
entitled to preemptive rights under the shareholder agreement. Any shares of
Class A common stock acquired by Chevron or its affiliates will automatically
convert into shares of Class B common stock, so long as Chevron and its
affiliates continue to own 15 percent or more of the outstanding voting power
of Energy Convergence. The rights and preferences of holders of Class A common
stock are subject to the rights of any series of preferred stock Energy
Convergence may issue.
Preferred Stock
By resolution of the board, Energy Convergence may, without any further
vote by its shareholders, authorize and issue an aggregate of 70,000,000
shares of preferred stock. The preferred stock may be issued in one or more
series. With respect to each series, the board may determine the designation
and the number of shares, voting rights, preferences, limitations and special
rights, including any dividend rights, conversion rights, redemption rights
and liquidation preferences. Because of the rights that may be granted, the
issuance of preferred stock may delay or prevent a change of control.
Series A Convertible Preferred Stock
Prior to the closing of the merger, Energy Convergence will establish a
series of preferred stock to be designated Series A convertible preferred
stock. Shares of the Series A preferred stock will be issued upon the closing
of the merger to British Gas Atlantic and NOVA in lieu of the Class A common
stock that BG Holdings and NOVA would otherwise receive in the merger. The
number of authorized shares of Series A preferred stock will be determined
based on the number of shares necessary to be issued to British Gas Atlantic
and NOVA in the merger.
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Priority. The Series A preferred stock will rank, with respect to dividend
rights and rights on liquidation, senior to all classes of common stock of
Energy Convergence and each other class of capital stock or preferred stock of
Energy Convergence unless the terms of any class of stock expressly provide
that the class of stock ranks on parity with the Series A preferred stock as to
dividend rights and rights on liquidation. Energy Convergence will not be
permitted to issue any class of stock ranking senior to the Series A preferred
stock with respect to dividend rights and rights upon liquidation without the
consent of a majority of the outstanding shares of Series A preferred stock.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of Energy Convergence, the holders of Series A
preferred stock are entitled to receive, prior to any distribution of any
assets to holders of any other class or series of stock, $50 per share plus an
amount equal to all accrued but unpaid dividends on each share. If the amount
of assets remaining for such distribution is insufficient to permit the payment
in full or the preferential amount to the holders of Series A preferred stock,
then the entire amount of remaining assets will be distributed ratably among
the holders of the Series A preferred stock.
Dividends. Holders of the Series A preferred stock are entitled to receive
cash dividends at the rate of $3.00 per year per share. Dividends on the Series
A preferred stock will be cumulative from the date of issuance and will be
payable quarterly on the last day of March, June, September and December in
each year. Energy Convergence will pay its first dividend on the Series A
preferred stock on the first payment date after the Series A preferred stock is
issued. The holders of the Series A preferred stock will be entitled to
cumulative cash dividends when and if declared by the board of directors of
Energy Convergence and out of funds legally available for that purpose.
Redemption. Energy Convergence may redeem the shares of Series A preferred
stock in whole or in part at any time after the third anniversary of the issue
date of the shares. If less than all of the shares of Series A preferred stock
are to be redeemed, the shares will be redeemed pro rata from the holders of
Series A preferred stock.
Conversion. Each share of Series A preferred stock is convertible by the
holder of such share at any time into a number of shares of Class A common
stock equal to the quotient of $50.00, plus accrued and unpaid dividends,
divided by the conversion price in effect on the date of conversion. The
initial conversion price will be equal to the average closing price of
Illinova's common stock for the five days ending on the election date of the
merger multiplied by a premium. The premium will be 1.22 if Energy
Convergence's unsecured senior debt is investment grade. If Energy
Convergence's unsecured senior debt is not investment grade the premium will be
some lower number, not to exceed 1.18, which will be determined by Illinova,
Dynegy and the other parties. The conversion price will be subject to
adjustment for certain events such as dividends, subdivisions, combinations,
consolidation, merger or other similar events affecting the Class A common
stock.
Voting. If the holders of Series A preferred stock are entitled to vote
separately as a class pursuant to applicable law, such holders will be entitled
to one vote for each share. In all other cases, the holders of Series A
preferred stock will be entitled to vote upon all matters upon which holders of
the Class A Common Stock have the right to vote, and will be entitled to the
number of votes equal to 1.22, or if the premium described in "Conversion"
above is different, then such premium, times the number of whole shares of
Class A Common Stock into which such shares of Series A preferred stock could
be converted at the record date for such vote, such votes to be counted
together with all other stock as a single class.
Whenever accrued but unpaid dividends exceed $2.25 per share of Series A
preferred stock, the holders of the Series A preferred stock will have the
option, voting separately as a class together with holders of preferred stock
with comparable rights, to elect two directors to the board of directors of
Energy Convergence at the next annual meeting of shareholders and at each
subsequent meeting. The right of the holders of Series A preferred stock to
elect directors to Energy Convergence's board of directors, and the term of
those directors so elected, will continue until there are no longer any accrued
but unpaid dividends on the Series A preferred stock.
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Transfer Agent and Registrar
The Transfer Agent and Registrar with respect to the Energy Convergence
Class A common stock will be determined jointly by Dynegy and Illinova prior to
the merger.
New York Stock Exchange Listing; Delisting and Deregistration of Dynegy and
Illinova Common Stock
It is a condition to the merger that the shares of Energy Convergence Class
A common stock issuable in connection with the merger be approved for listing
on the New York Stock Exchange. If we close the merger, the Dynegy common stock
and the Illinova common stock will each cease to be listed on the New York
Stock Exchange.
Federal Securities Laws Consequences; Stock Transfer Restriction Agreements
Unless you are an affiliate, the shares of Energy Convergence Class A common
stock you receive in the merger will be freely transferable. Generally, an
affiliate is someone who is controlled by or controls Dynegy or Illinova.
Affiliates generally include certain officers, directors and principal
shareholders of Dynegy or Illinova. The Securities Act of 1933, as amended and
Rules 144 and 145 thereunder restrict the ability of affiliates to resell their
shares of Energy Convergence Class A common stock. The merger agreement
requires us to use reasonable efforts to obtain written agreements with our
affiliates to the effect that they will not sell or otherwise dispose their
shares in violation of the Securities Act or the rules.
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Dynegy shareholders are currently governed by Delaware law and
Dynegy's certificate of incorporation and bylaws. The rights of Illinova
shareholders currently are governed by Illinois law and Illinova's articles of
incorporation and bylaws. The merger agreement provides that, at the closing of
the merger, the shareholders of Dynegy and the shareholders of Illinova will
become shareholders of Energy Convergence. Accordingly, after the merger, your
rights will be governed by Illinois law and the articles of incorporation and
bylaws of Energy Convergence. The following are summaries of material
differences between current rights of Dynegy and Illinova shareholders and
those of Energy Convergence shareholders following the merger.
Illinova and Energy Convergence are both organized under the laws of
Illinois and are subject to Illinois law. Any differences in the rights of the
holders of Energy Convergence Class A common stock and Illinova common stock
arise solely from the differences in their respective articles of incorporation
and bylaws. These differences are described below.
The following discussions are summary only. They do not give you a complete
description of the differences that may affect you. You should also refer to
the Illinois Business Corporation Act and the articles of incorporation, as
amended, and bylaws of Energy Convergence. Copies of Energy Convergence's
articles of incorporation, as amended, and bylaws, Dynegy's certificate of
incorporation and bylaws and Illinova's articles of incorporation and bylaws
will be sent to Dynegy's shareholders and Illinova's shareholders,
respectively, upon request. See "Where You Can Find More Information." You
should also see "Description of Energy Convergence Capital Stock Following the
Merger" for a more detailed discussion of your rights as shareholders of Energy
Convergence.
Number of Directors
Delaware law permits the board of directors to change the authorized number
of directors by resolution if the bylaws permit or by amendment to the bylaws
if the number of directors is fixed in the bylaws, unless the directors are not
authorized to amend the bylaws or the number of directors is fixed in the
certificate of incorporation.
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Under Illinois law, the number of directors is fixed by the bylaws, or
absent such provision, by the articles of incorporation or by resolution of the
incorporator in the organizational minutes, and may provide for a range by
prescribing a minimum and maximum (which may not exceed the minimum by more
than five). The articles of incorporation provide that the board of directors
of Energy Convergence will be granted the authority to set the exact number of
directors within the range of 12 to 15 members. So long as any shares of Class
B common stock are outstanding, the holders of those shares will be entitled to
vote as a separate class for the election of three directors. The holders of
Class A common stock will vote together with the holders of Series A preferred
stock for the remaining directors.
Election, Removal, and Vacancies of Directors
Under Delaware law, cumulative voting in the election of directors is only
permitted if expressly authorized in a corporation's certificate of
incorporation. The Dynegy certificate of incorporation does not provide for
cumulative voting. Dynegy's bylaws do not require voting by ballot. Under
Delaware law and the Dynegy bylaws, any director or the entire board of
directors may be removed, with or without cause, by the approval of a majority
of the outstanding shares.
Illinois law provides that in all elections for directors, every shareholder
has the right to vote cumulatively, unless the articles of incorporation
otherwise specify. Illinova's articles of incorporation do not so provide.
Illinova and Dynegy shareholders who receive Class A common stock and Series A
preferred stock of Energy Convergence will also be entitled to cumulative
voting. The Energy Convergence articles do not allow the holders of Class B
common stock to cumulate their vote. Unlike the Illinova bylaws, the Energy
Convergence bylaws do not require the election of directors to be by ballot.
Under Illinois law, a director may be removed, with or without cause, by the
approval of a majority of the outstanding shares. Removal may only occur at a
meeting of shareholders pursuant to a notice that states that the purpose of
the meeting is to vote upon the removal of the specific director and only the
named director may be removed at the meeting. Because Energy Convergence
provides for cumulative voting, if less than the entire board is to be removed,
no director may be removed, with or without cause, if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors. If a director is elected by a class
or series of shares, he may be removed only by shareholders of that class or
series.
Under Delaware law, vacancies and newly created directorships may be filled
by a majority of the directors then in office unless otherwise provided in the
certificate of incorporation or bylaws and unless the certificate of
incorporation directs that a particular class is to elect such director, in
which case any other directors elected by such class, or a sole remaining
director, shall fill such vacancy. The Dynegy bylaws allow any vacancy on the
board that is created by death, resignation, disqualification, or removal to be
filled by a vote of at least 11 directors then in office or by the holders of a
majority of the outstanding stock at a meeting called for such purpose. Under
Illinois law, any vacancy on the board of directors may be filled by the
shareholders at an annual meeting or a special meeting called for that purpose
or by the remaining directors. The Energy Convergence articles of incorporation
provide that the remaining directors of a class may fill any vacancy in the
office of such class of director, unless the vacancy was caused by the removal
of the director, in which case it may only be filled by the affirmative vote of
the holders of the outstanding shares of the applicable class of common stock.
Directors' Duties
The fiduciary duties of directors under Illinois case law are generally
similar to the duties prescribed under Delaware case law. Unlike Delaware law,
however, Illinois statutory law includes a provision specifically permitting
directors, in discharging their duties, to consider the effects of any action
(including, without limitation, actions that may involve or relate to a change
or potential change in control of the corporation) upon employees, suppliers,
and customers of the corporation or its subsidiaries, and upon communities in
which offices or other establishments of the corporation or its subsidiaries
are located.
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Indemnification and Limitation of Liability
Illinois and Delaware have similar laws relating to indemnification by a
corporation of its officers, directors, employees, and other agents. The laws
of both states permit corporations to adopt a provision in their charters
eliminating the liability of a director to the corporation or its shareholders
for monetary damages for breach of the director's fiduciary duty of care.
Delaware and Illinois corporations are not permitted to eliminate monetary
liability where such liability is based on:
(1) any breach of the director's duty of loyalty to the corporation or
its shareholders;
(2) acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
(3) liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions; or
(4) any transaction from which the director derived an improper
personal benefit.
The Dynegy certificate of incorporation provides mandatory indemnification
to any party who is or was a director or officer of Dynegy to the fullest
extent permitted by Delaware law. In the event of any amendment to the Delaware
law, the Dynegy certificate of incorporation includes a provision providing
that Dynegy shall limit or eliminate its directors' liability for monetary
damages to the fullest extent permissible under Delaware law.
The Energy Convergence articles of incorporation also provide for broad
mandatory indemnification, generally extending to any person who is or was a
director or officer who acted in good faith and in a manner he reasonably
believed to be not opposed to the best interests of the corporation. Such
articles also eliminate the liability of directors to the fullest extent
permissible under Illinois law, as such law exists currently or as it may be
amended in the future. The Energy Convergence bylaws provide that Energy
Convergence may indemnify an employee or agent of the corporation in a
proceeding, including those by or in the right of the corporation, to the
fullest extent permitted by Illinois law.
Dividend Rights
Under Delaware law, dividends are declared and paid as determined by the
board of directors, however, the payment of dividends is limited by certain
restrictions. A corporation may pay dividends out of surplus or, if no such
surplus exists, out of net profits for the fiscal year in which such dividends
are declared and/or for its preceding fiscal year. The distribution of
dividends is not permitted, however, if the capital of such corporation is less
than the aggregate amount of capital represented by the outstanding stock of
all classes having a preference upon the distribution of assets.
After the merger, your right to receive dividends will be governed by
Illinois law. Under Illinois law, a corporation may make distributions to its
shareholders, unless, after giving effect to the distribution, the corporation
would be insolvent or the net assets of the corporation would be less than zero
or less than the maximum amount then payable to shareholders having
preferential rights in liquidation if the corporation were then liquidated. For
a more detailed discussion regarding your rights to dividends following the
merger see "Description of Energy Convergence Capital Stock Following the
Merger."
Shareholder Meetings
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or any other person authorized to do so in the certificate
of incorporation or bylaws. The Dynegy bylaws state that special meetings may
be called by the board of directors, the chairman of the board, the president,
or the holders of at least 10% of the outstanding shares entitled to vote on
the matter for which the special meeting is called.
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Special meetings of shareholders of an Illinois corporation may be called by
the president, the board of directors, the holders of not less than one-fifth
of all outstanding shares entitled to vote on the matter for which the meeting
is called, or by other persons as provided in the articles of incorporation or
bylaws. The Energy Convergence bylaws also allow the chairman of the board and
the chief executive officer to call a special shareholders' meeting. Energy
Convergence will be required to give not less than 20 nor more than 60 days
notice of any meeting relating to a merger, consolidation, share exchange,
dissolution, or sale of assets, which is greater notice than is now currently
required to be given by Dynegy.
Action by Written Consent of Shareholders
Both Delaware and Illinois allow shareholders to take action by unanimous
written consent or by consent of the holders of shares having not less than the
minimum number of votes necessary to take action at a meeting in which all
shares entitled to vote on the matter were present and voting, unless such
right is denied by the certificate or articles of incorporation. The
certificate of Dynegy and the articles of each of Illinova and Energy
Convergence do not deny such right. Both Delaware and Illinois provide for
prompt notice to non-consenting shareholder's of the action taken, but Illinois
also requires five days prior notice to all shareholders entitled to consent
before such consent may be executed.
Shareholder Proposals
Unlike both the Dynegy and Illinova bylaws, Energy Convergence's bylaws
require advance notice of shareholder nominations of directors or other
proposals. Shareholders may nominate persons for election to the board of
directors and propose other business to be considered at a meeting only if the
nomination or proposal is received not less than 90 days and not more than 120
days before the meeting or within 10 days following the public announcement of
the meeting.
Charter Amendments
Other than for enumerated matters which can be amended by majority director
vote alone (removing the names and addresses of initial directors and the
registered agent, altering par value, splitting shares, minor corporate name
changes, reducing authorized shares, and restating articles as amended), under
Illinois law, amendments to the articles of incorporation require the
recommendation of the board of directors and the approval of shareholders
holding two-thirds of the voting power of the corporation, except in cases
where class voting is required, in which case, approval of two-thirds of the
voting power of each such class is required. The articles of incorporation may
provide for a lower vote (but not less than a majority of the outstanding
shares entitled to vote on the matter) or higher vote.
To amend the certificate of incorporation, Delaware law generally requires
board approval and the affirmative vote of the holders of a majority of the
outstanding stock entitled to vote and, in some circumstances, a similar vote
of each affected class.
Energy Convergence's articles of incorporation provide that any amendment
affecting the voting rights of the Class A and Class B common stock must be
approved by two-thirds of the outstanding shares of Class B common stock voting
as a separate class, and a majority of the shares of Class A and Class B common
stock voting together as a single class. This is a higher requirement than
under Delaware law, which requires board recommendation and approval of a
majority of the shares entitled to vote.
Amendments to Bylaws
Under Delaware law, bylaws may be adopted, amended, or repealed by holders
of a majority of the voting power of the outstanding capital stock. A
corporation may, in its certificate of incorporation, confer this power upon
the directors, but it may not eliminate or limit the shareholders' power. The
Dynegy certificate of incorporation gives the board of directors authority so
long as the amendment is approved by at least 11 directors.
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Illinois law provides that both the board of directors and the shareholders
have the power to alter or amend the corporation's bylaws, unless the power is
reserved to the shareholders by the corporation's articles of incorporation. If
adopted by shareholders, a specific bylaw may provide that the board of
directors may not alter, amend, or repeal such bylaw. The Illinova bylaws allow
the board to amend the bylaws at a meeting, provided that notice of the meeting
sets forth the substance of the proposed change. Energy Convergence's bylaws
may be altered, amended, or repealed by either shareholders or the board of
directors. Certain provisions that affect the holders of Class B common stock,
however, may not be amended except upon the approval of a majority of Class B
directors and a majority of the entire board. See "Description of Energy
Convergence Capital Stock Following the Merger."
Mergers and Major Transactions
Delaware law generally requires the holders of a majority of the outstanding
voting shares of the acquiring and target corporations to approve statutory
mergers. Illinois law generally requires two-thirds of the outstanding voting
shares to approve most major transactions, unless the approval is reduced to as
low as a simple majority or increased as provided in the articles of
incorporation. Both Illinois and Delaware do not require a shareholder vote of
the surviving corporation in a merger (unless the corporation's charter
provides otherwise) if:
. the merger agreement does not amend in any respect the charter of such
surviving corporation;
. each share of stock of such surviving corporation outstanding before the
merger is equal to an identical outstanding or treasury share after the
merger; and
. the number of shares of common stock to be issued by the surviving
corporation does not exceed 20% of the number of shares outstanding
immediately before the merger.
The Dynegy certificate of incorporation and bylaws do not require any
special vote of the shareholders to approve the proposed merger and the
Illinova articles do not reduce or increase the two-thirds vote requirement.
The approval of the shareholders of Illinova and Dynegy, other than the holders
of Dynegy preferred stock, is necessary to effect the proposed merger and you
are entitled to one vote per share. See "The Special Meetings--Voting Rights;
Votes Required for Approval." Delaware law generally does not require class
voting, except in certain transactions involving an amendment to the
certificate of incorporation that adversely affects a specific class of shares.
With certain exceptions, Illinois law may require that mergers,
reorganizations, certain sales of assets, and similar transactions be approved
by two-thirds vote of each class of shares outstanding if the articles of
incorporation provide for class voting or if the proposed transaction contains
a provision that, if contained in a proposed amendment to the articles of
incorporation of such corporation, would entitle a class to vote. Energy
Convergence's articles of incorporation require the affirmative vote of two-
thirds of the shares of Class A and Class B common stock outstanding to approve
mergers, consolidations, reorganizations, disposition of all or substantially
all of Energy Convergence's assets, or sales of assets requiring shareholder
approval under Illinois law.
Interested Director Transactions
Under both Delaware and Illinois law, certain contracts or transactions in
which one or more of a corporation's directors has an interest are not void or
voidable because of such interest, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under Delaware law, either:
. the shareholders or the disinterested members of the board of directors
must approve any such contract or transaction after full disclosure of
the material facts; or
. the contract or transaction must have been "fair" as to the corporation
at the time it was approved.
Under Illinois law, if a transaction is "fair" when authorized, approved, or
ratified, then the fact that a director has an interest in the transaction is
not grounds for invalidating the transaction or the interested director's vote
regarding such transaction. In any proceeding relating to such a transaction,
the person asserting its validity will have the burden of proof unless, after
full disclosure of such director's interest:
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. a majority of disinterested directors approved the transaction; or
. such transaction was approved by the shareholders without counting the
votes of any shareholder who is an interested director.
Dissenters' Rights of Appraisal
Under Delaware law, a shareholder of a corporation participating in certain
major corporate transactions may, under varying circumstances, be entitled to
appraisal rights pursuant to which such shareholder may receive payment of the
fair value of his shares instead of the consideration he would otherwise
receive in the transaction. Under Delaware law, such appraisal rights are not
available:
. with respect to the sale, lease, or exchange of all or substantially all
of the assets of a corporation;
. with respect to a merger or consolidation by a corporation, the shares of
which are listed on a national securities exchange, designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc., or are held of record
by more than 2,000 holders, if the shareholders receive only shares of
the surviving corporation or shares of any other corporation that are
listed on a national securities exchange, designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or held of record by more than
2,000 holders, plus cash instead of fractional shares; or
. to shareholders of a corporation surviving a merger if the vote of the
shareholders of the surviving corporation is not required to approve the
merger.
Because Energy Convergence shares will be listed on the New York Stock
Exchange and holders of Dynegy shares are not required to accept cash as the
consideration to be received in the merger, the Dynegy shareholders are not
entitled to appraisal rights under Delaware law.
In contrast, shareholders of an Illinois corporation have dissenters' rights
entitling a shareholder to dissent from a merger, sale of assets, or other
specified corporate act, to obtain the corporation's assessment of the "fair
value" of such shareholder's shares, and to proceed with an action to demand
the difference between the shareholder's estimate of fair value and interest
due and the amount of the "fair value" payment by the corporation. Under
Illinois law, dissenter's rights are available only in the event of any of the
following corporate transactions:
. consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if shareholder authorization
is required for such merger, consolidation, or share exchange or the
corporation is a 90% or more owned subsidiary that is merged with its
parent or another subsidiary;
. consummation of a sale, lease, or exchange of all, or substantially all,
of the property and assets of the corporation other than in the usual and
regular course of business;
. an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares; or
. any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, bylaws or a resolution of the board of
directors of the corporation provide that shareholders are entitled to
dissent and obtain payment for their shares in accordance with the
procedures of the Illinois Business Corporation Act.
The Energy Convergence articles of incorporation and bylaws do not grant any
additional dissenters' rights. To exercise dissenter's rights, among other
procedural requirements, a shareholder must submit a written demand to the
corporation prior to the taking of the vote on the matter giving rise to
dissenters' rights. In the merger, holders of Illinova shares will be entitled
to dissenters' rights. See "The Merger--Illinova Shareholders' Right to
Dissent."
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Anti-Takeover Provisions
A number of states have adopted special laws designed to make certain kinds
of "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Section 203 of the Delaware General Corporation Law and Section 11.75 of the
Illinois Business Corporation Act prohibit corporations from engaging in a
"business combination" with an "interested shareholder" for three years
following the date that such person becomes an interested shareholder.
With certain exceptions, an interested shareholder is a person or group who
or which owns 15% or more of the corporation's outstanding voting stock
(including any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights and stock with respect to which the person has voting rights
only), or is an affiliate or associate of the corporation and was the owner of
15% or more of such voting stock at any time within the previous three years.
For purposes of Section 203 and Section 11.75, the term "business
combination" is defined broadly to include mergers with or caused by the
interested shareholder, sales or other dispositions to the interested
shareholder (except proportionately with the corporation's other shareholders)
of assets of the corporation or a subsidiary equal to ten percent or more of
the aggregate market value of the corporation's consolidated assets or its
outstanding stock, the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested shareholder
(with certain exceptions), or receipt by the interested shareholder (except
proportionately as a shareholder), directly or indirectly, of any loans,
advances, guarantees, pledges, or other financial benefits provided by or
through the corporation or a subsidiary.
The three-year prohibition imposed on business combinations by Section 203
or Section 11.75 does not apply if:
. before the date on which such shareholder becomes an interested
shareholder, the board of directors approves either the business
combination or the transaction that resulted in the person becoming an
interested shareholder;
. the interested shareholder owns 85% of the corporation's voting stock
(excluding certain shares) upon consummation of the transaction that made
him an interested shareholder; or
. on or after the date such person becomes an interested shareholder, the
board approves the business combination and it is also approved at a
shareholder meeting by 66 2/3% of the voting stock not owned by the
interested shareholder.
Delaware corporations may elect not to be governed by Section 203, however,
Dynegy did not make this election.
Illinois law provides extra protection to corporations subject to the
reporting requirements of the Exchange Act, for "interested shareholder"
transactions. Section 7.85 requires the approval of holders of at least 80% of
the combined voting power of the then outstanding shares of all classes of the
corporation's capital stock entitled to vote in the election of directors and
the approval of a majority of the voting shares held by disinterested
shareholders.
The higher voting requirements are not required if the business combination
is approved by at least two-thirds of the directors who are not associated with
the interested shareholder or if certain procedural and price requirements of
Section 7.85 are met. An Illinois corporation may elect not to be governed by
Sections 7.85 and 11.75 in its articles of incorporation or bylaws. Illinova
and Energy Convergence did not make this election.
Dissolution
Under Delaware law, unless the board of directors approves a proposal to
dissolve the corporation, the dissolution must be approved by shareholders
holding 100% of the total voting power of the corporation. Only
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if the dissolution is initially approved by the board of directors may it be
approved by a simple majority of the corporation's shareholders. Delaware law
allows a corporation to include in its certificate of incorporation a
supermajority voting requirement in connection with dissolutions. The Dynegy
certificate of incorporation does not contain a supermajority voting
requirement.
Under Illinois law, shareholders holding at least two-thirds of the total
voting power (or such lesser percentage not less than a simple majority or such
greater number as may be provided in the articles of incorporation) may
authorize a corporation's dissolution. The Illinova articles and the Energy
Convergence articles do not provide for any greater or lesser percentage.
Shareholder Derivative Suits
Under Delaware law, a shareholder may only bring a derivative action on
behalf of the corporation if the shareholder was a shareholder of the
corporation at the time of the transaction in question or he was granted such
stock thereafter by operation of law. Illinois law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question, provided that such
shareholder can prove that he acquired the shares prior to disclosure of the
wrongdoing complained of by the shareholder.
DESCRIPTION OF DYNEGY
Dynegy is a leading provider of energy products and services in North
America and the United Kingdom. Products marketed by Dynegy's wholesale
marketing operations include natural gas, electricity, coal, natural gas
liquids, crude oil, liquid petroleum gas and related services. Dynegy's
wholesale marketing operations are supported by ownership or control of an
extensive asset base and transportation network that includes unregulated power
generation, gas and liquids storage capacity, gas, power and liquids
transportation capacity and gas gathering, processing and fractionation assets.
The critical mass achieved through the combination of a large scale energy
marketing operation with strategically located assets which augment the
marketing efforts affords Dynegy the ability to offer innovative, value-
creating energy solutions to its customers.
Business
Dynegy reports operations under two primary business segments: (1) Wholesale
Gas and Power and (2) Liquids.
Wholesale Gas and Power Segment
This segment markets and trades natural gas, power and coal and the
generation of electricity principally under the name Dynegy Marketing and
Trade. Dynegy views its gas and power marketing and power generation businesses
as an integrated unit. Ownership or control of merchant generation, or "Btu
Conversion" capacity, when coupled with Dynegy's national wholesale gas and
power marketing franchise, creates a wide range of value creation opportunities
benefiting both Dynegy and its customers. Concurrent with the restructuring of
the U.S. wholesale electricity markets, Dynegy is continuing its focus on
building a portfolio of merchant generation capacity in select markets across
the country. Dynegy believes that merchant generation capacity, which is
designed principally to supply power to markets during periods of peak demand,
offers the greatest flexibility in executing its strategy of an integrated gas
and power marketing and power generation business. For the foreseeable future,
Dynegy intends to continue to expand its ownership or commercial control over
strategic generation assets/capacity in selected markets through acquisitions,
greenfield development and asset management agreements.
Dynegy conducts its wholesale natural gas marketing activities throughout
North America and in the United Kingdom. These activities consist of
contracting to purchase specific volumes of natural gas from suppliers at
various points of receipt to be supplied over a specific period of time;
aggregating natural gas
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supplies and arranging for the transportation of these gas supplies through
proprietary and third-party transmission systems; negotiating the sale of
specific volumes of natural gas over a specific period of time to local
distribution companies (LDCs), utilities, power plants and other end-users;
matching natural gas receipts and deliveries based on volumes required by
customers; and storing natural gas. In 1998, sales were made to approximately
900 customers located throughout the contiguous United States and parts of
Canada. For the year ended December 31, 1998, Dynegy's North American
operations sold an aggregate average of 8.2 billion cubic feet per day of
natural gas, while its U.K operations purchased product from 42 suppliers and
marketed sales to 35 customers. For the year ended December 31, 1998, Dynegy's
U.K.-based operations sold an aggregate average of 0.7 billion cubic feet per
day of natural gas.
Dynegy markets electricity and power products and services through Dynegy
Power Marketing, Inc., an indirect wholly-owned subsidiary, providing a 24-
hour-a-day resource for the sale and purchase of power through access to
wholesale markets throughout North America. Dynegy helps generation customers
manage and optimize their fuel supplies, optimize generation assets and
capacity utilization and maximize energy conversion and tolling opportunities.
In addition, Dynegy provides market aggregation and sales assistance and risk-
management services and strategies. Dynegy will at times contract for
transmission capacity over regulated transmission lines to facilitate regional
movements of power. In 1998, Dynegy made sales to approximately 180 customers
and sold 121 million-megawatt hours of electricity.
As of December 31, 1998, Dynegy had interests in thirty-one power projects
in operation, under construction, in late stage development or pending
acquisition having combined gross capacity of 6,832 megawatts of electricity.
The majority of these facilities are gas-fired and are principally owned
through interests in joint ventures formed to operate the plants. In addition
to ownership and operation of generating capacity, Dynegy provides services to
the joint ventures in which it owns an interest in the areas of project
development, engineering, environmental affairs, operating services, management
and fuel supply services.
Liquids Segment
This segment principally operates under the name Dynegy Mid-Stream Services
and consists of the North American mid-stream liquids operations, as well as
the global liquefied petroleum gas transportation and natural gas liquids
marketing operations located in Houston and London, and certain other
businesses. The North American mid-stream liquids operations gather and process
natural gas and transport, fractionate and store NGLs.
Dynegy is a recognized industry leader in substantially all mid-stream
component businesses, ranging from natural gas processing to marketing NGLs to
end users. Dynegy is the second largest processor of natural gas in the United
States; it owns substantial fractionation capacity that approximates 300,000
barrels per day and Dynegy markets over 450,000 barrels of NGLs daily. These
activities are supported by an extensive storage and transportation system,
which includes in excess of 14,000 miles of natural gas pipelines, 2,000 miles
of crude oil pipelines, 500 miles of NGL pipelines and 60 million barrels of
NGL storage capacity. To further assist its operations, Dynegy has access to
substantial barge, rail, trucking and terminalling assets as well as large-hull
ships having long-haul capabilities, which enhance international trading
opportunities.
Dynegy's liquids segment can be divided into six integrated lines of
business:
. Natural Gas Gathering and Processing: The natural gas processing industry
is a major segment of the oil and gas industry, providing the necessary
service of refining raw natural gas into marketable pipeline quality
natural gas and natural gas liquids. Dynegy owns interests in 42 gas
processing plants, including 35 plants that it operates, as well as
associated and stand-alone natural gas gathering pipeline systems. During
1998, Dynegy processed an average of 2.3 billion cubic feet per day of
natural gas and produced an average of 110,000 barrels per day of NGLs.
Dynegy has the right to process substantially all of Chevron's
processable natural gas in those geographic areas where it is
economically feasible for Dynegy to provide such service.
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. Fractionation: Natural gas liquids removed from the natural gas stream at
gas processing plants are generally in the form of a commingled stream of
liquid hydrocarbons (raw product). The commingled natural gas liquids are
separated at fractionation facilities into the component products of
ethane, propane, normal butane, isobutane and natural gasoline. Dynegy
has ownership interests in three fractionation facilities which, during
1998, fractionated an average of 285 thousand gross barrels per day.
. NGL Marketing: Dynegy markets its own NGL production and also purchases
NGLs from third parties for resale. During 1998, Dynegy sold
approximately 410,000 barrels per day of natural gas liquids to over 900
customers.
. Transportation Operations: Dynegy's transportation assets are inter-
connected with the nation's gas liquids and natural gas pipeline systems.
Through this network of pipeline connections, terminals, rail cars,
trucks, barges and storage facilities, and ships Dynegy leases, Dynegy
moves natural gas liquids from producing regions in the Gulf Coast, West
and Midwest to most major domestic and international markets. Dynegy
operates large-scale marine terminals in Texas, Florida and Louisiana,
which offer importers a variety of methods for transporting products to
the marketplace. In addition, Dynegy has access to over 60 million
barrels of underground liquids storage providing customers with the
ability to store, trade, buy and sell products.
. Crude Oil Marketing: Dynegy provides a full range of crude oil marketing
services to producers, and serves the North American refining community
as a regionally diversified supplier of crude oil. Through its
participation in major trading centers in Canada and the Mid-Continent,
Rocky Mountain and Gulf Coast areas, during 1998, Dynegy sold
approximately 240,000 barrels per day of crude oil to over 100 customers.
. International LPG Marketing: Dynegy markets and trades LPG to markets
throughout the world through use of chartered large-hull ships. Product
marketed and traded by this business is acquired from producing areas in
the North Sea, West Africa, Algeria and the Arabian Gulf as well as from
the U.S. Gulf Coast region. Currently, this business markets
approximately 75,000 barrels per day of LPG.
Competition
All phases of the businesses in which Dynegy is engaged are highly
competitive. In connection with both domestic and foreign operations, Dynegy
encounters strong competition from companies of all sizes, having varying
levels of financial and personnel resources. Dynegy competes in its gas
marketing business with other natural gas merchants, producers and pipelines
for sales based on its ability to aggregate competitively priced supplies from
a variety of sources and locations and to use transportation efficiently
through third-party pipelines. Dynegy's power marketing business is similar to
its gas marketing business in that it provides contract services to electric
utilities, markets and supplies electricity and invests in power-related assets
and joint ventures.
The independent power generation industry has grown rapidly over the past
twenty years. The demand for power may be met by generation capacity based on
several competing technologies, such as gas-fired or coal-fired cogeneration
and power generating facilities fueled by alternative energy sources including
hydroelectric power, synthetic fuels, solar, wind, wood, geothermal, waste
heat, solid waste and nuclear sources. Dynegy's power generation business
competes with other non-utility generators, regulated utilities, unregulated
subsidiaries of regulated utilities and other energy service companies in the
development and operation of energy-producing projects.
Dynegy's natural gas liquids, crude oil marketing and gas transmission
businesses face significant competition from a variety of competitors including
major integrated oil companies, major pipeline companies and their marketing
affiliates and national and local gas gatherers, processors, brokers, marketers
and distributors of varying sizes and experience.
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Risk Management Activities
Dynegy routinely enters into contracts to hedge purchase and sale
commitments, fuel requirements and inventories of natural gas, coal,
electricity, natural gas liquids, crude oil and other commodities in order to
minimize the risk of market fluctuations on its various operations. However, as
a result of marketplace illiquidity and other factors, Dynegy may, at times,
have an open position in the market, within established guidelines. Dynegy
monitors its exposure to fluctuations in interest rates and foreign currency
exchange rates and may execute swaps, forward-exchange contracts or other
financial instruments to hedge and manage these exposures.
In addition to the risk associated with price or interest rate movements,
credit risk is also inherent in Dynegy's risk management activities. Credit
risk relates to the risk of loss resulting from the nonperformance of
contractual obligations by a counterparty. Dynegy maintains credit policies
with regard to its counterparties, which management believes minimize its
overall credit risk.
The commercial groups of Dynegy manage, on a portfolio basis, market risks
inherent in transactions, subject to parameters established by the Dynegy board
of directors. Market risks are monitored by a risk control group that operates
independently from the commercial units that create or actively manage these
risk exposures to ensure compliance with Dynegy's risk management policies.
Risk measurement is also practiced against the Dynegy portfolios at risk,
stress testing and scenario analysis.
Regulation
Dynegy is subject to the laws, rules and regulations of the jurisdictions
and countries in which it conducts its operations. The principal energy-related
regulatory schemes under which Dynegy operates are those administered by the
FERC, the Canadian National Energy Board, the Alberta Energy and Utilities
Board, and the British Columbia Ministry of Employment and Investment, Oil and
Gas Section. In addition, Dynegy's operations are subject to extensive federal,
state and local statutes, rules and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection.
The regulatory burden on the energy industry increases its cost of doing
business and, consequently, affects its profitability. Inasmuch as these rules
and regulations are frequently amended or reinterpreted, Dynegy is unable to
predict the future cost or impact of complying with such regulations. These
rules and regulations affect the industry as a whole; therefore, Dynegy does
not believe that it is affected in a significantly different manner from its
competitors.
DESCRIPTION OF ILLINOVA
Illinova is a public-utility holding company which, through its utility
subsidiaries, is principally engaged in the generation, purchase, transmission,
distribution and sale of electricity and in the purchase, transportation,
distribution and sale of natural gas. Illinova's principal subsidiary is
Illinois Power Company, a regulated public utility engaged in the generation,
transmission and sale of electricity at wholesale and retail. Illinois Power
also owns facilities for the storage, transportation and distribution of
natural gas and is engaged in the sale of natural gas at retail. Illinois
Power's primary service area is in central Illinois. Illinova's other principal
subsidiaries are:
. Illinova Generating Company, which invests in energy supply projects
throughout the world and competes in the independent power market,
. Illinova Energy Partners, Inc. which engages in the brokering and
marketing of electricity and natural gas and the development and sale of
energy-related services to the unregulated energy market throughout the
United States and Canada,
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. Illinova Insurance Company, which is licensed by the State of Vermont as
a captive insurance company, and
. Illinova Business Enterprises, Inc., which is an intermediate holding
company for miscellaneous business activities not regulated by the ICC or
the FERC.
As of June 30, 1999, Illinova and its subsidiaries had approximately 4,043
full-time employees.
Illinois Power Company
Illinois Power is an electric and natural gas public utility operating
company which owns generation, transmission and distribution facilities located
in the State of Illinois. Illinois Power Company was incorporated in 1923 under
the laws of the State of Illinois.
Electric Business. Illinois Power provides retail electric service to
approximately 650,000 customers located throughout portions of northern,
central, and southern Illinois. Illinois Power's retail operations are subject
to the jurisdiction of the ICC. Illinois Power also transmits and sells
electric energy and capacity at wholesale.
All of Illinois Power's utility assets are located in the State of Illinois.
Currently, Illinois Power owns eight fossil-fired generating facilities with an
aggregate capacity of approximately 3,812 MW. Coal was used to generate
approximately 97% of the electricity generated by Illinois Power during 1998.
In 1999 Illinois Power announced its intention to transfer all of its
fossil-fired generation assets to a newly-formed subsidiary of Illinova. In
order to ensure an adequate power supply for Illinois Power's customers, the
new subsidiary will enter into a power sales contract with Illinois Power for a
pricing term lasting through 2004 (and subject to extension from year-to-year
thereafter). Otherwise, the new subsidiary will be free to pursue opportunities
to market power in the growing unregulated power market. On July 7, 1999, the
ICC gave its approval for the proposed transfer, and on August 25, 1999, the
FERC approved the power sales contract with Illinois Power. Illinova
anticipates that the fossil generating assets will be transferred to the new
subsidiary by October 1, 1999.
Clinton Nuclear Power Plant. Illinois Power owns a 930 MW nuclear generating
facility located near Clinton, Illinois. In order to make Illinova more
competitive in the restructured electric utility industry, in late 1998, the
Illinova and Illinois Power Boards of Directors voted to exit nuclear
operations at the Clinton nuclear facility. As a result of its strategy to exit
nuclear operations, Illinois Power recorded a substantial impairment loss
through a write-down of the Clinton nuclear plant's original and depreciated
cost. The impairment charge resulted in a deficit of approximately $1.4 billion
in Illinois Power's 1998 retained earnings. Illinois Power concurrently
implemented a quasi-reorganization pursuant to which this deficit in retained
earnings was eliminated through the restatement of Illinois Power's existing
assets and liabilities to their December 31, 1998 fair market value.
On July 1, 1999, Illinois Power announced that it had entered into a
definitive agreement for the sale of Clinton nuclear facility to AmerGen Energy
Company, L.L.C., a Delaware limited liability company whose members are PECO
Energy Company and a wholly-owned subsidiary of British Energy plc. The sale of
the plant is expected to close in the fourth quarter of 1999 or the first
quarter of 2000. Sale of the Clinton nuclear plant to AmerGen or another third
party is a condition to the closing of the merger.
Transmission and Distribution. In addition to its generating assets,
Illinois Power owns approximately 2,829 miles of transmission facilities with
ratings from 69 to 345 kilovolts. These facilities are interconnected with the
following entities: Central Illinois Light Company, City of Springfield,
Illinois, Commonwealth Edison Company, Electric Energy, Inc., Indiana-Michigan
Power Company, Louisville Gas & Electric Company, MidAmerican Energy Company,
Southern Illinois Power Cooperative, Soyland Power Cooperative, Inc. and
Tennessee Valley Authority. Illinois Power is a member of the Mid-America
Interconnected Network, Inc., is a
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participant in the Illinois-Missouri Power Pool, and is a participant in the
Midwest Independent Transmission System Operator, Inc.
Gas Business. Illinois Power also supplies retail natural gas service to an
estimated aggregate population of 962,000 in 266 incorporated municipalities,
suburban areas and other unincorporated communities in Illinois. Illinois Power
has eight underground gas storage fields and contracts with various natural gas
suppliers and producers to insure deliverability to its customers during peak
load periods. Illinois Power also owns one active liquefied petroleum gas plant
and approximately 8,000 miles of gas mains.
Illinova Generating Company
Illinova Generating Company is a direct wholly-owned subsidiary of Illinova
which indirectly owns equity interests in a number of generation facilities and
marketing companies located in the United States, England, Latin America and
Asia. Illinova Generating's net ownership interests include 600 MW for the
domestic and English plants, 290 MW for the Latin American plants and 130 MW
for the Asian plants.
Illinova Generating also owns North American Energy Services Company, which
supplies a broad range of operations, maintenance and support services to the
independent power generation industry. North American Energy is the operator of
certain generation facilities jointly owned by Illinova Generating and Tenaska,
Inc.
Illinova Energy Partners, Inc.
Illinova Energy Partners, Inc. is engaged in the brokering and marketing of
electric energy and power, natural gas, and other energy commodities at
wholesale and retail throughout North America. Illinova Energy Partners owns
interests in various natural gas marketers, including a 100-percent interest in
Energy Dynamics, Inc., a natural gas marketer serving large-volume commercial
and industrial natural gas users located in the Chicago area, and a 50-percent
interest in Tenaska Marketing Ventures, which focuses on natural gas marketing
in the Midwestern United States. Illinova Energy Partners also owns a 51-
percent interest in EMC Gas Transmission Company, a retail gas marketer
operating in the State of Michigan.
Regulation
Illinova is an exempt holding company under PUHCA. Accordingly, Illinova and
Illinois Power are exempt from all the provisions of PUHCA except for
provisions requiring approval of the SEC prior to certain acquisitions of any
securities of other public utility companies or public utility holding
companies.
Illinois Power is subject to the jurisdiction of the ICC with respect to its
rates and charges, provision of service, issuance of securities and various
other matters.
Illinois Power and certain other subsidiaries of Illinova are subject to
regulation under the Federal Power Act by the FERC as to rates and charges in
connection with the transmission of electric energy and the sale of such energy
at wholesale, the issuance of debt securities maturing in not more than 12
months, accounting and depreciation policies, interaction with affiliates, and
certain other matters. The FERC has declared Illinois Power exempt from the
Natural Gas Act and related FERC orders, rules and regulations.
Illinois Power is subject to the jurisdiction of the NRC and the Illinois
Department of Nuclear Safety with respect to the Clinton nuclear facility.
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ADOPTION OF THE DYNEGY INC. 2000 LONG TERM INCENTIVE PLAN
Recommendation
The Dynegy and Illinova boards of directors propose and recommend that you
approve the Dynegy Inc. 2000 Long Term Incentive Plan.
Purposes and Effects
The plan is designed to enable Energy Convergence and its affiliates to
provide a means to attract able employees and to provide a means whereby those
employees, upon whom the responsibilities of the successful administration and
management of the company and its affiliates rest, and whose present and
potential contributions to the welfare of the company and its affiliates are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of Energy Convergence and its affiliates and
their desire to remain in its employ. A further purpose of the plan is to
provide such employees with additional incentive and reward opportunities
designed to enhance the profitable growth of Energy Convergence and its
affiliates. Accordingly, the plan provides for granting: (1) "incentive stock
options" as defined in Section 422 of the Internal Revenue Code; (2) stock
options that do not constitute incentive stock options by statute; (3) shares
of Energy Convergence common stock, which generally will be subject to
forfeiture under the circumstances specified by the administrative committee of
the Plan at the time of award of such shares; (4) "performance awards" and (5)
"phantom stock awards."
Following is a summary of the terms of the plan, a copy of which we have
attached as Appendix VI to this document. We urge you to read the plan in its
entirety for a more complete description of the terms and conditions of the
plan.
Number of Shares Subject to the Plan
The aggregate maximum number of shares authorized to be issued under the
Plan pursuant to grants of awards is 5,000,000 shares of Energy Convergence
Class A common stock. The aggregate maximum number of shares of Class A common
stock which may be the subject of stock options or restricted stock awards
(subject to performance forfeiture restrictions) or performance awards
denominated in shares of common stock granted to any one individual during any
calendar year may not exceed 1,000,000 shares. In each case, these numbers may
be adjusted upon a reorganization, stock split, recapitalization or other
change in Energy Convergence's capital structure. Further, the maximum value of
any performance award denominated in cash (including the fair market value of
any shares of Class A common stock paid in satisfaction of such performance
award) granted to any one individual during any calendar year may not exceed
$5,000,000. If an award lapses or the rights of an employee in an award
terminate, any shares of Class A common stock subject to the award will again
be available for grant under the plan. Further, any shares of Class A common
stock that remain unissued and are not subject to the outstanding awards at the
termination of the plan will cease to be subject to the plan.
Administration
The plan will be administered by a committee appointed by the board of
Energy Convergence, constituted so as to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, and comprised of two more "outside directors"
(within the meaning of Section 162(m) of the Code).
The committee will have full authority, subject to the terms of the plan, to
establish rules and regulations for the proper administration of the plan and
to interpret the plan and agreements under the plan, to select the persons to
whom awards are granted and to set the date of grant and the other terms of the
awards. When granting awards, the committee will consider such factors as an
employee's duties and present and potential contributions to the company's
success.
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Eligibility
All employees of the company and its affiliates (approximately 6,400 people,
including any employees who may also be a director), and non-employee directors
of Energy Convergence will be eligible to participate in the plan. The
selection of employees and directors who will receive awards will be within the
discretion of the committee.
Term of the Plan
Provided it is approved, the plan will be effective as of the closing of the
merger. No further awards may be granted under the plan after ten years from
the closing of the merger, and the plan will terminate thereafter once all
awards have been satisfied or expired. The board may, however, terminate the
plan at any time without prejudice to the holders of any then outstanding
awards.
Stock Options
a) Term of Option. The term of each option will be as specified by the
committee at the date of grant (but not more than ten years in the case
of incentive stock options). The effect of an employee's termination of
employment because of death, retirement, disability or otherwise will be
specified in the option contract which evidences each option grant.
b) Option Price. The option price will be determined by the committee, but
in the case of incentive stock options only, subject to adjustment upon
a reorganization, stock split, recapitalization, or other change in the
company's capital structure, will be no less than the fair market value
of the shares on the date that the option is granted.
c) Special Rules for Certain Shareholders. If an incentive stock option is
granted to an employee who then owns, directly or by attribution under
the Code, shares possessing more than 10% of the total combined voting
power of all classes of stock of the company or a subsidiary, the term
of the option will not exceed five years, and the option price will be
at least 110% of the fair market value of the shares on the date that
the option is granted.
d) Size of Grant. The number of shares for which an option is granted to an
employee will be determined by the committee.
e) Status of Options. The status of each grant of an option as an incentive
stock option or non-statutory stock option will be designated by the
committee at the time of grant. An incentive stock option may only be
granted to an individual who is an employee of the company or any parent
or subsidiary corporation (within the meaning of Section 424 of the
Code). Further, if the aggregate fair market value (determined as of the
date of grant) of shares with respect to which incentive stock options
become exercisable for the first time by an employee exceeds $100,000 in
any calendar year, the options with respect to the excess shares will be
non-statutory stock options.
f) Payment. The option price upon exercise may, at the discretion of the
committee, be paid by an employee in cash, other shares of Class A
common stock owned by the employee, or by a combination of cash and
Class A common stock. The plan also allows the committee, in its
discretion, to establish procedures for the "cashless exercise" of
options.
g) Option Contract. All options will be evidenced by a written contract
containing provisions consistent with the plan and such other provisions
as the committee deems appropriate.
h) Transferability. An incentive stock option is not transferable other
than by will or the laws of descent and distribution and during the
employee's lifetime may only be exercised by the employee or his/her
guardian or legal representative. A non-statutory stock option is not
transferable other than by will or the laws of descent and distribution,
pursuant to a qualified domestic relations order or with the consent of
the committee.
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i) Grants to Non-Employee Directors. Upon election or appointment as a
director, each non-employee director will receive an option to purchase
3,000 shares of Class A common stock priced at fair market value, which
will vest and become exercisable one year from the date of grant, and
will expire ten years from the date of grant or three years from the
date such director's service on the Board terminates.
Stock Appreciation Rights
The plan permits stock appreciation rights to be granted to eligible
employees in conjunction with the grant of either an incentive stock option or
a non-statutory stock option. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Class A common stock, or a combination
thereof) equal to the number of stock appreciation rights exercised by the
holder multiplied by the excess of the fair market value of Class A common
stock on the exercise date over the stock appreciation rights' exercise price.
A stock appreciation right may be exercised in whole or in such installments
and at such times as determined by the committee.
Restricted Stock
a) Forfeiture. Pursuant to a restricted stock award, shares of common stock
will be issued or delivered to the employee at the time the award is
made without any payment to Energy Convergence (other than for any
payment amount determined by the committee in its discretion), but such
shares will be subject to certain restrictions on the disposition
thereof and certain obligations to forfeit such shares to the company as
may be determined in the discretion of the committee. The committee will
establish the period during which the restrictions on disposition will
be applicable to a restricted stock award and the circumstances under
which such restrictions may lapse based on
. Energy Convergence's attainment of targets established by the
committee that are based on, for instance:
1) the price of a share of Class A common stock,
2) its earnings per share,
3) its market share,
4) the market share of one of its business units designated by the
committee,
5) its sales,
6) the sales of one of its business units designated by the
committee,
7) its net income (before or after taxes) or the net income of any of
its business units designated by the committee,
8) its cash flow return on investment or of any of its business units
designated by the committee,
9) its earnings before or after interest, taxes, depreciation and/or
amortization or of any of its business units designated by the
committee,
10 the economic value added,
11 its return on shareholders' equity, or
12 its total shareholders' return;
. the employee's tenure with the company;
. the occurrence of any event or the satisfaction of any other
condition specified by the committee in its sole discretion; or
. a combination of any of these factors.
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The performance targets may be made subject to adjustment for
significant extraordinary items or events and may be absolute, relative
to one or more other companies, or relative to one or more indices.
Upon the issuance to an employee of shares of Class A common stock
pursuant to a restricted stock award, except for the foregoing
restrictions, such employee will have all the rights of a shareholder
of the company with respect to such shares, including the right to vote
such shares and to receive all dividends and other distributions paid
with respect to such shares. The committee will determine the effect of
the termination of employment of a recipient of restricted stock (by
reason of retirement, disability, death or otherwise) prior to the
lapse of any applicable restrictions.
b) Transferability. If restricted stock is voluntarily or involuntarily
transferred by the employee at any time before it becomes non-
forfeitable, such restricted stock is immediately forfeited and canceled
unless the committee consents to the transfer.
c) Accelerated Vesting. The committee, in its discretion, may fully vest
any outstanding restricted stock award as of a date determined by the
committee, but the committee may not take any action to vest a
restricted stock award that has been granted to a covered employee
(within the meaning of Section 162(m) of the Code) if such award has
been designed to meet the exception for performance-based compensation
under Section 162(m) of the Code.
d) Other Terms and Conditions. The committee may establish other terms and
conditions for the issuance of restricted stock under the plan.
Performance Awards
a) Performance Period. The committee in its sole discretion may grant
performance awards under the plan that may be paid in cash, Class A
common stock, or a combination thereof as determined by the committee.
At the time of the grant, the committee will establish the maximum
number of shares of Class A common stock subject to, or the maximum
value of, each performance award and the performance period over which
the performance applicable to the award will be measured. A performance
award will terminate if the employee's employment with the company
terminates during the applicable performance period, except as otherwise
provided by the committee at the time of grant.
b) Performance Measures. An employee's receipt of cash or Class A common
stock pursuant to a performance award will be contingent upon
satisfaction by Energy Convergence, or any affiliate, division or
department thereof, of performance targets established by the committee
either:
. prior to the beginning of the performance period, or
. within ninety days after the beginning of the performance period if
the outcome of the performance targets is substantially uncertain at
the time the targets are established, but not later than the date
that 25% of the performance period has elapsed.
The performance targets may be made subject to adjustment for
significant extraordinary items or events and may be absolute, relative to
one or more other companies, or relative to one or more indices. The
performance targets may be based upon, for example:
. the price of a share of Class A common stock;
. its earnings per share;
. its market share;
. the market share of any of its business units designated by the
committee;
. its sales;
. the sales of any of its business units designated by the committee;
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. its net income (before or after taxes) or any of its business units
designated by the committee;
. its cash flow return on investment or any of its business units
designated by the committee;
. its earnings before or after interest, taxes, depreciation and/or
amortization or any of its business units designated by the
committee;
. the economic value added;
. its return on shareholders' equity;
. its total shareholders' return; or
. a combination of any of the foregoing.
The committee in its sole discretion may provide for a reduction in the
value of an employee's performance award during the performance period.
c) Payment. Following the end of the performance period, the committee will
determine the amount payable to the employee, not to exceed the maximum
value of the incentive award, based on the achievement of the
performance targets for such performance period. Such payment may be
made in a lump-sum or in installments as prescribed by the committee.
Any payment made in cash will be based upon the fair market value of the
Class A common stock on the payment date.
d) Other Terms and Conditions. The committee may establish other terms and
conditions for performance awards under the plan.
Phantom Stock Awards
a) Forfeiture. Phantom stock awards granted under the plan are rights to
receive shares of Class A common stock or rights to receive amounts
equal to share appreciation over a specific period of time. Such awards
vest over a period of time or upon the occurrence of a specific event(s)
(including, without limitation, a change of control) established by the
committee, without payment of any amounts by the holder thereof (except
to the extent required by law) or satisfaction of any performance
criteria or objectives. A phantom stock award will terminate if the
employee's employment with the company or its affiliates terminates
during the applicable vesting period or, if applicable, the occurrence
of a specific event(s), except as otherwise provided by the committee at
the time of grant.
b) Payment. Payment of a phantom stock award may be made in a lump-sum or
in installments as prescribed by the committee. Any payment made in cash
will be based upon the fair market value of the Class A common stock on
the payment date.
c) Other Terms and Conditions. The committee may establish other terms and
conditions for phantom stock awards under the plan.
Corporate Change
The plan provides that, upon a corporate change, the committee may
accelerate the vesting of options, cancel options and make payments in respect
thereof in cash, adjust the outstanding options as appropriate to reflect such
transaction, or provide that each option shall thereafter be exercisable for
the number and class of securities or property that the optionee would have
been entitled to had the option already been exercised. Upon the occurrence of
a corporate change, the committee may adjust the outstanding restricted stock
awards as appropriate to reflect such a transaction or fully vest such
outstanding restricted stock awards and, upon such vesting, all restrictions
applicable to such restricted stock will terminate. Further, upon the
occurrence of such a transaction, the committee may adjust the outstanding
performance awards or phantom stock awards as appropriate to reflect such
corporate change or cancel any of such outstanding performance awards or
phantom stock awards and make payments in respect thereof in cash, which
payments shall be prorated in the event that the applicable performance or
vesting period with respect to such awards has not been completed. The plan
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provides that a "corporate change" occurs if (a) Energy Convergence is
dissolved and liquidated, (b) Energy Convergence is not the surviving entity in
any merger or consolidation, (c) Energy Convergence sells, leases or exchanges
or agrees to sell, lease or exchange all or substantially all of its assets,
(d) any person, entity or group acquires or gains ownership or control of more
than 50% of the outstanding shares of Energy Convergence's voting stock, or (e)
after a contested election of directors, the persons who were directors before
such election cease to constitute a majority of the board or directors of
Energy Convergence.
Amendments
The board may from time to time amend the plan; however, no amendment which
modifies the class of eligible employees or increases the number of shares of
common stock authorized or available under the plan may be adopted without the
prior approval of the shareholders of Energy Convergence.
Federal Income Tax Aspects of the Plan
Non-Statutory Stock Options and Stock Appreciation Rights. As a general
rule, no federal income tax is imposed on the optionee upon the grant of a non-
statutory stock option such as those under the plan (whether or not including a
stock appreciation right) and Energy Convergence is not entitled to a tax
deduction by reason of such a grant. Generally, upon the exercise of a non-
statutory stock option, the optionee will be treated as receiving compensation
taxable as ordinary income in the year of exercise in an amount equal to the
excess of the fair market value of the shares on the date of exercise over the
option price paid for such shares. In the case of the exercise of a stock
appreciation right, the optionee will be treated as receiving compensation
taxable as ordinary income in the year of exercise in an amount equal to the
cash received plus the fair market value of the shares distributed to the
optionee. Upon the exercise of a non-statutory stock option or a stock
appreciation right, and subject to the application of Section 162(m) of the
Code as discussed below, Energy Convergence may claim a deduction for
compensation paid at the same time and in the same amount as compensation
income is recognized to the optionee, assuming any federal income tax reporting
requirements are satisfied. Upon a subsequent disposition of the shares
received upon exercise of a non-statutory stock option or a stock appreciation
right, any appreciation after the date of exercise should qualify as capital
gain. If the shares received upon the exercise of an option or a stock
appreciation right are transferred to the optionee subject to certain
restrictions, then the taxable income realized by the optionee, unless the
optionee elects otherwise, and the company's tax deduction (assuming any
federal income tax reporting requirements are satisfied) should be deferred and
should be measured at the fair market value of the shares at the time the
restrictions lapse.
Incentive Stock Options. The incentive stock options under the plan are
intended to constitute "incentive stock options" within the meaning of Section
422 of the Code. Incentive stock options are subject to special federal income
tax treatment. No federal income tax is imposed on the optionee upon the grant
or the exercise of an incentive stock option if the optionee does not dispose
of shares acquired pursuant to the exercise within the two-year period
beginning on the date the option was granted or within the one-year period
beginning on the date the option was exercised. In such event, Energy
Convergence would not be entitled to any deduction for federal income tax
purposes in connection with the grant or exercise of the option or the
disposition of the shares so acquired. With respect to an incentive stock
option, the amount by which the fair market value of the stock on the date of
exercise exceeds the exercise price generally will constitute an item of
adjustment for alternative minimum tax purposes. However, if the optionee
exercises an incentive stock option and disposes of the shares received in the
same year, the maximum that will be included as alternative minimum taxable
income will not exceed the amount realized over the adjusted basis of the
shares.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, any appreciation of the shares above the
exercise price should constitute capital gain. If an optionee disposes of
shares acquired pursuant to his or her exercise of an incentive stock option
prior to the end of the holding period, the optionee will be treated as having
received, at the time of disposition, compensation taxable as ordinary income.
The company may claim a deduction for compensation paid at the same time and in
the same amount as compensation is treated as received by the optionee. The
amount treated as compensation is
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the excess of the fair market value of the shares at the time of exercise (or
in the case of a sale in which a loss would be recognized, the amount realized
on the sale if less) over the exercise price; any amount realized in excess of
the fair market value of the shares at the time of exercise would be treated as
short-term or long-term capital gain, depending on the holding period of the
shares.
Restricted Stock. An employee who has been granted restricted stock under
the plan will not realize taxable income at the time of grant, and Energy
Convergence will not be entitled to a deduction at that time, assuming that the
restrictions constitute a substantial risk of forfeiture for federal income tax
purposes. Upon expiration of the forfeiture restrictions (i.e., as shares
become vested), the holder will realize ordinary income in an amount equal to
the excess of the fair market value of the shares at such time over the amount,
if any, paid for such shares, and, subject to the application of Section 162(m)
of the Code as discussed below, the company will be entitled to a corresponding
deduction. Dividends paid to the holder during the period that the forfeiture
restrictions apply will also be compensation to the employee and deductible as
such by the company. Notwithstanding the foregoing, the recipient of restricted
stock may elect to be taxed at the time of grant of the restricted stock based
upon the fair market value of the shares on the date of the award, in which
case (a) subject to Section 162(m) of the Code, Energy Convergence will be
entitled to a deduction at the same time and in the same amount, (b) dividends
paid to the recipient during the period the forfeiture restrictions apply will
be taxable as dividends and will not be deductible by Energy Convergence, and
(c) there will be no further federal income tax consequences when the
forfeiture restrictions lapse.
Performance Awards and Phantom Stock Awards. An employee who has been
granted a performance award or a phantom stock award generally will not realize
taxable income at the time of grant, and Energy Convergence will not be
entitled to a deduction at that time. Whether a performance award or phantom
stock award is paid in cash or shares of Class A common stock, the employee
will have taxable compensation and, subject to the application of Section
162(m) of the Code as discussed below, Energy Convergence will have a
corresponding deduction. The measure of such income and deduction will be the
amount of any cash paid and the fair market value of any shares of Class A
common stock, either at the time the performance award or the phantom stock
award is paid, or at the time any restrictions on the shares (including
restrictions under Section 16(b) of the Exchange Act) subsequently lapse,
depending on the nature, if any, of the restrictions imposed and whether the
employee elects to be taxed without regard to any such restrictions. Any
dividend equivalents paid with respect to a performance award or a phantom
stock award prior to the actual issuance of shares under the award will be
compensation income to the employee and, subject to the application of Section
162(m) of the Code as discussed below, deductible as such by Energy
Convergence.
Section 162(m) of the Code. Section 162(m) of the Code precludes a public
corporation from taking a deduction for annual compensation in excess of
$1,000,000 paid to its Chief Executive Officer or any of its four other highest
paid officers. However, compensation that qualifies under Section 162(m) of the
Code as "performance-based" is specifically exempt from the deduction limit.
Based on Section 162(m) of the Code and the regulations thereunder, Energy
Convergence's ability to deduct compensation income generated in connection
with the exercise of stock options granted under the plan generally should not
be limited by Section 162(m) of the Code. Further, Energy Convergence believes
that compensation income generated in connection with performance awards
granted under the plan should not be limited by Section 162(m) of the Code. The
plan has been designed to provide flexibility with respect to whether
restricted stock awards will qualify as performance-based compensation under
Section 162(m) of the Code and, therefore, be exempt from the deduction limit.
If the forfeiture restrictions relating to a restricted stock award are based
solely upon the satisfaction of one of the performance criteria set forth in
the plan, then Energy Convergence believes that the compensation expense
relating to such an award will be deductible by the company if the restricted
stock becomes vested. However, compensation expense deductions relating to
restricted stock awards will be subject to the Section 162(m) deduction
limitation if the restricted stock becomes vested based upon any other criteria
set forth in such award (such as the occurrence of a merger or similar
transaction or vesting based upon continued employment with the company).
The plan is not qualified under Section 401(a) of the Code.
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The comments set forth in the above paragraphs are only a summary of certain
of the federal income tax consequences relating to the plan. No consideration
has been given to the effects of state, local, or other tax laws on the plan or
award recipients.
Inapplicability of ERISA
Based upon current law and published interpretations, Energy Convergence
does not believe the plan is subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
Acquisitions
Options may be granted in substitution for options held by officers and
employees of other corporations who are about to, or who have, become employees
of Energy Convergence or an affiliate as a result of a merger, consolidation,
acquisition of assets, or similar transaction by the company or an affiliate.
The terms, including the option price, of the substitute options so granted may
vary from the terms set forth in the plan to such extent as the committee may
deem appropriate to conform, in whole or in part, to the provisions of the
options in substitution for which they are granted.
Grants Under the Plan
In accordance with his employment agreement, Mr. C.L. Watson will be
eligible to receive an annual grant of "market" options pursuant to the plan.
In addition, Mr. Watson will receive an initial grant at closing of the merger
of approximately 230,000 options (subject to adjustment depending on the price
of Energy Convergence's stock on the date of closing) with an exercise price
equal to the market price of Energy Convergence's stock on the date of closing
of the merger. Any bonus amounts awarded to Mr. Watson in excess of 200% of his
base salary can be paid in the form of options or other non-cash compensation.
Dynegy and Illinova have not determined any other specific grants for Mr.
Watson or any other executive officers, directors or employees of Dynegy,
Illinova, or Energy Convergence.
Vote Required for Approval
Approval of the plan requires the affirmative vote of the majority of the
votes cast by Dynegy shareholders and the affirmative vote of the majority of
the shares entitled to vote and present in person or represented by proxy at
the Illinova special meeting.
The Dynegy and Illinova boards of directors recommend a vote for approval of
the plan proposal.
LEGAL MATTERS
The validity of the Energy Convergence Class A common stock to be issued in
connection with the merger will be passed upon by Troutman Sanders LLP.
EXPERTS
The audited consolidated financial statements and schedule of Dynegy
incorporated by reference herein have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
The consolidated financial statements of Illinova incorporated in this
document by reference to Illinova's Annual Report on Form 10-K for the year
ended December 31, 1998, have been so incorporated in reliance on the report
(which contains explanatory paragraphs that describe Illinova's commitment to
exit nuclear operations and the resulting impairment of the Clinton Power
Station in accordance with Statement of Financial
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Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," discussed in Note 2 to the
consolidated financial statements, Illinova's quasi-reorganization effective
December 1998, discussed in Note 2 to the consolidated financial statements,
Illinova's adoption of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivatives and Hedging Activities" and Emerging Issues Task
Force Statement 98-10, "Accounting for Energy Trading and Risk Management
Activities," discussed in Note 2 to the consolidated financial statements, and
Illinova's discontinued use of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation," for its
generation segment of the business, discussed in Note 1 to the consolidated
financial statements) of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
FUTURE SHAREHOLDER PROPOSALS
Any Energy Convergence shareholder who intends to submit a proposal for
inclusion in the proxy materials for the 2000 annual meeting of Energy
Convergence must submit such proposal to the Secretary of Energy Convergence by
January 20, 2000. SEC rules set forth standards as to what shareholder
proposals are required to be included. In addition, the Energy Convergence
bylaws provide that any shareholder wishing to make a nomination for director,
or wishing to introduce a proposal or other business, at the 2000 annual
meeting of Energy Convergence must give at least sixty days advance notice,
subject to exceptions, and that notice must meet other requirements set forth
in the Energy Convergence bylaws. The bylaws of Energy Convergence provide that
the annual meeting of shareholders is to be held on May 1st of each year.
If the merger is not completed by the first quarter of 2000, Dynegy expects
to hold an annual meeting of shareholders in the second quarter of 2000. SEC
rules set forth standards as to what shareholder proposals are required to be
included in a proxy statement. The Dynegy bylaws provide that any Dynegy
shareholder wishing to make a nomination for director, or wishing to introduce
a proposal on other business, at the 2000 annual meeting of Dynegy must notify
the Secretary of Dynegy sixty days prior to the meeting, of the shareholder's
intentions and provide certain other information in advance of such meeting, in
accordance with the procedures detailed in the Dynegy bylaws.
If the merger is not consummated, the 2000 annual meeting of shareholders of
Illinova is expected to be held on or about April 30, 2000, and the only
shareholder proposals eligible to be considered for inclusion in the proxy
materials for the 2000 annual meeting of Illinova will be those which were duly
submitted to the Secretary of Illinova by November 10, 1999.
WHERE YOU CAN FIND MORE INFORMATION
Dynegy and Illinova file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Our SEC filings are also available to the public from commercial
document retrieval services and at the Web site maintained by the SEC at
"http://www.sec.gov."
Energy Convergence filed a Registration Statement on Form S-4 to register
with the SEC the Energy Convergence Class A common stock and Series A preferred
stock to be issued to certain Dynegy and Illinova shareholders in the merger
and this joint proxy statement/prospectus constitutes a prospectus of Energy
Convergence in addition to being a joint proxy statement of Dynegy and
Illinova. As allowed by SEC rules, this joint proxy statement/prospectus does
not contain all the information you can find in the registration statement or
the exhibits to the registration statement.
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The SEC permits us to "incorporate by reference" information into this joint
proxy statement/prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The following documents previously filed with the SEC by Illinova
(Commission File Number 1-11327) are incorporated by reference into this
document:
1. Illinova's Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
2. Illinova's Current Report on Form 8-K filed with the SEC on February 12,
1999 relating to Illinova's quasi-reorganization and strategy to sell
the Clinton nuclear facility;
3. Illinova's Current Report on Form 8-K filed with the SEC on March 3,
1999 relating to Illinova's quasi-reorganization;
4. Illinova's Proxy Statement relating to the Annual Meeting of
Shareholders of Illinova held on May 5, 1999 (other than the
compensation committee report and the stock performance chart) (filed as
Exhibit 13.1 to Illinova's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998);
5. Illinova's Current Report on Form 8-K filed with the SEC on April 19,
1999 relating to Illinova's first quarter earnings;
6. Illinova's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999;
7. Illinova's Current Report on Form 8-K filed with the SEC on June 14,
1999 relating to the execution of the merger agreement;
8. Illinova's Current Report on Form 8-K filed with the SEC on June 18,
1999 relating to the transfer of assets to Illinova Power Marketing,
Inc.;
9. Illinova's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999;
10. Illinova's Current Report on Form 8-K filed with the SEC on July 12,
1999 relating to the execution of a definitive agreement to sell the
Clinton nuclear facility; and
11. Illinova's Current Report on For 8-K filed with the SEC on July 16,
1999 relating to Illinova's second quarter earnings.
The following documents previously filed with the SEC by Dynegy (Commission
File Number 1-11156) are incorporated by reference into this document:
1. Dynegy's Annual Report on Form 10-K for the fiscal year ended December
31, 1998;
2. Dynegy's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999;
3. Dynegy's Proxy Statement relating to the Annual Meeting of Shareholders
of Dynegy held on May 21, 1999 (other than the compensation committee
report and stock performance chart);
4. Dynegy's Current Report on Form 8-K filed with the SEC on June 14, 1999
relating to the execution of the merger agreement; and
5. Dynegy's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999;
6. Dynegy's Current Report on Form 8-K filed with the SEC on July 27, 1999
announcing a senior note offering by Dynegy;
7. Dynegy's Current Report on Form 8-K filed with the SEC on July 30, 1999
announcing the filing of a T-1;
8. Dynegy's Current Report on Form 8-K filed with the SEC on August 4, 1999
relating to Dynegy's second quarter earnings.
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We also are incorporating by reference any additional documents that we file
with the SEC between the date of this document and the date election forms are
required to be submitted by Dynegy shareholders.
If you are a shareholder, we may have sent you some of the documents
referenced above, but you can obtain any of them through us or the SEC. You may
obtain documents incorporated by reference without charge by writing or calling
the appropriate party at the following addresses:
Dynegy Inc. Illinova Corporation
Investor Relations Investor Relations
1000 Louisiana Street, Suite 5800 500 South 27th Street
Houston, Texas 77002 Decatur, IL 62525
(713) 507-6400 (217) 424-6600
If you would like to request documents from us, please do so by October 4,
1999 to receive them before the special meetings.
You should rely only on the information contained in this joint proxy
statement/prospectus to vote on the merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated September 8, 1999. You should not assume that
the information contained in the joint proxy statement/prospectus is accurate
as of any date other than such date, and neither the mailing of the joint proxy
statement/prospectus to shareholders nor the issuance of Energy Convergence
Class A common stock in the merger shall create any implication to the
contrary.
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APPENDICES
Appendix IAgreement and Plan of Merger
Appendix IIIllinois Business Corporation Act-Dissenters' Rights
Appendix IIIOpinion of Lehman Brothers, Inc.
Appendix IVOpinion of Berenson Minella & Company
Appendix VOpinion of Chase Securities Inc.
Appendix VIDynegy Inc. 2000 Long Term Incentive Plan
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APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY
AND
AMONG
ILLINOVA CORPORATION,
ENERGY CONVERGENCE HOLDING COMPANY,
ENERGY CONVERGENCE ACQUISITION CORPORATION,
DYNEGY ACQUISITION CORPORATION
AND
DYNEGY INC.
Dated as of June 14, 1999
As modified by Amendment No. 1 to
Agreement and Plan of Merger, dated as of August 30, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of June 14,
1999, is by and among Illinova Corporation, an Illinois corporation
("Illinova"), Energy Convergence Holding Company, an Illinois corporation
("Newco"), Dynegy Acquisition Corporation, a Delaware corporation ("DAC"),
Energy Convergence Acquisition Corporation, an Illinois corporation, ("IAC"
and, together with DAC, Illinova and Newco, the "Illinova Companies"), and
Dynegy Inc., a Delaware corporation ("Dynegy").
WHEREAS, the respective Boards of Directors of Illinova, Dynegy and DAC deem
it advisable and in the best interests of their respective stockholders that
DAC merge with and into Dynegy (the "DAC Merger") upon the terms and subject to
the conditions set forth herein;
WHEREAS, the respective Boards of Directors of Illinova, Dynegy and IAC deem
it advisable and in the best interests of their respective stockholders that
IAC merge with and into Illinova (the "IAC Merger" and, together with the DAC
Merger, the "Mergers") upon the terms and subject to the conditions set forth
herein;
WHEREAS, the Board of Directors of Illinova deems it advisable and in the
best interests of its stockholders that Illinova enter into the Voting
Agreements (herein defined) and such Board has approved the delivery and
performance of the Voting Agreements;
WHEREAS, the Board of Directors of Dynegy deems it advisable and in the best
interests of its stockholders that certain of Dynegy's stockholders enter into
the Voting Agreements;
WHEREAS, simultaneously with the execution of this Agreement, Chevron U.S.A.
Inc., a Pennsylvania corporation ("Chevron"), has entered into a Subscription
Agreement (the "Subscription Agreement") with Newco, by which Chevron will
purchase shares of Newco Common Stock (as defined) for an aggregate
consideration of at least $200 million and up to $240 million at the price per
share set forth therein immediately after the closing of the Mergers;
WHEREAS, simultaneously with the execution of this Agreement, Newco and
British Gas Atlantic Holdings BV, a Netherlands corporation ("BGAH"), have
entered into a Stock Purchase Agreement (the "BG Stock Purchase Agreement"), by
which Newco has agreed to purchase all of the issued and outstanding capital
stock of BG Holdings, Inc., a Delaware corporation ("BG Holdings"), from BGAH
immediately prior to the closing of the Mergers, in return for a combination of
cash and Series A Convertible Preferred Stock (as defined herein) such that
BGAH will receive the same combination of cash and Series A Convertible
Preferred Stock as consideration for the Dynegy Common Stock it owns through BG
Holdings as it would have had it been a holder of Dynegy Common Stock in the
DAC Merger;
WHEREAS, such Boards of Directors have approved the Mergers;
WHEREAS, for federal income tax purposes, the parties intend that the
Mergers will qualify as contributions of stock of Illinova, Dynegy and other
assets to Newco under the provisions of Section 351 of the United States
Internal Revenue Code of 1986, as amended, and any regulations thereunder or
any successor statutes thereto (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Mergers
will be accounted for as a purchase of Illinova by Dynegy.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements contained herein, the parties hereto agree as
follows:
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Article I
DEFINITIONS
As used in this Agreement, including the exhibits, each of the following
capitalized terms is defined as follows:
"Action" means a suit, claim, action, proceeding or investigation.
"Aggregate Common Stock Consideration" is defined in Section 4.1(c).
"Aggregate Merger Consideration" is defined in Section 4.5(a).
"Aggregate Merger Stock Consideration" is defined in Section 4.1(i).
"Agreement" is defined in the preamble to this Agreement.
"Amended and Restated Newco Articles" means the amended and restated
articles of incorporation of Newco, in the form of Exhibit A.
"AmerGen" means AmerGen Energy Company, L.L.C., a Delaware limited
liability company.
"Ancillary Agreements" means any other agreement executed and delivered
in connection herewith, including the Voting Agreements, Registration
Rights Agreements, BG Stock Purchase Agreement, Guaranty of British Gas
Overseas Holdings dated the date hereof, Subscription Agreement and the
Shareholder Agreement.
"Approvals" is defined in Section 9.1(d).
"Assessment" is defined in Section 8.16.
"Atomic Energy Act" means the Atomic Energy Act of 1954, as amended,
including any regulations promulgated thereunder and any successor statutes
thereto.
"Audit" means any audit, assessment of Taxes, other examination by any
Tax Authority, proceeding or appeal of such proceeding relating to Taxes.
"Awards" is defined in Section 4.6(c).
"BG and Nova Shortfall Amount" is defined in the Subscription Agreement.
"BG Holdings" is defined in the recitals to this Agreement.
"BG Stock Purchase Agreement" is defined in the recitals to this
Agreement.
"BGAH" is defined in the recitals to this Agreement.
"Cash Consideration" is defined in Section 4.1(c).
"Cash Election Shares" is defined in Section 4.1(d).
"Certificate of Merger" is defined in Section 2.2.
"Chevron" is defined in the recitals to this Agreement.
"Closing" is defined in Section 4.7.
"Closing Date" is defined in Section 4.7.
"Code" is defined in the recitals to this Agreement.
"Common Stock Consideration" is defined in Section 4.1(c).
"Confidentiality Agreements" means the Confidentiality Agreements, dated
May 13, 1998, and December 29, 1998, between Illinova and Dynegy.
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"Customary Post-Closing Consents" is defined in Section 5.4(b)(i).
"DAC" is defined in the preamble to this Agreement.
"DAC Merger" is defined in the recitals to this Agreement.
"DAC Surviving Corporation" is defined in Section 2.1(a).
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"Disclosure Schedules" is defined in Section 12.10(a).
"Dynegy" is defined in the preamble to this Agreement.
"Dynegy Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination directly
or indirectly involving Dynegy or any Dynegy Subsidiary or the acquisition
of a substantial equity interest in, or a substantial portion of the assets
of, any such party, other than (i) the Transactions and (ii) any such
offer, proposal or indication of interest with respect to Dynegy's business
related to the fractionation and processing of natural gas to produce
natural gas liquids, and the transporting and marketing of such natural gas
liquids.
"Dynegy Balance Sheet" is defined in Section 5.7.
"Dynegy Balance Sheet Date" is defined in Section 5.7.
"Dynegy Benefit Plans" is defined in Section 5.11(a).
"Dynegy Breach" is defined in Section 11.1(d).
"Dynegy Cash Number" means the sum of (i) the product of the number of
shares of Dynegy Stock outstanding as of the Election Date and 0.4 and (ii)
the quotient of the BG and Nova Shortfall Amount pursuant to the
Subscription Agreement and $16.50.
"Dynegy Common Stock" means the common stock, par value $.01, of Dynegy.
"Dynegy Common Stock Certificate" is defined in Section 4.1(j).
"Dynegy De minimis Shares" is defined in Section 4.1(d).
"Dynegy Director Nominees" is defined in Section 3.3(c)(i).
"Dynegy Disclosure Schedule" is defined in the introductory paragraph to
Article V.
"Dynegy Engagement Letters" is defined in Section 5.19.
"Dynegy ERISA Affiliate" is defined in Section 5.11(a).
"Dynegy Material Adverse Effect" means any event, circumstance,
condition, development or occurrence causing, resulting in or having (or
with the passage of time likely to cause, result in or have) a material
adverse effect on the financial condition, business, assets, properties, or
results of operations of Dynegy and its Subsidiaries, taken as a whole.
"Dynegy Power Generation Facilities" means Dynegy's power generation
facilities listed in Item 2 in the Annual Report on Form 10-K of the Dynegy
SEC Reports for the year ended December 31, 1998.
"Dynegy Preferred Stock" is defined in Section 5.2(a).
"Dynegy Preferred Stock Certificate" is defined in Section 4.1(j).
"Dynegy Public Stockholders" is defined in Section 5.21.
"Dynegy Qualifying Facilities" means power generation facilities in
which Dynegy owns an interest that are Qualifying Facilities.
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"Dynegy SEC Reports" is defined in Section 5.5.
"Dynegy Special Meeting" is defined in Section 8.12(a).
"Dynegy Stock" means the Dynegy Common Stock and Dynegy Preferred Stock.
"Dynegy Stock Certificates" is defined in Section 4.1(j).
"Dynegy Stock Options" is defined in Section 4.6(a).
"Dynegy Stockholders' Approval" is defined in Section 5.16.
"Dynegy Superior Proposal" is defined in Section 11.1(h).
"Dynegy Unregulated Facilities" means the power generation facilities in
which Dynegy owns an interest that are either (i) Qualifying Facilities or
(ii) owned by "exempt wholesale generators" or "foreign utility companies"
as defined in PUHCA.
"Effective Time" is defined in Section 2.2.
"Election" is defined in Section 4.1(c).
"Election Date" is defined in Section 4.4(d).
"Enforceable" an agreement is "enforceable" if it is the legal, valid
and binding obligation of the applicable Person enforceable against such
Person in accordance with its terms, except as such enforceability may be
subject to the effects of bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting the rights of creditors
and general principals of equity.
"Environmental Laws" means federal, state, local and foreign
environmental protection, health and safety or similar laws, statutes,
ordinances, restrictions, licenses, rules, regulations, permit conditions
and legal requirements imposing liability or establishing standards of
conduct for protection of the environment, including the Federal Clean
Water Act, Safe Drinking Water Act, Resource Conservation and Recovery Act,
Clean Air Act, Toxic Substances Control Act, Outer Continental Shelf Lands
Act, Comprehensive Environmental Response, Compensation and Liability Act,
and Emergency Planning and Community Right to Know Act, each as amended and
currently in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Parachute Payments" is defined in Section 5.9(b).
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, including any regulations promulgated thereunder and any successor
statutes thereto.
"Exchange Agent" is defined in Section 4.4(a).
"Exchange Fund" is defined in Section 4.5(a).
"Exchange Ratio" is defined in Section 4.1(c).
"Expenses" means all reasonable out-of-pocket expenses (including all
reasonable fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Registration Statement,
the Proxy Statement/Prospectus, the solicitation of stockholder approvals,
requisite filings under the HSR Act and all other matters related to the
consummation of the Transactions.
"FERC" means the Federal Energy Regulation Commission.
"Form of Election" is defined in Section 4.4(b).
"GAAP" means United States generally accepted accounting principles in
effect on the date hereof.
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"Governmental Authority" means any governmental or regulatory authority
or agency.
"Hazardous Substances" means any chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, mixed hazardous waste
substances, petroleum, petroleum products or any substance regulated under
any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, including any regulations promulgated thereunder and any
successor statutes thereto.
"IBCA" means the Illinois Business Corporation Act of 1983, as amended.
"ICC" means the Illinois Commerce Commission.
"IAC" is defined in the preamble to this Agreement.
"IAC Common Stock" means the common stock, no par value, of IAC.
"IAC Merger" is defined in the recitals to this Agreement.
"IAC Surviving Corporation" is defined in Section 2.1(b).
"Illinova" is defined in the preamble to this Agreement.
"Illinova Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or other business combination directly
or indirectly involving Illinova or any Illinova Subsidiary or the
acquisition of a substantial equity interest in, or a substantial portion
of the assets of, any such party, other than the Transactions.
"Illinova Average Price" means the mean average of the closing prices on
the New York Stock Exchange, Inc. of the Illinova Common Stock over 20
consecutive trading days ending on the Election Date.
"Illinova Balance Sheet" is defined in Section 6.7.
"Illinova Balance Sheet Date" is defined in Section 6.7.
"Illinova Benefit Plans" is defined in Section 6.11(a).
"Illinova Breach" is defined in Section 11.1(c).
"Illinova Common Stock" means the common stock, no par value, of
Illinova.
"Illinova Companies" is defined in the preamble to this Agreement.
"Illinova Consideration" is defined in Section 4.2(c).
"Illinova Director Nominees" is defined in Section 3.3(c)(i).
"Illinova Disclosure Schedule" is defined in the introductory paragraph
to Article VI.
"Illinova Dissenting Shares" is defined in Section 4.2(e).
"Illinova Engagement Letters" is defined in Section 6.19.
"Illinova ERISA Affiliate" is defined in Section 6.11(a).
"Illinova Material Adverse Effect" means any event, circumstance,
condition, development or occurrence causing, resulting in or having (or
with the passage of time likely to cause, result in or have) a material
adverse effect on the financial condition, business, assets, properties, or
results of operations of Illinova and its Subsidiaries, taken as a whole.
"Illinova Power Generation Facilities" means Illinova's power generation
facilities listed in Item 2 in the Annual Report on Form 10-K of the
Illinova SEC Reports for the year ended December 31, 1998.
"Illinova SEC Reports" is defined in Section 6.5.
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"Illinova Special Meeting" is defined in Section 8.12(b).
"Illinova Stock Options" is defined in Section 4.6(b).
"Illinova Stock Certificate" is defined in Section 4.2(d).
"Illinova Stockholders' Approval" is defined in Section 6.16.
"Illinova Superior Proposal" is defined in Section 11.1(j).
"Illinova Unregulated Facilities" means the power generation facilities
in which Illinova owns an interest that are either (i) Qualifying
Facilities or (ii) owned by "exempt wholesale generators" or "foreign
utility companies" as defined in PUHCA.
"Indemnified Party" is defined in Section 8.3(a).
"Inspected Party" is defined in Section 8.16.
"Inspecting Party" is defined in Section 8.16.
"Integration Committee" is defined in Section 7.3(b).
"Intellectual Property" is defined in Section 5.18.
"Interim Agreement" means the Interim Agreement relative to the Clinton
Nuclear Power Station, dated March 31, 1999, by and among IPC, PECO and
AmerGen.
"IPC" means Illinois Power Company, an Illinois corporation.
"Liens" is defined in Section 5.2(b).
"Mergers" is defined in the recitals to this Agreement.
"Newco" is defined in the preamble to this Agreement.
"Newco Class B Common Stock" means the Class B Common Stock, no par
value, of Newco, to be issued pursuant to the Amended and Restated Newco
Articles.
"Newco Common Stock" means the Class A Common Stock, no par value, of
Newco, to be issued pursuant to the Amended and Restated Newco Articles.
"Nova" means Nova Gas Services (U.S.) Inc., a Delaware corporation.
"NRC" means the Nuclear Regulatory Commission.
"Nuclear Advisory Committee" is defined in Section 7.3(a)(ii).
"Nuclear Facility" means IPC's nuclear facility in DeWitt County,
Illinois.
"Nuclear Facility Agreements" means (i) the Management Services
Agreement, dated January 15, 1998, by and between IPC and PECO, as amended
to the date hereof, (ii) the Incentive Compensation Agreement to Amend the
Management Services Agreement, dated May 19, 1998, by and between IPC and
PECO, and (iii) the Interim Agreement.
"NYSE" is defined in Section 8.14.
"Order" means any order, judgment or decree of any court or any other
Governmental Authority.
"PBGC" is defined in Section 5.11(b).
"PECO" means PECO Energy Company, a Pennsylvania corporation.
"Person" means a natural person, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Authority.
"Power Act" means the Federal Power Act, as amended, including any
regulations promulgated thereunder and any successor statutes thereto.
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"Predecessor Company Stock Options" is defined in Section 4.6(b).
"Preferred Stock Consideration" is defined in Section 4.1(h).
"Principal Power Facilities" means the following facilities owned by
Illinova: Baldwin Power Station, Havana Power Station, Hennepin Power
Station, Vermilion Power Station, Wood River Power Station, Oglesby Gas
Turbine, Stallings Gas Turbine, and Tilton Energy Center.
"Proxy Statement/Prospectus" is defined in Section 5.17.
"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended, including any regulations promulgated thereunder or any successor
statutes thereto.
"PURPA" means the Public Utility Regulatory Policies Act of 1978, as
amended, including any regulations promulgated thereunder or any successor
statutes thereto.
"Qualifying Facilities" means a "qualifying cogeneration facility" or
"qualifying small power production facility," as defined in PURPA.
"Registration Statement" is defined in Section 5.17.
"Registration Rights Agreements" means (i) the Registration Rights
Agreement by and among Newco, BGAH and Nova, dated the date hereof, as
amended from time to time, and (ii) the Registration Rights Agreement, by
and between Newco and Chevron, dated the date hereof, as amended from time
to time.
"Replacement Plans" is defined in Section 8.11.
"Retained Employees" is defined in Section 8.11.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, including
any regulations promulgated thereunder and any successor statutes thereto.
"Series A Convertible Preferred Stock" means the Series A Convertible
Preferred Stock of Newco to be authorized pursuant to the Statement of
Resolution Establishing Series A Convertible Preferred Stock of Newco, in
the form of Exhibit B.
"Shareholder Agreement" means the Shareholder Agreement, dated as of the
date hereof, among Newco, Illinova, Dynegy and Chevron.
"Staff" is defined in Section 9.3(f)(iii).
"Staff Objection" is defined in Section 9.3(f)(iii).
"Stock Election Shares" is defined in Section 4.1(f)(i).
"Subscription Agreement" is defined in the recitals to this Agreement.
"Subsidiary" means, with respect to any party, any Person of which (x)
at least a majority of the securities or other interests having by their
terms voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such Person is directly or
indirectly beneficially owned or controlled by such Person or by any one or
more of its subsidiaries, or by such party and one or more of its
subsidiaries, or (y) such party or any Subsidiary of such party is a
general partner of a partnership or a manager of a limited liability
company.
"Surviving Corporations" is defined in Section 2.1(b).
"Tax Authority" means the Internal Revenue Service and any other
domestic or foreign Governmental Authority responsible for the
administration of any Taxes.
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"Tax Returns" means all originally filed or amended federal, state and
local tax returns, declarations, statements, certifications, notices,
reports, schedules, forms, claim for refund and information returns
relating to Taxes, including any schedule or attachment thereto.
"Taxes" means all Federal, state, local and foreign taxes, and other
assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax, or penalties
applicable thereto.
"Termination Date" means May 31, 2000.
"Transactions" means the transactions contemplated by this Agreement.
"Voting Agreements" means the Voting Agreements, dated as of the date
hereof, between Illinova and each of Nova, BG Holdings and Chevron under
which such parties have among other things agreed to support the DAC Merger
upon the terms and conditions set forth therein.
"Voting Agreement Parties" is defined in Section 5.21.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
of 1988 including any regulations promulgated thereunder and any successor
statutes thereto.
Article II
THE MERGERS
Section 2.1 The Mergers.
(a) Upon the terms and subject to the conditions hereof, at the Effective
Time, DAC shall merge with and into Dynegy and the separate corporate existence
of DAC will thereupon cease and Dynegy will be the surviving corporation in the
DAC Merger (sometimes referred to as the "DAC Surviving Corporation"). The DAC
Merger will have the effects set forth in Section 259 of the DGCL, including
the DAC Surviving Corporation's succession to and assumption of all rights and
obligations of Dynegy and DAC.
(b) Upon the terms and subject to the conditions hereof, at the Effective
Time, IAC shall merge with and into Illinova and the separate corporate
existence of IAC will thereupon cease and Illinova will be the surviving
corporation in the IAC Merger (sometimes referred to as the "IAC Surviving
Corporation" and, together with the DAC Surviving Corporation, the "Surviving
Corporations"). The IAC Merger will have the effects set forth in Section 11.50
of the IBCA, including the IAC Surviving Corporation's succession to and
assumption of all rights and obligations of Illinova and IAC.
Section 2.2 Effective Time of the Mergers.
Subject to the provisions of this Agreement, as soon as practicable on or
after the Closing Date, the parties shall file articles or a certificate of
merger (individually, a "Certificate of Merger" and collectively, the
"Certificates of Merger") executed in accordance with the relevant provisions
of the DGCL and the IBCA and shall make all other filings or recordings
required under the DGCL and the IBCA, as applicable, to effect both Mergers.
Each Merger shall become effective at such time as is specified in the
applicable Certificate of Merger (the time at which both Mergers have become
fully effective is referred to as the "Effective Time").
Section 2.3 Tax and Accounting Treatment.
The parties intend that (i) the Mergers will constitute a contribution of
assets to Newco under Section 351 of the Code, (ii) the Mergers will be
accounted for as a purchase of Illinova by Dynegy for financial accounting
purposes, and (iii) the Mergers will be treated as a reverse acquisition of
Illinova by Dynegy whereby the consolidated group of corporations of which
Dynegy is the parent for purposes of Treasury Regulation Section 1.1502 is
considered remaining in existence pursuant to Treasury Regulation Section
1.1502-75(d)(3)(i).
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Article III
THE SURVIVING CORPORATION
Section 3.1 Certificate/Articles of Incorporation.
(a) The certificate of incorporation of Dynegy in effect immediately prior
to the Effective Time will be amended and restated to be substantially
identical to the certificate of incorporation of DAC and such amended and
restated certificate of incorporation will be the certificate of incorporation
of the DAC Surviving Corporation at and after the Effective Time until
thereafter amended in accordance with its terms and the DGCL.
(b) The articles of incorporation of Illinova in effect immediately prior to
the Effective Time will be amended and restated to be substantially identical
to the articles of incorporation of IAC and such amended and restated articles
of incorporation will be the articles of incorporation of the IAC Surviving
Corporation at and after the Effective Time until thereafter amended in
accordance with their terms and the IBCA.
(c) The Amended and Restated Newco Articles as in effect on August , 1999
(which shall continue in effect (other than amendments to the name of Newco)
until the Effective Time), will continue to be the articles of incorporation of
Newco at and after the Effective Time until thereafter amended in accordance
with their terms and the IBCA; provided, however, each party acknowledges and
agrees that the Board of Directors of Newco will prior to the Effective Time
adopt a resolution pursuant to Section 6.10 of the IBCA to authorize and
establish the Series A Convertible Preferred Stock.
Section 3.2 Bylaws.
(a) The bylaws of DAC Surviving Corporation shall be amended at the
Effective Time to be identical to the bylaws of DAC as in effect immediately
prior to the Effective Time will be the bylaws of the DAC Surviving Corporation
until thereafter amended in accordance with their terms and as provided by the
certificate of incorporation of the DAC Surviving Corporation and the DGCL.
(b) The bylaws of IAC as in effect immediately prior to the Effective Time
will be the bylaws of the IAC Surviving Corporation until thereafter amended in
accordance with their terms and as provided by the articles of incorporation of
the IAC Surviving Corporation and the IBCA.
(c) The bylaws of Newco as in effect on August , 1999 (which shall
continue in effect until the Effective Time) will be the bylaws of Newco until
thereafter amended in accordance with their terms and as provided by the
articles of incorporation of Newco and the IBCA.
Section 3.3 Directors and Officers.
(a) At and after the Effective Time, the directors and officers of the DAC
Surviving Corporation will be the same as the directors and officers of Dynegy
immediately prior thereto, until their respective successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the DAC Surviving Corporation's certificate of
incorporation and bylaws.
(b) At and after the Effective Time, the directors and officers of the IAC
Surviving Corporation will be the same as the directors and officers of
Illinova immediately prior thereto, until their respective successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the IAC Surviving Corporation's
articles of incorporation and bylaws.
(c) Newco's Board, Committees, Executive Officers.
(i) Prior to the Effective Time, (A) Illinova's Board of Directors will
select from among the current members of Illinova's Board of Directors
seven individuals (the "Illinova Director Nominees") for
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nomination as directors of Newco, which nominees will include Mr. Charles
Bayless, and (B) Dynegy's Board of Directors will select from among the
current members of Dynegy's Board of Directors seven individuals (including
three nominated by Chevron) (the "Dynegy Director Nominees") for nomination
as directors of Newco, which nominees will include Mr. C.L. Watson and who
shall serve as Chairman of the Board of Directors if he is willing and able
to do so. Prior to the Effective Time, Illinova will cause Newco and its
directors to nominate and elect the Dynegy Director Nominees and the
Illinova Director Nominees to be directors of Newco for a term expiring at
Newco's next annual meeting of shareholders following the Effective Time,
subject to being renominated as a director at the discretion of Newco's
Board of Directors. If at any time prior to the Effective Time, any Dynegy
Director Nominee or Illinova Director Nominee is unable to serve as a
director at the Effective Time, the Board of Directors that designated such
individual as provided herein will designate another individual to serve in
such individual's place.
(ii) The composition of the committees of Newco's Board of Directors
immediately subsequent to the Effective Time (including the chairman
thereof) will be as designated prior to the Effective Time in a manner
consistent with the bylaws of Newco and reasonably acceptable to Illinova
and Dynegy with the objective being that the committees initially have
approximately equal representation from among the Dynegy Director Nominees
(each of which committee's members shall include at least one nominee of
Chevron) and the Illinova Director Nominees; provided that the Nominating
Committee of Newco initially shall be constituted of three members of which
two will be independent members of, and will be designated by, the Dynegy
Board of Directors and one will be an independent member of, and will be
designated by, the Illinova Board of Directors.
(iii) Effective as of the Effective Time, Newco's Board of Directors
shall elect the officers of Newco, provided (A) C.L. Watson shall be
elected President and Chief Executive Officer if he is willing and able to
serve, and (B) absent cause, the remaining officers shall be elected by the
Board of Directors if so required by Newco's bylaws, upon the
recommendation of, or, if not required to be so elected, as appointed by,
the President and Chief Executive Officer in each instance to serve until
the earlier of such officer's resignation or removal or until such
officer's successor is duly elected.
Article IV
CONVERSION OF SHARES
Section 4.1 Conversion of Dynegy Capital Stock.
As of the Effective Time, by virtue of the DAC Merger and without any action
on the part of DAC, Dynegy, Newco or the holders of any of the capital stock
described below:
(a) Each outstanding share of DAC Common Stock will be converted into
and become one share of common stock of the DAC Surviving Corporation with
the same rights, powers and privileges as the shares so converted and,
except as provided in Section 4.1(b), shall constitute the only shares of
the DAC Surviving Corporation's capital stock.
(b) All shares of Dynegy Common Stock that are held in Dynegy's treasury
will be canceled and no cash, Newco capital stock or other consideration
shall be delivered in exchange therefor. All shares of Dynegy Common Stock
owned by Illinova, Newco or any of their Subsidiaries shall be canceled
except for shares owned by BG Holdings, all of which shall be converted
into an aggregate of 318 shares of DAC Surviving Corporation common stock,
and continue to remain outstanding and shall not be converted into the
Common Stock Consideration as contemplated by Section 4.1(c).
(c) Subject to the provisions of Section 4.1(e), each outstanding share
of Dynegy Common Stock (other than shares of Dynegy Common Stock to be
treated in accordance with Section 4.1(b)) will be converted into either
(x) $16.50 in cash (the "Cash Consideration") or (y) 0.69 (the "Exchange
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Ratio") fully paid and non-assessable shares of Newco Common Stock (the
"Common Stock Consideration" and, together with the Cash Consideration, the
"Aggregate Common Stock Consideration"), in each case as the holder thereof
shall have elected or be deemed to have elected (an "Election") in
accordance with Section 4.1(d).
(d) (i) Subject to the procedures set forth in Section 4.4, each holder
of record of shares of Dynegy Common Stock outstanding immediately prior to
the Election Date who makes a valid election to receive Cash Consideration
pursuant to Section 4.4 will be entitled to receive the Cash Consideration
in respect of such shares. In addition, each holder who would, absent such
an election, be entitled to receive a fractional share of Newco Common
Stock (the "Dynegy De minimis Shares") shall be deemed to elect Cash
Consideration to the extent of such fractional shares. (Collectively the
shares described in the two preceding sentences shall be the "Cash Election
Shares.") All other holders of record of shares of Dynegy Common Stock
outstanding immediately prior to the Election Date will be deemed to elect
to receive the Common Stock Consideration in respect of such shares.
(ii) Notwithstanding the foregoing, solely for purposes of calculating
the number of shares of Dynegy Common Stock to receive Cash Consideration
and Common Stock Consideration under Section 4.1(e), the shares of Dynegy
Common Stock held by BG Holdings will be deemed to be Cash Election Shares,
even though as a result of Section 4.1(b), its shares of Dynegy Common
Stock will be converted into shares of common stock of the DAC Surviving
Corporation.
(e) Notwithstanding anything in this Agreement to the contrary:
(i) the number of shares of Dynegy Common Stock to be converted into
the right to receive the Cash Consideration will be equal to the Dynegy
Cash Number, and
(ii) the number of shares of Dynegy Common Stock to be converted
into the right to receive the Common Stock Consideration will be equal
to (x) the number of shares of Dynegy Common Stock outstanding
immediately prior to the Effective Time (ignoring for this purpose any
Dynegy Common Stock held as treasury shares) less (y) the Dynegy Cash
Number.
(f) To the extent the aggregate number of Cash Election Shares exceeds
the Dynegy Cash Number, the Cash Consideration shall be prorated as
follows:
(i) all shares of Dynegy Common Stock in respect of which Elections
to receive Common Stock Consideration have been made or deemed to have
been made (the "Stock Election Shares") will be converted into the
right to receive the Common Stock Consideration; and
(ii) the Cash Election Shares will be converted into the right to
receive the Cash Consideration or the Common Stock Consideration in the
following manner:
(A) the Dynegy De minimis Shares shall be converted into Cash
Consideration;
(B) the number of Cash Election Shares, other than Dynegy De
minimis Shares, covered by each Form of Election to be converted
into Cash Consideration will be determined by multiplying the number
of Cash Election Shares covered by such Form of Election by a
fraction, (I) the numerator of which is the Dynegy Cash Number less
the number of shares of Dynegy Common Stock converted into cash
pursuant to clause (A) and (II) the denominator of which is the
aggregate number of Cash Election Shares less the number of shares
of Dynegy Common Stock converted into cash pursuant to clause (A);
and
(C) all Cash Election Shares not converted into Cash
Consideration in accordance with clause (A) or (B) will be converted
into the right to receive the Common Stock Consideration.
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(g) The Exchange Agent, in consultation with Illinova and Dynegy, will
make all computations to give effect to this Section 4.1.
(h) At the Effective Time, each outstanding share of Dynegy Preferred
Stock will be converted into the right to receive 0.69 shares of Newco
Class B Common Stock (the "Preferred Stock Consideration").
(i) Notwithstanding the foregoing, (i) for each share of Common Stock
Consideration Nova otherwise would be entitled to receive, in lieu thereof
it shall receive that number of shares of Newco Series A Convertible
Preferred Stock equal to the quotient of the Illinova Average Price divided
by $50.00 and (ii) to the extent Chevron is entitled to receive Common
Stock Consideration, in lieu thereof it shall receive one share of Newco
Class B Common Stock for each share of Newco Common Stock it was to receive
(collectively, together with the Common Stock Consideration and the
Preferred Stock Consideration, the "Aggregate Merger Stock Consideration").
(j) Except as contemplated by Section 4.1(b), the Dynegy Stock which is
converted will no longer be outstanding and will automatically be canceled
and retired and will cease to exist, and the holder of a certificate that,
immediately prior to the Effective Time, represented outstanding shares of
Dynegy Common Stock ("Dynegy Common Stock Certificate") and Dynegy
Preferred Stock ("Dynegy Preferred Stock Certificate" and, together with
the Dynegy Common Stock Certificates, the "Dynegy Stock Certificates") will
cease to have any rights with respect thereto, except the right to receive,
upon the surrender of (i) a Dynegy Common Stock Certificate, the applicable
Aggregate Common Stock Consideration to which such holder is entitled
pursuant to this Article IV, and (ii) a Dynegy Preferred Stock Certificate,
the Preferred Stock Consideration to which such holder is entitled pursuant
to this Article IV. Until surrendered as contemplated by this Section 4.1,
each Dynegy Stock Certificate will be deemed, at any time after the
Effective Time, to represent only the right to receive upon such surrender
the applicable Aggregate Merger Consideration as contemplated by this
Article IV. Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time, the outstanding shares of Illinova Common
Stock, Dynegy Common Stock or Dynegy Preferred Stock have been changed into
a different number of shares or a different class because of any stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Exchange Ratio and the Cash
Consideration will be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
(k) No dividends or other distributions with a record date after the
Effective Time will be paid to the holder of any unsurrendered Dynegy Stock
Certificate with respect to the Aggregate Merger Stock Consideration
represented thereby until the holder of record of such Dynegy Stock
Certificate has surrendered such Dynegy Stock Certificate in accordance
with Section 4.5. Subject to applicable laws, following surrender of any
such Dynegy Stock Certificates, there will be paid to the record holder of
the certificate or certificates representing the Aggregate Merger Stock
Consideration issued in exchange therefor, without interest, (i) the amount
of dividends or other distributions with a record date on or after the
Effective Time theretofore paid with respect to such Aggregate Merger Stock
Consideration, and (ii) if the payment date for any dividend or
distribution payable with respect to such Aggregate Merger Stock
Consideration has not occurred prior to the surrender of such Dynegy Stock
Certificate, at the appropriate payment date therefor, the amount of
dividends or other distributions with a record date on or after the
Effective Time but prior to the surrender of such Dynegy Stock Certificate.
(l) All Aggregate Merger Consideration issued upon the surrender of
Dynegy Stock Certificates in accordance with the terms hereof will be
deemed to have been issued in full satisfaction of all rights pertaining to
such Dynegy Stock Certificates and the Dynegy Stock formerly represented
thereby, and from and after the Effective Time, there will be no further
registration of transfers effected on the stock transfer books of the DAC
Surviving Corporation of shares of Dynegy Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Dynegy Stock Certificates are presented to the DAC Surviving Corporation
for any reason, they will be canceled and converted as provided in this
Article IV.
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Section 4.2 Conversion of Illinova Common Stock.
As of the Effective Time, by virtue of the IAC Merger and without any action
on the part of IAC, Illinova, or Newco, or the holders of any of the capital
stock described below:
(a) Each outstanding share of IAC Common Stock will be converted into
and become one share of common stock of the IAC Surviving Corporation with
the same rights, powers and privileges as the shares so converted and shall
constitute the only shares of the IAC Surviving Corporation's capital
stock.
(b) All shares of Illinova Common Stock that are held in Illinova's
treasury and shares of Illinova Common Stock owned by Dynegy or any of its
Subsidiaries will be canceled and no cash, Newco capital stock or other
consideration shall be delivered in exchange therefor.
(c) At the Effective Time, each outstanding share of Illinova Common
Stock will be converted into one share of Newco Common Stock (the "Illinova
Consideration").
(d) All Illinova Common Stock, when converted, will no longer be
outstanding and will automatically be canceled and retired and will cease
to exist, and the holder of a certificate that, immediately prior to the
Effective Time, represented outstanding shares of Illinova Common Stock
("Illinova Stock Certificate") will cease to have any rights with respect
thereto, except the right to receive, upon the surrender of an Illinova
Stock Certificate, the Illinova Consideration to which such holder is
entitled pursuant to this Article IV. Until surrendered as contemplated by
this Section 4.2, each Illinova Stock Certificate will be deemed, at any
time after the Effective Time, to represent only the right to receive upon
such surrender the Illinova Consideration as contemplated by this Article
IV.
(e) Holders of shares of Illinova Common Stock who have complied with
requirements for perfecting dissenters' rights under Section 11.70 of the
IBCA will be entitled to exercise such rights with respect to the shares as
to which such rights have been perfected ("Illinova Dissenting Shares"), to
the extent available under Section 11.70 of the IBCA. Illinova Dissenting
Shares shall be entitled to receive such consideration as will be
determined under Section 11.70 of the IBCA, and upon receipt of such
consideration, such Illinova Dissenting Shares will cease to be issued and
outstanding. Shares of Illinova Common Stock that are outstanding
immediately prior to the Effective Time and with respect to which
dissenters' rights under the IBCA may be, but have not yet been, perfected,
will, if and when such dissenters' rights can no longer be legally
perfected or exercised under the IBCA, be converted into Newco Common
Stock.
(f) No dividends or other distributions with a record date after the
Effective Time will be paid to the holder of any unsurrendered Illinova
Stock Certificate with respect to the Illinova Consideration represented
thereby until the holder of record of such Illinova Stock Certificate has
surrendered such Stock Certificate in accordance with Section 4.5. Subject
to applicable laws, following surrender of any such Illinova Stock
Certificates, there will be paid to the record holder of the certificate or
certificates representing the Illinova Consideration issued in exchange
therefor, without interest, (i) the amount of dividends or other
distributions with a record date on or after the Effective Time theretofore
paid with respect to such Illinova Consideration, and (ii) if the payment
date for any dividend or distribution payable with respect to such Illinova
Consideration has not occurred prior to the surrender of such Illinova
Stock Certificate, at the appropriate payment date therefor, the amount of
dividends or other distributions with a record date on or after the
Effective Time but prior to the surrender of such Illinova Stock
Certificate.
(g) All Newco Common Stock issued upon the surrender of Illinova Stock
Certificates in accordance with the terms hereof will be deemed to have
been issued in full satisfaction of all rights pertaining to such Illinova
Stock Certificates and the Illinova Common Stock formerly represented
thereby, and from and after the Effective Time, there will be no further
registration of transfers effected on the stock transfer books of the IAC
Surviving Corporation of shares of Illinova Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Illinova Stock Certificates are presented to the IAC Surviving Corporation
for any reason, they will be canceled and exchanged as provided in this
Article IV.
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Section 4.3 Conversion of Newco Capital Stock.
At the Effective Time, by virtue of the Mergers and without any action on
the part of IAC, DAC, or Newco, or the holders of any of the capital stock
described below:
(a) Each outstanding share of Newco Common Stock issued and outstanding
immediately prior to the Effective Time will be canceled and no cash or
other consideration will be delivered in exchange therefor.
(b) Each outstanding share of Series A Convertible Preferred Stock of
Newco will remain issued and outstanding.
Section 4.4 Dynegy Common Stock Procedures.
(a) Newco shall authorize one or more transfer agent(s) reasonably
acceptable to Dynegy to receive Elections and to act as Exchange Agent
hereunder (the "Exchange Agent") with respect to each Merger.
(b) Newco shall prepare, for use by Dynegy's Common Stockholders in
surrendering Certificates, a form (the "Form of Election") pursuant to which
each Dynegy Common Stockholder may make an Election. The Form of Election shall
be mailed to the Dynegy Common Stockholders as of a date on which Dynegy and
Illinova mutually agree, which date is expected to be approximately 30 days
prior to the expected Closing Date.
(c) Dynegy shall use all reasonable efforts to make the Form of Election
available to all Persons who become Dynegy Common Stockholders of record
between the date on which the Form of Election is distributed to the Dynegy
Common Stockholders and the Election Date.
(d) An Election shall have been properly made only if the Exchange Agent
shall have received, by 5:00 p.m., Eastern time, two business days (the
"Election Date") prior to the Effective Time, or at such other time as Dynegy
and Illinova agree, a Form of Election properly completed and signed and
accompanied by the Dynegy Common Stock Certificate or Certificates to which
such Form of Election relates (or by an appropriate guarantee of delivery of
such Certificate or Certificates as set forth in such Form of Election from a
member of any registered national securities exchange or of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States, provided such
Certificate or Certificates are in fact delivered by the time set forth in such
guarantee of delivery).
(e) Any Dynegy Common Stockholder may at any time prior to the Election Date
change such holder's Election by written notice received by the Exchange Agent
at or prior to the Election Date accompanied by a properly completed Form of
Election. Newco shall have the right in its sole discretion to permit changes
in Elections after the Election Date.
(f) Any Dynegy Common Stockholder may at any time prior to the Election Date
revoke such holder's Election by written notice received by the Exchange Agent
at or prior to the Election Date or by withdrawal prior to the Election Date of
such holder's Certificates previously deposited with the Exchange Agent. Any
revocation of an Election may be withdrawn by notice of such withdrawal
delivered at or prior to the Election Date. Any Dynegy Common Stockholder who
has deposited a Dynegy Common Stock Certificate or Certificates with the
Exchange Agent shall have the right to withdraw such Certificates by written
notice received by the Exchange Agent at or prior to the Election Date. Newco
shall obtain from the Exchange Agent an agreement to return all Forms of
Election and accompanying Dynegy Common Stock Certificate or Certificates to
the Dynegy Common Stockholders submitting the same if this Agreement is
terminated in accordance with its terms.
(g) Newco, with Dynegy's consent, shall have the right to make rules, not
inconsistent with this Agreement's terms, governing the validity of Forms of
Election, the manner and extent to which Elections are to be taken into account
in making the determinations prescribed by Section 4.1, the issuance and
delivery of certificates for Newco Common Stock into which shares of Dynegy
Common Stock are converted in the DAC
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Merger, and the payment for shares of Dynegy Common Stock converted into the
right to receive the Cash Consideration in the DAC Merger.
Section 4.5 Surrender and Payment.
(a) At or prior to the Effective Time, Newco will deposit with the Exchange
Agent for the benefit of the holders of Dynegy Stock, for exchange in
accordance with this Section 4.5, the following consideration (the "Aggregate
Merger Consideration"): (i) certificates representing shares of Newco Common
Stock representing the applicable portion of the Aggregate Common Stock
Consideration, (ii) certificates representing shares of Newco Class B Common
Stock representing the Preferred Stock Consideration and a portion of the
Aggregate Common Stock Consideration to be paid in accordance with Section
4.1(i), (iii) certificates representing Series A Convertible Preferred Stock of
Newco representing the applicable portion of the Aggregate Common Stock
Consideration to be paid in accordance with Section 4.1(i) and (iv) the Cash
Consideration. At or prior to the Effective Time, Newco will deposit with the
Exchange Agent for the benefit of the holders of Illinova Common Stock, for
exchange in accordance with this Section 4.5, certificates representing shares
of Newco Common Stock representing the Illinova Consideration. The stock
certificates and cash described above are referred to as the "Exchange Fund."
The Exchange Agent, pursuant to irrevocable instructions, will deliver the
Aggregate Merger Consideration and the Illinova Consideration out of the
Exchange Fund. No interest will be paid or will accrue on any cash amount
payable upon the surrender of any Dynegy Stock Certificates or Illinova Stock
Certificates. Except as contemplated by Section 4.5(d), the Exchange Fund shall
not be used for any other purpose.
(b) Promptly after the Effective Time, but not later than five business days
thereafter, Newco will send, or will cause the Exchange Agent to send, to each
holder of a Dynegy Stock Certificate or Illinova Stock Certificate a letter of
transmittal and instructions for use in effecting the exchange of such Dynegy
Stock Certificates or Illinova Stock Certificates for certificates representing
the Aggregate Merger Consideration or the Illinova Consideration owing to such
holder.
(c) If any shares of Newco Common Stock are to be issued and/or cash to be
paid to a Person other than the registered holder of the Dynegy Stock
Certificate or Certificates or Illinova Stock Certificate or Certificates
surrendered in exchange therefor, it will be a condition to such issuance that
the Dynegy or Illinova Stock Certificate or Certificates so surrendered will be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such issuance will pay to the Exchange Agent any transfer or
other taxes required as a result of such issuance to a Person other than the
registered holder or establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(d) Any Aggregate Merger Consideration or Illinova Consideration that
remains unclaimed by the holders of Dynegy Stock or Illinova Common Stock one
year after the Effective Time will be returned to Newco, upon demand, and any
such holder who has not exchanged such holder's Dynegy or Illinova Stock
Certificates in accordance with this Section 4.5 prior to that time will
thereafter look only to Newco, as a general creditor thereof, to exchange such
Dynegy or Illinova Stock Certificates or to pay amounts to which they are
entitled pursuant to Section 4.1 and Section 4.2. If any Dynegy or Illinova
Stock Certificates are not surrendered within six years after the Effective
Time, the Aggregate Merger Consideration or Illinova Consideration, as the case
may be, issuable in respect of such Dynegy or Illinova Stock Certificates, and
the amount of dividends and other distributions, if any, which have become
payable and which thereafter become payable on the Aggregate Merger
Consideration or Illinova Consideration evidenced by such Dynegy or Illinova
Stock Certificates as provided herein will, to the extent permitted by
applicable law, become the property of Newco, free and clear of all claims or
interest of any Person previously entitled thereto. Notwithstanding the
foregoing, none of Newco or either Surviving Corporation will be liable to any
holder of Dynegy or Illinova Stock Certificates for any amount paid, or
Aggregate Merger Stock Consideration or Illinova Consideration, cash or
dividends delivered, to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(e) If any Dynegy or Illinova Stock Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Dynegy or Illinova Stock Certificate to be lost, stolen or
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destroyed and, if required by Newco, the posting by such Person of a bond in
such reasonable amount as Newco may direct as indemnity against any claim that
may be made against it with respect to such Dynegy or Illinova Stock
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Dynegy or Illinova Stock Certificate the Aggregate Merger
Consideration or Illinova Consideration, as the case may be, and, if
applicable, cash and unpaid dividends and other distributions on any Aggregate
Merger Consideration or Illinova Consideration, as the case may be, deliverable
in respect thereof pursuant to this Agreement.
Section 4.6 Stock Options.
(a) At the Effective Time, automatically and without any action on the part
of either Surviving Corporation, Newco or any holder of outstanding employee or
director stock options of Dynegy outstanding at the Effective Time (the "Dynegy
Stock Options"), Newco will assume each Dynegy Stock Option and it will become
an option to purchase that number of shares of Newco Common Stock obtained by
multiplying the number of shares of Dynegy Common Stock issuable upon the
exercise of such option by the Exchange Ratio at an exercise price per share
equal to the per share exercise price of such Dynegy Stock Option divided by
the Exchange Ratio and otherwise upon the same terms and conditions as such
outstanding options to purchase Dynegy Common Stock; provided, however, in the
case of any Dynegy Stock Option to which Section 421 of the Code applies
because of the qualifications under Section 422 or 423 of the Code, the
exercise price, the number of shares of Newco Common Stock purchasable pursuant
to such Dynegy Stock Option and the terms and conditions of exercise of such
Dynegy Stock Option will comply with Section 424(a) of the Code.
(b) At the Effective Time, automatically and without any action on the part
of either Surviving Corporation, Newco or any holder of employee or director
stock options of Illinova outstanding at the Effective Time (the "Illinova
Stock Options" and, together with the Dynegy Stock Options, the "Predecessor
Company Stock Options"), Newco will assume each Illinova Stock Option and it
will become an option to purchase one share of Newco Common Stock for each
share of Illinova Common Stock issuable upon the exercise of such Illinova
Stock Option and otherwise upon the same terms and conditions as such
outstanding options to purchase Illinova Common Stock; provided, however, in
the case of any option to which Section 421 of the Code applies because of the
qualifications under Section 422 or 423 of the Code, the exercise price, the
number of shares purchasable pursuant to such Illinova Stock Option and the
terms and conditions of exercise of such Illinova Stock Option will comply with
Section 424(a) of the Code.
(c) At the Effective Time, the Dynegy Stock Options and Illinova Stock
Options will vest and become immediately exercisable to the extent set forth in
Schedule 4.6(c). At the Effective Time, each outstanding award (including
restricted stock, phantom stock, stock equivalents and stock units) ("Awards")
under any employee incentive or benefit plans, programs or arrangements and
non-employee director plans currently maintained by Dynegy or Illinova which
provide for grants of equity-based awards shall be amended or converted into a
similar instrument of Newco, in each case with such adjustments to the terms of
such Awards, such that the Awards become non-forfeitable to the extent as
determined by Illinova's Board of Directors or Dynegy's Board of Directors, as
the case may be, as of the Effective Time, and otherwise as are appropriate to
preserve the value inherent in such Awards with no material detrimental effects
on the holders thereof. The other terms of each Award, and the plans or
agreements under which they were issued, will continue to apply in accordance
with their terms.
(d) Newco will take all corporate actions necessary to reserve for issuance
a sufficient number of shares of Newco Common Stock for delivery upon exercise
of Predecessor Company Stock Options assumed by Newco pursuant to Section
4.6(a) and Section 4.6(b).
(e) As promptly as practicable after the Effective Time, Newco will file a
Registration Statement on Form S-8 (or any successor or other appropriate
forms) with respect to the shares of Newco Common Stock subject to Predecessor
Company Stock Options and will use all reasonable efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such options remain outstanding.
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(f) As of the Effective Time, Newco will assume each Dynegy and Illinova
stock option plan providing for the issuance or grant of options with such
amendments thereto as may be required to reflect the Mergers, including the
substitution of Newco Common Stock for Dynegy Common Stock and Illinova Common
Stock, as applicable, thereunder; provided that after the Effective Time, no
more options or other awards will be issued under any such plans.
Section 4.7 Closing.
The closing (the "Closing") of the Transactions will take place at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 711 Louisiana Street,
Suite 1900, Houston, Texas, on the second business day (the "Closing Date")
after which all of the conditions listed in Article IX are satisfied or waived,
or at such other date, place and time as Illinova and Dynegy otherwise agree.
Article V
REPRESENTATIONS AND WARRANTIES OF DYNEGY
Except as listed in the disclosure schedule delivered to Newco
contemporaneously with the execution hereof (the "Dynegy Disclosure Schedule"),
Dynegy represents and warrants to Illinova and Newco as follows:
Section 5.1 Organization and Qualification.
(a) Dynegy is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of Dynegy's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in a Dynegy Material Adverse
Effect. Dynegy has all requisite corporate or other power and authority to own,
use or lease its properties and to carry on its business as it is now being
conducted. Dynegy has made available to Illinova a complete and correct copy of
its certificate of incorporation and bylaws, each as amended to date, and
Dynegy's certificate of incorporation and bylaws as so made available are in
full force and effect. Dynegy is not in default in the performance, observation
or fulfillment of any provision of its certificate of incorporation or bylaws.
(b) Each of Dynegy's Subsidiaries is a Person duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, is duly qualified to do business as a foreign Person and is in
good standing in each jurisdiction in which the character of such Subsidiary's
properties or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not
result in a Dynegy Material Adverse Effect. Except as disclosed in Section
5.1(b) of the Dynegy Disclosure Schedule, none of Dynegy or such Persons is a
"public utility company," a "holding company," a "subsidiary company" or an
"affiliate" of any public utility company or holding company within the meaning
of Sections 2(a)(5), 2(a)(7), 2(a)(8), or 2(a)(11) of PUHCA. Each of Dynegy's
Subsidiaries has the requisite corporate or other similar power and authority
to own, use or lease its properties and to carry on its business as it is now
being conducted and as it is now proposed to be conducted. Dynegy has made
available to Illinova a complete and correct copy of the certificate of
incorporation and bylaws (or similar organizational documents) of each of
Dynegy's Subsidiaries, each as amended to date, and each certificate of
incorporation and bylaws (or similar organizational documents) as so delivered
is in full force and effect. No Subsidiary of Dynegy is in default in the
performance, observation or fulfillment of any provision of its articles of
incorporation or bylaws (or similar organizational documents). Except as listed
on Section 5.1(b) of the Dynegy Disclosure Schedule, other than Dynegy's
Subsidiaries, Dynegy does not beneficially own or control, directly or
indirectly, 5% or more of any class of equity or similar securities of any
Person.
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Section 5.2 Capitalization.
(a) The authorized capital stock of Dynegy consists of 400,000,000 shares of
Dynegy Common Stock and 50,000,000 shares of preferred stock, par value $.01
per share, of which 8,000,000 shares have been designated and issued as the
Series A Participating Preferred Stock (the "Dynegy Preferred Stock"). At May
12, 1999, 152,864,662 shares of Dynegy Common Stock were issued and
outstanding. As of March 31, 1999, (i) 154,086,298 shares of Dynegy Common
Stock were issued and outstanding, (ii) 7,815,363 shares of Dynegy Preferred
Stock were issued and outstanding, (iii) options to acquire 18,175,186.25
shares of Dynegy Common Stock were outstanding under all stock option plans and
agreements of Dynegy or its Subsidiaries, and (iv) warrants to purchase 6,228
shares of Dynegy Common Stock were outstanding. All such shares are duly
authorized, validly issued, fully paid and nonassessable, and free of
preemptive rights. Except as set forth above, and except for this Agreement, as
set forth on Section 5.2(a) of the Dynegy Disclosure Schedule, and pursuant to
the terms of the Dynegy Preferred Stock, there are no outstanding
subscriptions, options, rights, warrants, convertible securities, stock
appreciation rights, phantom equity, or other agreements or commitments
obligating Dynegy to issue, transfer, sell, redeem, repurchase or otherwise
acquire any shares of its capital stock of any class.
(b) Except as listed in Section 5.2(b) of the Dynegy Disclosure Schedule,
Dynegy is the record or beneficial owner of all of the outstanding equity
interests of each Dynegy Subsidiary, there are no irrevocable proxies with
respect to any such equity interests, and no equity interests of any Dynegy
Subsidiary are or may become required to be issued because of any options,
warrants, rights to subscribe to, calls or commitments relating to, or
securities or rights convertible into or exchangeable or exercisable for,
equity interests of any Dynegy Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which Dynegy or any Dynegy
Subsidiary is or may be bound to issue additional equity interests of any
Dynegy Subsidiary or securities convertible into or exchangeable or exercisable
for any such equity interests. Except as listed in Section 5.2(b) of the Dynegy
Disclosure Schedule or with respect to equity interests in Subsidiaries of
Dynegy the sole assets of which are Dynegy Unregulated Facilities and whose
equity has been pledged or otherwise encumbered as a condition of non-recourse
financing of Dynegy Unregulated Facilities, all of such equity interests are
duly authorized, validly issued, fully paid and nonassessable and Dynegy owns
them free and clear of all liens, mortgages, pledges, security interests,
encumbrances, claims or charges of any kind (collectively, the "Liens").
Section 5.3 Authority.
Dynegy has full corporate power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is or will be a party and,
subject to obtaining the Dynegy Stockholders' Approval under Section 8.12, to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to
which Dynegy is or will be a party, and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by
Dynegy's Board of Directors, and no other corporate proceedings on Dynegy's
part are necessary to authorize this Agreement and the Ancillary Agreements to
which Dynegy is or will be a party or to consummate the transactions
contemplated hereby or thereby, other than the Dynegy Stockholders' Approval as
contemplated by Section 8.12. This Agreement has been, and the Ancillary
Agreements to which Dynegy is or will be a party are, or upon execution will
be, duly and validly executed and delivered by Dynegy and, assuming the due
authorization, execution and delivery hereof and thereof by the other parties
hereto and thereto, is, or upon execution will be Enforceable against Dynegy.
Section 5.4 Consents and Approvals; No Violation.
The execution and delivery of this Agreement, the consummation of the
Transactions and the performance by Dynegy of its obligations hereunder will
not:
(a) subject to obtaining the Dynegy Stockholders' Approval as
contemplated by Section 8.12, conflict with any provision of Dynegy's
certificate of incorporation or bylaws or the certificates of incorporation
or bylaws (or other similar organizational documents) of any of its
Subsidiaries;
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(b) subject to obtaining the Dynegy Stockholders' Approval as
contemplated by Section 8.12, require any consent, waiver, approval, order,
authorization or permit of, or registration, filing with or notification
to:
(i) any Governmental Authority, except for (x) required regulatory
approvals listed in Section 5.4(b) of the Dynegy Disclosure Schedule
and (y) approvals that are ministerial in nature and are customarily
obtained from Governmental Authorities after the Effective Time in
connection with transactions of the same nature as are contemplated
hereby ("Customary Post-Closing Consents"), or
(ii) except as listed in Section 5.4(b) of the Dynegy Disclosure
Schedule, any third party other than a Governmental Authority, other
than such non-Governmental Authority third party consents, waivers,
approvals, orders, authorizations and permits that would not (x) result
in a Dynegy Material Adverse Effect, (y) impair the ability of Dynegy
or any of its Subsidiaries, as the case may be, to perform its
obligations under this Agreement or any Ancillary Agreement or (z)
prevent the consummation of any of the transactions contemplated hereby
and thereby;
(c) result in any violation of or the breach of or constitute a default
(with notice or lapse of time or both) under, or give rise to any right of
termination, purchase, first refusal, cancellation or acceleration or
guaranteed payments or a loss of a material benefit under, any provisions
of any note, lease, mortgage, license, agreement or other instrument or
obligation to which Dynegy or any of its Subsidiaries is a party or by
which Dynegy or any of its Subsidiaries or any of their respective
properties or assets may be bound, except for such violations, breaches,
defaults, or rights of termination, cancellation or acceleration, or losses
as to which requisite waivers or consents have been obtained or which,
individually or in the aggregate, would not (i) result in a Dynegy Material
Adverse Effect, (ii) materially impair the ability of Dynegy or any of its
Subsidiaries to perform its obligations under this Agreement or any
Ancillary Agreement or (iii) prevent the consummation of any of the
transactions contemplated hereby and thereby. Solely for this Section
5.4(c), an obligation by Dynegy to dispose of (and resulting disposal of)
any of its ownership interests in any or all of the Dynegy Qualifying
Facilities will not be deemed to be a Dynegy Material Adverse Effect;
(d) violate the provisions of any material order, writ, injunction,
judgment, decree, statute, rule or regulation applicable to Dynegy or any
Subsidiary of Dynegy;
(e) result in the creation of any Lien upon material properties or
assets or on any shares of capital stock of Dynegy or its Subsidiaries
under any agreement or instrument to which Dynegy or any of its
Subsidiaries is a party or by which Dynegy or any of its Subsidiaries or
any of their properties or assets is bound; or
(f) result in any holder of any securities of Dynegy being entitled to
appraisal, dissenters' or similar rights.
Section 5.5 Dynegy SEC Reports.
Dynegy has filed with the SEC, and has made available to Illinova, true and
complete copies of each form, registration statement, report, schedule, proxy
or information statement and other document (including exhibits and amendments
thereto), including its Annual Reports to Stockholders incorporated by
reference in certain of such reports, required to be filed with the SEC since
December 31, 1995 under the Securities Act or the Exchange Act (collectively,
the "Dynegy SEC Reports"). As of the respective dates that such Dynegy SEC
Reports were filed, each Dynegy SEC Report, including any financial statements
or schedules included therein, (a) complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, as the case
may be, and (b) did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No event has occurred between the date of the most recent
Dynegy SEC Report filed and the date hereof that would require the filing of a
Current Report on Form 8-K.
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Section 5.6 Dynegy Financial Statements.
Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Dynegy (including any related
notes and schedules) included (or incorporated by reference) in its Annual
Reports on Form 10-K for each of the three fiscal years ended December 31,
1996, 1997 and 1998, and any subsequent Dynegy SEC Report, have been prepared
from, and are in accordance with, the books and records of Dynegy and its
consolidated Subsidiaries, comply in all material respects with applicable
accounting requirements and with the SEC's published rules and regulations,
have been prepared in accordance with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto and subject, in the case of
quarterly financial statements, to normal and recurring year-end adjustments)
and fairly present, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Dynegy and its Subsidiaries as of the date thereof and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of Dynegy and its Subsidiaries for the periods presented
therein (subject to normal year-end adjustments and the absence of financial
footnotes in the case of any unaudited interim financial statements).
Section 5.7 Absence of Undisclosed Liabilities.
Except for such liabilities or obligations as (i) were accrued or fully
reserved against in the consolidated balance sheet of Dynegy at March 31, 1999
(the "Dynegy Balance Sheet"), (ii) are of a normally recurring nature and were
incurred after March 31, 1999 (the "Dynegy Balance Sheet Date") in the ordinary
course of business consistent with past practice or (iii) as described in the
Dynegy Disclosure Schedule or in the Dynegy SEC Reports, neither Dynegy nor any
of its Subsidiaries has any liabilities or obligations of any nature (matured
or unmatured, fixed or contingent) which are, individually or in the aggregate,
of a nature required to be disclosed on the face of a balance sheet prepared in
accordance with GAAP and are material to the business of Dynegy and its
Subsidiaries, taken as a whole. As of the Dynegy Balance Sheet Date, there were
no material loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board
in March 1975) which are not adequately provided for in the Dynegy Balance
Sheet as required by said Statement No. 5.
Section 5.8 Absence of Certain Changes.
Except as contemplated by this Agreement, as listed in Section 5.8 of the
Dynegy Disclosure Schedule or as disclosed in the Dynegy SEC Reports, since the
Dynegy Balance Sheet Date, (a) Dynegy and its Subsidiaries have conducted their
business in all material respects in the ordinary course consistent with past
practices, (b) there has not been any change or development, or combination of
changes or developments that, individually or in the aggregate, would have a
Dynegy Material Adverse Effect, (c) other than as would be permitted by Section
7.1(b), there has not been any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
Dynegy, or any repurchase, redemption or other acquisition by Dynegy or any of
its Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, Dynegy or any of its Subsidiaries, (d)
there has not been any amendment of any term of any outstanding security of
Dynegy or any of its Subsidiaries, and (e) there has not been any change in any
method of accounting or accounting practice by Dynegy or any of its
Subsidiaries, except for any such change required because of a concurrent
change in GAAP or to conform a Subsidiary's accounting policies and practices
to those of Dynegy.
Section 5.9 Taxes.
(a) Except as listed in Section 5.9(a) of the Dynegy Disclosure Schedule and
for matters that would not have a Dynegy Material Adverse Effect:
(i) Dynegy and each of its Subsidiaries have timely filed or will file
or cause to be timely filed, all material Tax Returns required by
applicable law prior to or as of the Closing Date. All such Tax Returns and
amendments thereto are or will be true, complete and correct in all
material respects;
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(ii) Dynegy and each of its Subsidiaries have paid whether or not shown
on any Tax Return, or where payment is not yet due, have established, an
adequate accrual for the payment of all material Taxes and no claim has
been made by any Tax Authority in a jurisdiction where Dynegy or any of its
Subsidiaries do not file tax returns that it is or may be subject to
taxation in that jurisdiction;
(iii) No Audit is pending or threatened with respect to any Tax Returns
filed by, or Taxes due from, Dynegy or any of its Subsidiaries. No issue
has been raised by any Tax Authority in any Audit of Dynegy or any of its
Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any
period not so audited. No material deficiency or adjustment for any Taxes
has been threatened, proposed, asserted or assessed against Dynegy or any
of its Subsidiaries. There are no liens for Taxes upon the assets of Dynegy
or any of its Subsidiaries, except liens for current Taxes not yet
delinquent;
(iv) Neither Dynegy nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the
payment of Taxes or have executed powers of attorney with respect to Tax
matters, which will be outstanding as of the Closing Date; and
(v) Section 5.9(a) of the Dynegy Disclosure Schedule lists all material
Tax sharing, Tax indemnity, or similar agreements to which Dynegy or any of
its Subsidiaries is party, is bound by, or have any obligation or liability
for Taxes.
(b) Section 5.9(b) of the Dynegy Disclosure Schedule lists (1) the name of
each employee, former employee or other person who is or was providing services
to Dynegy or any Dynegy Subsidiaries and who, in connection with the
Transactions, will receive, or will or may become entitled to receive in the
future or upon termination of such person's employment, any payments (including
accelerated vesting of Dynegy Options or other equity-based awards) which could
reasonably be expected to constitute "excess parachute payments" with respect
to such person within the meaning of Section 280G of the Code ("Excess
Parachute Payments"), (2) with respect to each such person, the maximum amount
of Excess Parachute Payments which could reasonably be expected to be so
received (determined in accordance with proposed regulations of the IRS
promulgated under Section 280G of the Code), and (3) with respect to each
person who is entitled to receive a "gross-up payment" in respect of excise
taxes imposed on such Excess Parachute Payments under Section 4999 of the Code,
a reasonable estimate of the amount of such gross-up payment.
(c) The Code Section 338(h)(10) election made in connection with the
purchase of Destec Energy, Inc. is effective for both Federal and State income
tax purposes to cause the tax basis of the assets acquired to reflect allocated
purchase price. Dynegy and each of its Subsidiaries including Destec Energy,
Inc. have timely filed or caused to be filed all elections and forms required
to be filed to make such election valid, such acquisition qualified for
elective treatment under Code Section 338(h)(10), and to its knowledge the
allocation of purchase price among the assets was proper.
Section 5.10 Litigation.
Except as disclosed in the Dynegy SEC Reports or Section 5.10 of the Dynegy
Disclosure Schedule, (i) as of the date hereof, there is no Action (or group of
related Actions) pending or, to Dynegy's knowledge, threatened against or
directly affecting Dynegy, any Subsidiaries of Dynegy or any of the directors
or officers of Dynegy or any of its Subsidiaries in their capacity as such,
that could reasonably be expected to result in an adverse judgment in excess of
$1,000,000; and (ii) there is no Action (or group of related Actions) pending
or, to Dynegy's knowledge, threatened against or directly affecting Dynegy, any
Subsidiaries of Dynegy or any of the directors or officers of Dynegy or any of
its Subsidiaries in their capacity as such, that could reasonably be expected
to have a Dynegy Material Adverse Effect, if adversely determined. Neither
Dynegy nor any of its Subsidiaries, nor any officer, director or employee of
Dynegy or any of its Subsidiaries, has been permanently or temporarily enjoined
by any Order from engaging in or continuing any conduct or practice in
connection with the business, assets or properties of Dynegy or such
Subsidiary, nor, to the knowledge of Dynegy, is Dynegy, any Subsidiary or any
officer, director or employee of Dynegy or its Subsidiaries under investigation
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by any Governmental Authority. Except as disclosed in the Dynegy SEC Reports or
in Section 5.10 of the Dynegy Disclosure Schedule, there is no Order or order
of any arbitrator or mediator enjoining or requiring Dynegy or any of its
Subsidiaries to take any action of any kind with respect to its business,
assets or properties. Notwithstanding the foregoing, no representation or
warranty in this Section 5.10 is made with respect to Environmental Laws, which
are covered in Section 5.12.
Section 5.11 Employee Benefit Plans; ERISA.
(a) Section 5.11(a) of the Dynegy Disclosure Schedule lists all employee
benefit plans or arrangements of any type (including plans described in Section
3(3) of ERISA and all bonus plans, stock option, stock purchase, restricted
stock, incentive, deferred compensation, and all employment, termination,
severance or other arrangements), sponsored, maintained or contributed to by
Dynegy or any trade or business, whether or not incorporated, which together
with Dynegy would be deemed a "single employer" under Section 414(b), (c) or
(m) of the Code or Section 4001(b)(1) of ERISA (a "Dynegy ERISA Affiliate")
within six years prior to the Effective Time ("Dynegy Benefit Plans").
(b) With respect to each Dynegy Benefit Plan: (i) if intended to qualify
under Section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination letter
from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under Section 501(a) of
the Code and, to Dynegy's knowledge, nothing has occurred since the date of
such letter to adversely affect such qualification or exemption; (ii) each such
plan has been administered in substantial compliance with its terms and
applicable law, except for any noncompliance with respect to any such plan that
could not reasonably be expected to result in a Dynegy Material Adverse Effect;
(iii) (x) as of the date hereof, neither Dynegy nor any Dynegy ERISA Affiliate
has engaged in, and Dynegy and each Dynegy ERISA Affiliate do not have any
knowledge of any Person that has engaged in, any transaction or acted or failed
to act in any manner that would subject Dynegy or any Dynegy ERISA Affiliate to
any liability for a breach of fiduciary duty under ERISA in excess of
$1,000,000; and (y) neither Dynegy nor any Dynegy ERISA Affiliate has engaged
in, and Dynegy and each Dynegy ERISA Affiliate do not have any knowledge of any
Person that has engaged in, any transaction or acted or failed to act in any
manner that would subject Dynegy or any Dynegy ERISA Affiliate to any liability
for a breach of fiduciary duty under ERISA that could reasonably be expected to
result in a Dynegy Material Adverse Effect; (iv) no disputes or Actions are
pending, or, to the knowledge of Dynegy or any Dynegy ERISA Affiliate,
threatened that could reasonably be expected to result in a material liability
that would have a Dynegy Material Adverse Effect; (v) neither Dynegy nor any
Dynegy ERISA Affiliate has engaged in, and Dynegy and each Dynegy ERISA
Affiliate does not have any knowledge of any Person that has engaged in, any
transaction in violation of Section 406(a) or (b) of ERISA or Section 4975 of
the Code for which no exemption exists under Section 408 of ERISA or Section
4975(c) of the Code or Section 4975(d) of the Code that could reasonably be
expected to result in a Dynegy Material Adverse Effect; (vi) there have been no
"reportable events" under Section 4043 of ERISA for which the 30 day notice
requirement of ERISA has not been waived by the Pension Benefit Guaranty
Corporation (the "PBGC"); (vii) all contributions due have been made on a
timely basis (within, where applicable, the time limit established under
Section 302 of ERISA or Code Section 412); (viii) no notice of intent to
terminate such plan has been given under Section 4041 of ERISA and no Action
has been instituted under Section 4042 of ERISA to terminate such plan; (ix)
except for defined benefit plans (if applicable), such plan may be terminated
on a prospective basis without any continuing liability for benefits other than
benefits accrued to the date of such termination; and (x) neither Dynegy nor
any Dynegy ERISA Affiliate has incurred any liability under Title IV of ERISA
other than liabilities that would not cause a Dynegy Material Adverse Effect.
All contributions made or required to be made under any Dynegy Benefit Plan
have been made on or before their required due date and all such contributions
meet the requirements for deductibility under the Code, and all contributions
which are required and which have not been made have been properly recorded on
the books of Dynegy or a Dynegy ERISA Affiliate.
(c) No Dynegy Benefit Plan is a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning of
Section 413(c) of the Code). No event has occurred with
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respect to Dynegy or a Dynegy ERISA Affiliate which could subject Dynegy to any
liability or Lien with respect to any Dynegy Benefit Plan or any employee
benefit plan described in Section 3(3) of ERISA maintained, sponsored or
contributed to by a Dynegy ERISA Affiliate under ERISA or the Code.
(d) Except as listed in Section 5.11(d) of the Dynegy Disclosure Schedule,
no employee of Dynegy or any of its Subsidiaries is covered by any severance
plan or similar arrangement.
(e) Except as listed in Section 5.11(e) of the Dynegy Disclosure Schedule,
none of the Dynegy Benefit Plans that are "welfare plans," within the meaning
of Section 3(1) of ERISA, provides for any benefits payable to or on behalf of
any employee or director after termination of employment or service, as the
case may be, other than elective continuation required pursuant to Code Section
4980B or coverage which expires at the end of the calendar month following such
event. Each such plan that is a "group health plan" (as defined in Code Section
4980B(g)) has been operated in compliance with Code Section 4980B at all times,
except for any non-compliance that would not, or insofar as reasonably can be
determined could not, give rise to a Dynegy Material Adverse Effect.
Section 5.12 Environmental Liability.
Except as listed in Section 5.12 of the Dynegy Disclosure Schedule:
(a) The businesses of Dynegy and its Subsidiaries have been and are
operated in material compliance with all Environmental Laws, except for any
violations which could not reasonably be expected to result in a Dynegy
Material Adverse Effect.
(b) Neither Dynegy nor any of its Subsidiaries has caused or allowed the
generation, treatment, manufacture, processing, distribution, use, storage,
discharge, release, disposal, transport or handling of any Hazardous
Substances at any of its properties or facilities, except for any such
action which could not reasonably be expected to have a Dynegy Material
Adverse Effect and, to Dynegy's knowledge, no such action has occurred at
any property or facility owned, leased or operated by Dynegy or any of its
Subsidiaries, except for any such action that could not reasonably be
expected to have a Dynegy Material Adverse Effect.
(c) Neither Dynegy nor any of its Subsidiaries has received any written
notice from any Governmental Authority or third party or, to the knowledge
of Dynegy, any other written communication alleging or concerning any
material violation by Dynegy or any of its Subsidiaries of, or
responsibility or liability of Dynegy or any of its Subsidiaries under, any
Environmental Law which could reasonably be expected to have a Dynegy
Material Adverse Effect. There are no pending, or to Dynegy's knowledge,
threatened Actions with respect to the businesses or operations of Dynegy
or any of its Subsidiaries alleging or concerning any violation of or
responsibility or liability under any Environmental Law that, if adversely
determined, could reasonably be expected to have a Dynegy Material Adverse
Effect, nor does Dynegy have any knowledge of any fact or condition that
could give rise to such an Action.
(d) Dynegy and its Subsidiaries are in possession of all material
approvals, permits, licenses, registrations and similar type authorizations
from all Governmental Authorities under all Environmental Laws with respect
to the operation of the businesses of Dynegy and its Subsidiaries; there
are no pending or, to Dynegy's knowledge, threatened Actions seeking to
modify, revoke or deny renewal of any of such approvals, permits, licenses,
registrations and authorizations; and Dynegy does not have knowledge of any
fact or condition that is reasonably likely to give rise to any Action to
modify, revoke or deny renewal of any of such approvals, permits, licenses,
registrations and authorizations.
(e) Without in any way limiting the generality of the foregoing, except
as would not cause a Dynegy Material Adverse Effect, (i) to Dynegy's
knowledge, all off-site locations where Dynegy or any of its Subsidiaries
has transported, released, discharged, stored, disposed or arranged for the
disposal of Hazardous Substances are licensed disposal sites as required by
law, (ii) to Dynegy's knowledge, all underground and above ground storage
tanks, and the operating status, capacity and contents of such
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tanks, located on any property owned, leased or operated by Dynegy or any
of its Subsidiaries are listed in Section 5.12(e) of the Dynegy Disclosure
Schedule and (iii) to Dynegy's knowledge, no PCB-Contaminated Electrical
Equipment, as defined in 40 C.F.R. Section 761.3, is used or stored at any
property owned, leased or operated by Dynegy or any of its Subsidiaries.
(f) To Dynegy's knowledge, no claims have been asserted or threatened
against Dynegy or its Subsidiaries as a result of any release or disposal
at any of the properties currently or previously owned or operated by
Dynegy, its Subsidiaries, or a predecessor in interest, or at any disposal
or treatment facility which received Hazardous Substances generated by
Dynegy, its Subsidiaries, or any predecessor in interest which could
reasonably be expected to result in a Dynegy Material Adverse Effect.
(g) To Dynegy's knowledge, no claims have been asserted or threatened
against Dynegy or its Subsidiaries for any personal injury (including
wrongful death) or property damage (real or personal) arising out of
exposure to Hazardous Substances used, handled, generated, transported or
disposed by Dynegy or its Subsidiaries at property currently or previously
owned or operated by Dynegy or its Subsidiaries, except as could not
reasonably be expected to result in a Dynegy Material Adverse Effect.
(h) To Dynegy's knowledge, Dynegy has made available to Illinova all
material non-privileged internal and external environmental audits,
evaluations, assessments and studies in the possession of Dynegy (i)
pertaining to Hazardous Substances used, handled, generated, transported or
disposed by Dynegy or its Subsidiaries at property owned or operated by
Dynegy or its Subsidiaries, or (ii) concerning compliance by Dynegy or its
Subsidiaries with Environmental Laws.
Section 5.13 Compliance with Applicable Laws.
Except as would not individually or in the aggregate result in a Dynegy
Material Adverse Effect, Dynegy and each of its Subsidiaries hold all
approvals, licenses, permits, registrations and similar type authorizations
necessary for the lawful conduct of its respective businesses, as now
conducted, and such businesses are not being, and neither Dynegy nor any of its
Subsidiaries has received any notice from any Person that any such business has
been or is being, conducted in violation of any law, ordinance or regulation,
including any law, ordinance or regulation relating to occupational health and
safety, except for possible violations that either individually or in the
aggregate have not resulted and would not result in a Dynegy Material Adverse
Effect; provided, however, no representation or warranty in this Section 5.13
is made with respect to Environmental Laws, which are covered exclusively in
Section 5.12.
Section 5.14 Labor Matters; Employees.
(a) Except as listed in Section 5.14(a) of the Dynegy Disclosure Schedule,
(i) (A) none of Dynegy or any of its Subsidiaries is a party to or bound by any
collective bargaining or similar agreement with any labor organization, or work
rules or practices agreed to with any labor organization or employee
association applicable to employees of Dynegy or any of its Subsidiaries and
(B) none of the employees of Dynegy or any of its Subsidiaries are represented
by any labor organization and none of Dynegy or any of its Subsidiaries have
any knowledge of any current union organizing activities among the employees of
Dynegy or any of its Subsidiaries nor does any question concerning
representation exist concerning such employees, and (ii) except as would not
cause a Dynegy Material Adverse Effect (A) there is no labor strike, dispute,
slowdown, work stoppage or lockout actually pending or, to Dynegy's knowledge
threatened against or affecting Dynegy or any of its Subsidiaries and, during
the past five years, there has not been any such action, (B) Dynegy and its
Subsidiaries have each at all times been in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation,
(C) there is no unfair labor practice charge or complaint against any of Dynegy
or any of its Subsidiaries pending or, to the knowledge of Dynegy, threatened
before the National Labor Relations Board or any similar state or foreign
agency, (D) there is no grievance or arbitration proceeding arising out of any
collective bargaining agreement or other grievance procedure relating to Dynegy
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or any of its Subsidiaries, (E) neither the Occupational Safety and Health
Administration nor any corresponding state agency has threatened to file any
citation, and there are no pending citations, relating to Dynegy or any of its
Subsidiaries, and (F) there is no employee or governmental claim or
investigation, including any charges to the Equal Employment Opportunity
Commission or state employment practice agency, investigations regarding Fair
Labor Standards Act compliance, audits by the Office of Federal Contractor
Compliance Programs, sexual harassment complaints or demand letters or
threatened claims.
(b) Except as listed in Section 5.14(b) of the Dynegy Disclosure Schedule,
since the enactment of the WARN Act, none of Dynegy or any of its Subsidiaries
has effectuated (i) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of any of Dynegy or any of its Subsidiaries, or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of Dynegy or any of its Subsidiaries, nor has Dynegy or
any of its Subsidiaries been affected by any transaction or engaged in layoffs
or employment terminations sufficient in number to trigger application of any
similar state or local law, in each case that could reasonably be expected to
have a Dynegy Material Adverse Effect.
Section 5.15 Material Contracts.
(a) Except as set forth in the Dynegy SEC Reports or as permitted pursuant
to Section 7.1, neither Dynegy nor any of its Subsidiaries is a party to or
bound by (i) any agreement relating to the incurrence of debt (including sale
and leaseback and capitalized lease transactions and other similar financing
transactions) or its guaranty providing for payment or repayment in excess of
$10,000,000, but excluding open option, future and forward positions with
respect to the purchase, sale or delivery of commodities and securities; (ii)
any "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) or (iii) any non-competition agreement or any other
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any portion of the business
of Dynegy and/or its Subsidiaries is or would be conducted or through which
Dynegy and/or its Subsidiaries can restrict the conduct of business by any
other Person.
(b) Except as listed in Section 5.15(b) of the Dynegy Disclosure Schedule or
disclosed in the Dynegy SEC Reports, to Dynegy's knowledge, no event of default
(or an event which, with notice or lapse of time or both notice and lapse of
time, would constitute an event of default) exists under any material note,
lease, mortgage, deed of trust, license, agreement or other instrument or
obligation to which any Person which owns or leases any of the Dynegy Power
Generation Facilities is a party or by which any of the Dynegy Power Generation
Facilities is subject or bound.
Section 5.16 Required Stockholder Vote or Consent.
The only vote of the holders of any class or series of Dynegy's capital
stock necessary to consummate the Transactions is the approval and adoption of
this Agreement by the holders of a majority of the votes entitled to be cast by
holders of the Dynegy Common Stock and the Dynegy Preferred Stock, voting
together as a single class, with each share of Dynegy Common Stock being
entitled to one vote per share and each share of Dynegy Preferred Stock being
entitled to a number of votes per share equal to the number of shares of Dynegy
Common Stock into which such share of Dynegy Preferred Stock is then
convertible (the "Dynegy Stockholders' Approval").
Section 5.17 Proxy Statement/Prospectus; Registration Statement.
None of the information to be supplied by Dynegy for inclusion in (a) the
joint proxy statement relating to the Dynegy Special Meeting and the Illinova
Special Meeting (also constituting the prospectus in respect of Newco Common
Stock into which shares of Dynegy Stock will be converted) (the "Proxy
Statement/Prospectus") Newco, Dynegy and Illinova are to file with the SEC, and
any amendments or supplements thereto, or (b) the Registration Statement on
Form S-4 (the "Registration Statement") that
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Newco is to file with the SEC in connection with the Mergers, and any
amendments or supplements thereto, will, at the respective times such documents
are filed and, in the case of the Proxy Statement/Prospectus, at the time the
Proxy Statement/Prospectus or any amendment or supplement thereto is first
mailed to stockholders of Dynegy and Illinova, at the time such stockholders
vote on approval and adoption of this Agreement and at the Effective Time, and,
in the case of the Registration Statement, when it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be made therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
Section 5.18 Intellectual Property.
Dynegy or its Subsidiaries own, or are licensed or otherwise have the right
to use, all patents, patent rights, trademarks, rights, trade names, trade name
rights, service marks, service mark rights, copyrights, technology, know-how,
processes and other proprietary intellectual property rights and computer
programs ("Intellectual Property") currently used in the conduct of the
business of Dynegy and its Subsidiaries, except where the failure to do so
would not, individually or in the aggregate, have a Dynegy Material Adverse
Effect. No Person has notified either Dynegy or any of its Subsidiaries that
their use of the Intellectual Property infringes on the rights of any Person,
subject to such claims and infringements as do not, individually or in the
aggregate, give rise to any liability on the part of Dynegy and its
Subsidiaries that could have a Dynegy Material Adverse Effect, and, to Dynegy's
knowledge, no Person is infringing on any right of Dynegy or any of its
Subsidiaries with respect to any such Intellectual Property. No Actions are
pending or, to Dynegy's knowledge, threatened that Dynegy or any of its
Subsidiaries is infringing or otherwise adversely affecting the rights of any
Person with regard to such other Person's Intellectual Property.
Section 5.19 Brokers.
No broker, finder or investment banker (other than Lehman Brothers Inc., the
fees and expenses of which Dynegy will pay) is entitled to any brokerage,
finder's fee or other fee or commission payable by Dynegy or any of its
Subsidiaries in connection with the Transactions. True and correct copies of
all agreements and engagement letters currently in effect with Lehman Brothers
Inc. (the "Dynegy Engagement Letters") have been provided to Illinova.
Section 5.20 Tax-Free Reorganization.
Neither Dynegy nor, to its knowledge, any of its affiliates has taken or
agreed to take any action that would prevent the DAC Merger and the other
Transactions from constituting a contribution of assets under Section 351 of
the Code.
Section 5.21 Fairness Opinion.
Dynegy's Board of Directors has received a written opinion of Lehman
Brothers Inc. that, based upon and subject to the matters discussed therein, as
of the date of such opinion, the Aggregate Common Stock Consideration to be
offered to the holders (the "Dynegy Public Stockholders") of the Dynegy Common
Stock (other than the holders of Dynegy Stock who are parties (the "Voting
Agreement Parties") to the Voting Agreements) in the DAC Merger is fair, from a
financial point of view, to the Dynegy Public Stockholders. The opinion of
Lehman Brothers Inc. also provides that, based upon and subject to the matters
discussed therein, including specifically their analysis of the respective fair
market values of the Series A Convertible Preferred Stock and the Newco Class B
Common Stock based on assumptions they believe are reasonable and the effect on
such value of the terms pursuant to which the Series A Convertible Preferred
Stock and the Newco Class B Common Stock will be issued, which include, among
other things, certain restrictions on the transfer of such shares, Lehman
Brothers Inc. also is of the opinion, as of the date of such opinion, that,
from a financial point of view, (a) fair market value of the Series A
Convertible Preferred Stock to be issued to BGAH and Nova for each share of
Dynegy Common Stock is not greater than the fair market value of the Common
Stock
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Consideration to be offered to the Dynegy Public Stockholders in the DAC Merger
for each share of Dynegy Common Stock and (b) the fair market value of the
Newco Class B Common Stock to be issued to Chevron for each share of Newco
Common Stock is not greater than the fair market value of the Common Stock
Consideration to be offered to the Dynegy Public Stockholders in the DAC
Merger. True and correct copies of such opinions have been made available to
Illinova.
Section 5.22 Year 2000 Issues.
The disclosures set forth in the Dynegy SEC Reports concerning potential
computer hardware and software problems associated with the Year 2000 are true
and correct in all material respects as of the respective dates of filing and
the date hereof.
Section 5.23 Takeover Laws.
Dynegy and its Board of Directors have each taken all action required to be
taken by it to exempt this Agreement and the Transactions from, and this
Agreement and the Transactions are exempt from, the requirements of any
"moratorium," "control share," "fair price," "affiliate transaction," "business
combination" or other anti-takeover laws and regulations of any state,
including the State of Delaware, and including Section 203 of the DGCL.
Section 5.24 Dynegy Unregulated Facilities.
Set forth in Section 5.24 of the Dynegy Disclosure Schedule is a true,
accurate and complete list of (i) all of the Dynegy Unregulated Facilities,
(ii) the direct or indirect equity interests therein of Dynegy or any of its
Subsidiaries, and (iii) to Dynegy's knowledge, the direct or indirect equity
interests in any Dynegy Unregulated Facility that is a Qualifying Facility of
any "electric utility holding company," "electric utility," or any combination
thereof. For purposes hereof, the terms "electric utility" and "electric
utility holding company" shall mean a Person primarily engaged in the
generation or sale of electric power within the meaning of 18 C.F.R. (S)
292.206, other than electric power solely from facilities exempt under PUHCA as
"exempt wholesale generators" or "foreign utility companies."
Article VI
REPRESENTATIONS AND WARRANTIES
OF ILLINOVA
Except as listed in the disclosure schedule delivered to Dynegy
contemporaneously with the execution hereof (the "Illinova Disclosure
Schedule"), each of Illinova, Newco, DAC and IAC, jointly and severally,
represent and warrant to Dynegy as follows:
Section 6.1 Organization and Qualification.
(a) Illinova is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois, is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the character of Illinova's properties or the nature of its business
makes such qualification necessary, except in jurisdictions, if any, where the
failure to be so qualified would not result in an Illinova Material Adverse
Effect. Illinova has all requisite corporate or other power and authority to
own, use or lease its properties and to carry on its business as it is now
being conducted. Illinova has made available to Dynegy a complete and correct
copy of its and Newco's articles of incorporation and bylaws, each as amended
to date, and Illinova's and Newco's articles of incorporation and bylaws as so
made available are in full force and effect. Illinova is not in default in the
performance, observation or fulfillment of any provision of its articles of
incorporation or bylaws.
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(b) Each of Illinova's Subsidiaries is a Person duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, is duly qualified to do business as a foreign Person and is in
good standing in each jurisdiction in which the character of such Subsidiary's
properties or the nature of its business makes such qualification necessary,
except in jurisdictions, if any, where the failure to be so qualified would not
result in an Illinova Material Adverse Effect. Except as disclosed in Section
6.1(b) of the Illinova Disclosure Schedule, none of Illinova or such Persons is
a "public utility company," a "holding company," a "subsidiary company" or an
"affiliate" of any public utility company or holding company within the meaning
of Sections 2(a)(5), 2(a)(7), 2(a)(8), or 2(a)(11) of PUHCA. Each of Illinova's
Subsidiaries has the requisite corporate or other similar power and authority
to own, use or lease its properties and to carry on its business as it is now
being conducted and as it is now proposed to be conducted. Illinova has made
available to Dynegy a complete and correct copy of the certificate of
incorporation and bylaws (or similar organizational documents) of each of
Illinova's Subsidiaries, each as amended to date, and each certificate of
incorporation and bylaws (or similar organizational documents) as so delivered
is in full force and effect. No Subsidiary of Illinova is in default in the
performance, observation or fulfillment of any provision of its certificate of
incorporation or bylaws (or similar organizational documents). Except as listed
on Section 6.1(b) of the Illinova Disclosure Schedule, other than Illinova's
Subsidiaries, Illinova does not beneficially own or control, directly or
indirectly, 5% or more of any class of equity or similar securities of any
Person.
Section 6.2 Capitalization.
(a) The authorized capital stock of Illinova consists of 200,000,000 shares
of Illinova Common Stock, no par value and the authorized capital stock of
Newco consists of 1,000 shares of common stock, no par value, of which 1,000
are issued and outstanding. As of March 31, 1999, (i) 69,919,287 shares of
Illinova Common Stock were issued and outstanding and (ii) stock options to
acquire 611,200 shares of Illinova Common Stock were outstanding under all
stock option plans and agreements of Illinova. As of the date hereof, 1,000
shares of Newco Common Stock were issued and outstanding. All outstanding
shares of Newco and Illinova are duly authorized, validly issued, fully paid
and nonassessable, and free of preemptive rights. Except as set forth above,
and other than this Agreement and the Ancillary Agreements, there are no
outstanding subscriptions, options, rights, warrants, convertible securities,
stock appreciation rights, phantom equity, or other agreements or commitments
obligating Illinova or Newco to issue, transfer, sell, redeem, repurchase or
otherwise acquire any shares of its capital stock of any class.
(b) Except as listed in Section 6.2(b) of the Illinova Disclosure Schedule,
Illinova is the record or beneficial owner of all of the outstanding equity
interests of each Illinova Subsidiary, there are no irrevocable proxies with
respect to any such equity interests, and no equity interests of any Illinova
Subsidiary are or may become required to be issued because of any options,
warrants, rights to subscribe to, calls or commitments relating to, or
securities or rights convertible into or exchangeable or exercisable for,
equity interests of any Illinova Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which Illinova or any Illinova
Subsidiary is or may be bound to issue additional equity interests of any
Illinova Subsidiary or securities convertible into or exchangeable or
exercisable for any such equity interests. Except as listed in Section 6.2(b)
of the Illinova Disclosure Schedule or with respect to equity interests in
Subsidiaries of Illinova Generating Company, the sole assets of which are
Illinova Unregulated Facilities and whose equity has been pledged or otherwise
encumbered as a condition of non-recourse financing of Illinova Unregulated
Facilities, all of such equity interests are duly authorized, validly issued,
fully paid and nonassessable and Illinova owns them free and clear of all
Liens.
Section 6.3 Authority.
Each Illinova Company has full corporate power and authority to execute and
deliver this Agreement and the Ancillary Agreements to which it is or will be a
party and, subject to obtaining the Illinova Stockholders' Approval under
Section 8.12, to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Ancillary
Agreements to which such Illinova Company is or will be a party and the
consummation of the transactions contemplated hereby and thereby have been duly
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and validly authorized by such Illinova Company's Board of Directors, and no
other corporate proceedings on such Illinova Company's part are necessary to
authorize this Agreement and the Ancillary Agreements to which such Illinova
Company is or will be a party or to consummate the transactions contemplated
hereby or thereby, other than obtaining the Illinova Stockholders' Approval as
contemplated by Section 8.12. This Agreement has been, and the Ancillary
Agreements to which such Illinova Company is or will be a party are, or upon
execution will be, duly and validly executed and delivered by the applicable
Illinova Company and, assuming the due authorization, execution and delivery
hereof and thereof by the other parties hereto and thereto, is, or upon
execution will be Enforceable against the applicable Illinova Company.
Section 6.4 Consents and Approvals; No Violation.
The execution and delivery of this Agreement, the consummation of the
Transactions and the performance by each Illinova Company of its obligations
hereunder will not:
(a) subject to obtaining the Illinova Stockholders' Approval as
contemplated by Section 8.12, conflict with any provision of the articles
of incorporation or bylaws of Illinova or the certificates of incorporation
or bylaws (or other similar organizational documents) of any of its
Subsidiaries;
(b) subject to obtaining the requisite Illinova Stockholders' Approval
as contemplated by Section 8.12, require any consent, waiver, approval,
order, authorization or permit of, or registration, filing with or
notification to:
(i) any Governmental Authority except for (x) required regulatory
approvals listed in Section 6.4(b) of the Illinova Disclosure Schedule
and (y) Customary Post-Closing Consents, or
(ii) except as listed in Section 6.4(b) of the Illinova Disclosure
Schedule, any third party other than a Governmental Authority, other
than such non-Governmental Authority third party consents, waivers,
approvals, orders, authorizations and permits that would not (x) result
in an Illinova Material Adverse Effect, (y) impair the ability of
Illinova or any of its Subsidiaries, as the case may be, to perform its
obligations under this Agreement or any Ancillary Agreement or (z)
prevent the consummation of any of the transactions contemplated hereby
and thereby;
(c) except as listed in Section 6.4(c) of the Illinova Disclosure
Schedule, result in any violation of or the breach of or constitute a
default (with notice or lapse of time or both) under, or give rise to any
right of termination, purchase, first refusal, cancellation or acceleration
or guaranteed payments or a loss of a material benefit under, any
provisions of any note, lease, mortgage, license, agreement or other
instrument or obligation to which Illinova or any of its Subsidiaries is a
party or by which Illinova or any of its Subsidiaries or any of their
respective properties or assets may be bound, except for such violations,
breaches, defaults, or rights of termination, cancellation or acceleration,
or losses as to which requisite waivers or consents have been obtained or
which, individually or in the aggregate, would not (i) result in an
Illinova Material Adverse Effect, (ii) materially impair the ability of
Illinova or any of its Subsidiaries to perform its obligations under this
Agreement or any Ancillary Agreement or (iii) prevent the consummation of
any of the transactions contemplated hereby and thereby;
(d) violate the provisions of any material order, writ, injunction,
judgment, decree, statute, rule or regulation applicable to Illinova or any
Subsidiary of Illinova;
(e) result in the creation of any Lien upon any material properties or
assets or on any shares of capital stock of Illinova or its Subsidiaries
under any agreement or instrument to which Illinova or any of its
Subsidiaries is a party or by which Illinova or any of its Subsidiaries or
any of their properties or assets is bound; or
(f) result in any holder of any securities of Illinova being entitled to
appraisal, dissenters' or similar rights other than as contemplated by
Section 4.2(e).
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Section 6.5 Illinova Reports.
The filings required to be made by Illinova and its Subsidiaries (including
with respect to filings under PUHCA, Illinova's "subsidiary companies") since
January 1, 1996, under PUHCA, the Atomic Energy Act, applicable Illinois laws
and regulations, the Power Act and the Natural Gas Act have been filed with the
appropriate Governmental Authority, and, as of the date of such filings,
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder. Copies of such
filings have been made available to Dynegy. Illinova has filed with the SEC,
and has made available to Dynegy, true and complete copies of each form,
registration statement, report, schedule, proxy or information statement and
other document (including exhibits and amendments thereto), including its
Annual Reports to Shareholders incorporated by reference in certain of such
reports, required to be filed with the SEC since December 31, 1995 under the
Securities Act or the Exchange Act (collectively, the "Illinova SEC Reports").
As of the respective dates that such Illinova SEC Reports were filed, each
Illinova SEC Report, including any financial statements or schedules included
therein, (a) complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, as the case may be, and (b) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. No
event has occurred between the date of the most recent Illinova SEC Report and
the date hereof that would require the filing of a Current Report on Form 8-K.
Section 6.6 Illinova Financial Statements.
Each of the audited consolidated financial statements and unaudited
consolidated interim financial statements of Illinova (including any related
notes and schedules) included (or incorporated by reference) in its Annual
Reports on Form 10-K for each of the three fiscal years ended December 31,
1996, 1997 and 1998 and any subsequent Illinova SEC Report, have been prepared
from, and are in accordance with, the books and records of Illinova and its
consolidated Subsidiaries, comply in all material respects with applicable
accounting requirements and with the SEC's published rules and regulations,
have been prepared in accordance with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto and subject, in the case of
quarterly financial statements, to normal and recurring year-end adjustments)
and fairly present, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Illinova and its Subsidiaries as of the date thereof and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of Illinova and its Subsidiaries for the periods presented
therein (subject to normal year-end adjustments and the absence of financial
footnotes in the case of any unaudited interim financial statements).
Section 6.7 Absence of Undisclosed Liabilities.
Except for such liabilities or obligations as (i) were accrued or fully
reserved against in the consolidated balance sheet of Illinova at March 31,
1999 (the "Illinova Balance Sheet"), (ii) are of a normally recurring nature
and were incurred after March 31, 1999 (the "Illinova Balance Sheet Date") in
the ordinary course of business consistent with past practice or (iii) as
described in the Illinova Disclosure Schedule or in the Illinova SEC Reports,
neither Illinova nor any of its Subsidiaries has any liabilities or obligations
of any nature (matured or unmatured, fixed or contingent) which are,
individually or in the aggregate, of a nature required to be disclosed on the
face of a balance sheet prepared in accordance with GAAP and are material to
the business of Illinova and its Subsidiaries, taken as a whole. As of the
Illinova Balance Sheet Date, there were no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which are not adequately
provided for in the Illinova Balance Sheet as required by said Statement No. 5.
Section 6.8 Absence of Certain Changes.
Except as contemplated by this Agreement, as listed in Section 6.8 of the
Illinova Disclosure Schedule or as disclosed in the Illinova SEC Reports, since
the Illinova Balance Sheet Date (a) Illinova and its Subsidiaries
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have conducted their business in all material respects in the ordinary course
consistent with past practices, (b) there has not been any change or
development, or combination of changes or developments that, individually or in
the aggregate, would have an Illinova Material Adverse Effect, (c) other than
as would be permitted by Section 7.2(b), there has not been any declaration,
setting aside or payment of any dividend or other distribution with respect to
any shares of capital stock of Illinova or any repurchase, redemption or other
acquisition by Illinova or any of its Subsidiaries of any outstanding shares of
capital stock or other securities of, or other ownership interests in, Illinova
or any of its Subsidiaries, (d) there has not been any amendment of any term of
any outstanding security of Illinova or any of its Subsidiaries, and (e) there
has not been any change in any method of accounting or accounting practice by
Illinova or any of its Subsidiaries, except for any such change required
because of a concurrent change in GAAP or to conform a Subsidiary's accounting
policies and practices to those of Illinova.
Section 6.9 Taxes.
(a) Except as listed in Section 6.9(a) of the Illinova Disclosure Schedule
and for matters that would not have an Illinova Material Adverse Effect:
(i) Illinova and each of its Subsidiaries have timely filed or will file
or cause to be timely filed, all material Tax Returns required by
applicable law prior to or as of the Closing Date. All such Tax Returns and
amendments thereto are or will be true, complete and correct in all
material respects;
(ii) Illinova and each of its Subsidiaries have paid whether or not
shown on any Tax Return, or where payment is not yet due, have established,
an adequate accrual for the payment of all material Taxes and no claim has
been made by any Tax Authority in a jurisdiction where Illinova or any of
Subsidiaries do not file Tax Return that it is or may be subject to
taxation in that jurisdiction;
(iii) No Audit is pending or threatened with respect to any Tax Returns
filed by, or Taxes due from, Illinova or any of its Subsidiaries. No issue
has been raised by any Tax Authority in any Audit of Illinova or any of its
Subsidiaries that if raised with respect to any other period not so audited
could be expected to result in a material proposed deficiency for any
period not so audited. No material deficiency or adjustment for any Taxes
has been threatened, proposed, asserted or assessed against Illinova or any
of its Subsidiaries. There are no liens for Taxes upon the assets of
Illinova or any of its Subsidiaries, except liens for current Taxes not yet
delinquent;
(iv) Neither Illinova nor any of its Subsidiaries has given or been
requested to give any waiver of statutes of limitations relating to the
payment of Taxes or have executed powers of attorney with respect to Tax
matters which will be outstanding as of the Closing Date; and
(v) Section 6.9(a) of the Illinova Disclosure Schedule lists, all
material Tax sharing, Tax indemnity, or similar agreements to which
Illinova or any of its Subsidiaries is party, is bound by, or have any
obligation or liability for Taxes.
(b) Section 6.9(b) of the Illinova Disclosure Schedule lists (1) the name of
each employee, former employee or other person who is or was providing services
to Illinova or any Illinova Subsidiaries and who, in connection with the
Transactions, will receive, or will or may become entitled to receive in the
future or upon termination of such person's employment, any payments (including
accelerated vesting of Illinova Options or other equity-based awards) which
could reasonably be expected to constitute Excess Parachute Payments, (2) with
respect to each such person, the maximum amount of Excess Parachute Payments
which could reasonably be expected to be so received (determined in accordance
with proposed regulations of the IRS promulgated under Section 280G of the
Code), and (3) with respect to each person who is entitled to receive a "gross-
up payment" in respect of excise taxes imposed on such Excess Parachute
Payments under Section 4999 of the Code, a reasonable estimate of the amount of
such gross-up payment.
Section 6.10 Litigation.
Except as disclosed in the Illinova SEC Reports or Section 6.10 of the
Illinova Disclosure Schedule, (i) as of the date hereof there is no Action (or
group of related Actions) pending or, to Illinova's knowledge,
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threatened against or directly affecting Illinova, any Subsidiaries of Illinova
or any of the directors or officers of Illinova or any of its Subsidiaries in
their capacity as such, that could reasonably be expected to result in an
adverse judgment in excess of $1,000,000; and (ii) there is no Action (or group
of related Actions) pending or, to Illinova's knowledge, threatened against or
directly affecting Illinova, any Subsidiaries of Illinova or any of the
directors or officers of Illinova or any of its Subsidiaries in their capacity
as such, that could reasonably be expected to have an Illinova Material Adverse
Effect, if adversely determined. Neither Illinova nor any of its Subsidiaries,
nor any officer, director or employee of Illinova or any of its Subsidiaries,
has been permanently or temporarily enjoined by any Order from engaging in or
continuing any conduct or practice in connection with the business, assets or
properties of Illinova or such Subsidiary, nor, to the knowledge of Illinova,
is Illinova, any Subsidiary or any officer, director or employee of Illinova or
its Subsidiaries under investigation by any Governmental Authority. Except as
disclosed in the Illinova SEC Reports or in Section 6.10 of the Illinova
Disclosure Schedule, there is no Order or order of any arbitrator or mediator
enjoining or requiring Illinova or any of its Subsidiaries to take any action
of any kind with respect to its business, assets or properties. Notwithstanding
the foregoing, no representation or warranty in this Section 6.10 is made with
respect to Environmental Laws, which are covered in Section 6.12.
Section 6.11 Employee Benefit Plans; ERISA.
(a) Section 6.11(a) of the Illinova Disclosure Schedule lists all employee
benefit plans or arrangements of any type (including plans described in Section
3(3) of ERISA and all bonus plans, stock option, stock purchase, restricted
stock, incentive, deferred compensation, and all employment, termination,
severance, or other arrangements), sponsored, maintained or contributed to by
Illinova or any trade or business, whether or not incorporated, which together
with Illinova would be deemed a "single employer" under Section 414(b), (c) or
(m) of the Code or Section 4001(b)(1) of ERISA (an "Illinova ERISA Affiliate")
within six years prior to the Effective Time ("Illinova Benefit Plans").
(b) With respect to each Illinova Benefit Plan: (i) if intended to qualify
under Section 401(a) or 401(k) of the Code, such plan satisfies the
requirements of such sections, has received a favorable determination letter
from the Internal Revenue Service with respect to its qualification, and its
related trust has been determined to be exempt from tax under Section 501(a) of
the Code and, to Illinova's knowledge, nothing has occurred since the date of
such letter to adversely affect such qualification or exemption; (ii) each such
plan has been administered in substantial compliance with its terms and
applicable law, except for any noncompliance with respect to any such plan that
could not reasonably be expected to result in an Illinova Material Adverse
Effect; (iii) (x) as of the date hereof, neither Illinova nor any Illinova
ERISA Affiliate has engaged in, and Illinova and each Illinova ERISA Affiliate
do not have any knowledge of any Person that has engaged in, any transaction or
acted or failed to act in any manner that would subject Illinova or any
Illinova ERISA Affiliate to any liability for a breach of fiduciary duty under
ERISA in excess of $1,000,000; and (y) neither Illinova nor any Illinova ERISA
Affiliate has engaged in, and Illinova and each Illinova ERISA Affiliate do not
have any knowledge of any Person that has engaged in, any transaction or acted
or failed to act in any manner that would subject Illinova or any Illinova
ERISA Affiliate to any liability for a breach of fiduciary duty under ERISA
that could reasonably be expected to result in an Illinova Material Adverse
Effect; (iv) no disputes or Actions are pending, or, to the knowledge of
Illinova or any Illinova ERISA Affiliate, threatened that could reasonably be
expected to result in a material liability that would have an Illinova Material
Adverse Effect; (v) neither Illinova nor any Illinova ERISA Affiliate has
engaged in, and Illinova and each Illinova ERISA Affiliate does not have any
knowledge of any Person that has engaged in, any transaction in violation of
Section 406(a) or (b) of ERISA or Section 4975 of the Code for which no
exemption exists under Section 408 of ERISA or Section 4975(c) of the Code or
Section 4975(d) of the Code that could reasonably be expected to result in an
Illinova Material Adverse Effect; (vi) there have been no "reportable events"
under Section 4043 of ERISA for which the 30 day notice requirement of ERISA
has not been waived by the PBGC; (vii) all contributions due have been made on
a timely basis (within, where applicable, the time limit established under
Section 302 of ERISA or Code Section 412); (viii) no notice of intent to
terminate such plan has been given under Section 4041 of ERISA and no Action
has been instituted under Section 4042 of ERISA to terminate such plan; (ix)
except for
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defined benefit plans (if applicable), such plan may be terminated on a
prospective basis without any continuing liability for benefits other than
benefits accrued to the date of such termination; and (x) neither Illinova nor
any Illinova ERISA Affiliate has incurred any liability under Title IV of ERISA
other than liabilities that would not cause an Illinova Material Adverse
Effect. All contributions made or required to be made under any Illinova
Benefit Plan have been made on or before their required due date and all such
contributions meet the requirements for deductibility under the Code, and all
contributions which are required and which have not been made have been
properly recorded on the books of Illinova or an Illinova ERISA Affiliate.
(c) No Illinova Benefit Plan is a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or a "multiple employer plan" (within the meaning
of Section 413(c) of the Code). No event has occurred with respect to Illinova
or an Illinova ERISA Affiliate which could subject Illinova to any liability or
Lien with respect to any Illinova Benefit Plan or any employee benefit plan
described in Section 3(3) of ERISA maintained, sponsored or contributed to by
an Illinova ERISA Affiliate under ERISA or the Code.
(d) Except as listed in Section 6.11(d) of the Illinova Disclosure Schedule,
no employee of Illinova or any of its Subsidiaries is covered by any severance
plan or similar arrangement.
(e) Except as listed in Section 6.11(e) of the Illinova Disclosure Schedule,
none of the Illinova Benefit Plans that are "welfare plans," within the meaning
of Section 3(1) of ERISA, provides for any benefits payable to or on behalf of
any employee or director after termination of employment or service, as the
case may be, other than elective continuation required pursuant to Code Section
4980B or coverage which expires at the end of the calendar month following such
event. Each such plan that is a "group health plan" (as defined in Code Section
4980B(g)) has been operated in compliance with Code Section 4980B at all times,
except for any non-compliance that would not, or insofar as reasonably can be
determined could not give rise to an Illinova Material Adverse Effect.
Section 6.12 Environmental Liability.
Except as listed in Section 6.12 of the Illinova Disclosure Schedule:
(a) The businesses of Illinova and its Subsidiaries have been and are
operated in material compliance with all Environmental Laws, except for any
violations which could not reasonably be expected to result in an Illinova
Material Adverse Effect.
(b) Neither Illinova nor any of its Subsidiaries has caused or allowed
the generation, treatment, manufacture, processing, distribution, use,
storage, discharge, release, disposal, transport or handling of any
Hazardous Substances at any of its properties or facilities except for any
such action which could not reasonably be expected to have an Illinova
Material Adverse Effect and, to Illinova's knowledge, no such action has
occurred at any property or facility owned, leased or operated by Illinova
or any of its Subsidiaries, except for any such action that could not
reasonably be expected to have an Illinova Material Adverse Effect.
(c) Neither Illinova nor any of its Subsidiaries has received any
written notice from any Governmental Authority or third party or, to the
knowledge of Illinova, any other written communication alleging or
concerning any material violation by Illinova or any of its Subsidiaries
of, or responsibility or liability of Illinova or any of its Subsidiaries
under, any Environmental Law which could reasonably be expected to have an
Illinova Material Adverse Effect. There are no pending, or to Illinova's
knowledge, threatened Actions with respect to the businesses or operations
of Illinova or any of its Subsidiaries alleging or concerning any violation
of or responsibility or liability under any Environmental Law that, if
adversely determined, could reasonably be expected to have an Illinova
Material Adverse Effect, nor does Illinova have any knowledge of any fact
or condition that could give rise to such an Action.
(d) Illinova and its Subsidiaries are in possession of all material
approvals, permits, licenses, registrations and similar type authorizations
from all Governmental Authorities under all Environmental Laws with respect
to the operation of the businesses of Illinova and its Subsidiaries; there
are no pending
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or, to Illinova's knowledge, threatened Actions seeking to modify, revoke
or deny renewal of any of such approvals, permits, licenses registrations
and authorizations; and Illinova does not have knowledge of any fact or
condition that is reasonably likely to give rise to any Action to modify,
revoke or deny renewal of any of such approvals, permits, licenses,
registrations and authorizations.
(e) Without in any way limiting the generality of the foregoing, except
as would not cause an Illinova Material Adverse Effect, (i) to Illinova's
knowledge, all off-site locations where Illinova or any of its Subsidiaries
has transported, released, discharged, stored, disposed or arranged for the
disposal of Hazardous Substances are licensed disposal sites as required by
law, (ii) to Illinova's knowledge, all underground and above-ground storage
tanks, and the operating status, capacity and contents of such tanks,
located on any property owned, leased or operated by Illinova or any of its
Subsidiaries are listed in Section 6.12 of the Illinova Disclosure Schedule
and (iii) to Illinova's knowledge, no PCB-Contaminated Electrical
Equipment, as defined in 40 C.F.R. Section 761.3, is used or stored at any
property owned, leased or operated by Illinova or any of its Subsidiaries.
(f) To Illinova's knowledge, no claims have been asserted or threatened
against Illinova or its Subsidiaries as a result of any release or disposal
at any of the properties currently or previously owned or operated by
Illinova, its Subsidiaries, or a predecessor in interest, or at any
disposal or treatment facility which received Hazardous Substances
generated by Illinova, its Subsidiaries, or any predecessor in interest
which could reasonably be expected to result in an Illinova Material
Adverse Effect.
(g) To Illinova's knowledge, no claims have been asserted or threatened
against Illinova or its Subsidiaries for any personal injury (including
wrongful death) or property damage (real or personal) arising out of
exposure to Hazardous Substances used, handled, generated, transported or
disposed by Illinova or its Subsidiaries at property currently or
previously owned or operated by Illinova or its Subsidiaries, except as
could not reasonably be expected to result in an Illinova Material Adverse
Effect.
(h) To Illinova's knowledge, Illinova has made available to Dynegy all
material non-privileged internal and external environmental audits,
evaluations, assessments and studies in the possession of Illinova (i)
pertaining to Hazardous Substances used, handled, generated, transported or
disposed by Illinova or its Subsidiaries at property owned or operated by
Illinova or its Subsidiaries, or (ii) concerning compliance by Illinova or
its Subsidiaries with Environmental Laws.
(i) Except as listed in Section 6.12(i) of the Illinova Disclosure
Schedule, Illinova owns sufficient NOx and SO\\2\\ allowances and credits,
to the extent required under applicable Environmental Law, to continue to
operate its business as currently operated and as planned to be operated.
Section 6.13 Compliance with Applicable Laws.
Except as would not individually or in the aggregate result in an Illinova
Material Adverse Effect, Illinova and each of its Subsidiaries hold all
approvals, licenses, permits, registrations and similar type authorizations
necessary for the lawful conduct of its respective businesses, as now
conducted, and such businesses are not being, and neither Illinova nor any of
its Subsidiaries has received any notice from any Person that any such business
has been or is being, conducted in violation of any law, ordinance or
regulation, including any law, ordinance or regulation relating to occupational
health and safety, except for possible violations that either individually or
in the aggregate have not resulted and would not result in an Illinova Material
Adverse Effect; provided, however, no representation or warranty in this
Section 6.13 is made with respect to Environmental Laws, which are covered
exclusively in Section 6.12.
Section 6.14 Labor Matters; Employees.
(a) Except as listed in Section 6.14(a) of the Illinova Disclosure Schedule,
(i) (A) none of Illinova or any of its Subsidiaries is a party to or bound by
any collective bargaining or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization or employee
association applicable to employees of Illinova or any of its Subsidiaries and
(B) none of the employees of Illinova or any
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of its Subsidiaries are represented by any labor organization and none of
Illinova or any of its Subsidiaries have any knowledge of any current union
organizing activities among the employees of Illinova or any of its
Subsidiaries nor does any question concerning representation exist concerning
such employees, and (ii) except as would not cause an Illinova Material Adverse
Effect (A) there is no labor strike, dispute, slowdown, work stoppage or
lockout actually pending or, to Illinova's knowledge, threatened against or
affecting Illinova or any of its Subsidiaries and, during the past five years,
there has not been any such action, (B) Illinova and its Subsidiaries have each
at all times been in material compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages,
hours of work and occupational safety and health, and are not engaged in any
unfair labor practices as defined in the National Labor Relations Act or other
applicable law, ordinance or regulation, (C) there is no unfair labor practice
charge or complaint against any of Illinova or any of its Subsidiaries pending
or, to the knowledge of Illinova, threatened before the National Labor
Relations Board or any similar state or foreign agency, (D) there is no
grievance or arbitration proceeding arising out of any collective bargaining
agreement or other grievance procedure relating to Illinova or any of its
Subsidiaries, (E) neither the Occupational Safety and Health Administration nor
any corresponding state agency has threatened to file any citation, and there
are no pending citations, relating to Illinova or any of its Subsidiaries, and
(F) there is no employee or governmental claim or investigation, including any
charges to the Equal Employment Opportunity Commission or state employment
practice agency, investigations regarding Fair Labor Standards Act compliance,
audits by the Office of Federal Contractor Compliance Programs, sexual
harassment complaints or demand letters or threatened claims.
(b) Except for the disposition of the Nuclear Facility, since the enactment
of the WARN Act, none of Illinova or any of its Subsidiaries has effectuated
(i) a "plant closing" (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of any of Illinova or any of its Subsidiaries, or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Illinova or any of its Subsidiaries, nor has Illinova or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law, in each case that could reasonably be expected to
have an Illinova Material Adverse Effect.
Section 6.15 Material Contracts.
(a) Except as set forth in the Illinova SEC Reports or as permitted pursuant
to Section 7.2, neither Illinova nor any of its Subsidiaries is a party to or
bound by (i) any agreement relating to the incurrence of debt (including sale
and leaseback and capitalized lease transactions and other similar financing
transactions) or its guaranty providing for payment or repayment in excess of
$10,000,000, but excluding open option, future and forward positions with
respect to the purchase, sale or delivery of commodities or securities, (ii)
any "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) or (iii) any non-competition agreement or any other
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any portion of the business
of Illinova and/or its Subsidiaries is or would be conducted or through which
Illinova and/or its Subsidiaries can restrict the conduct of business by any
other Person.
(b) Except as disclosed in the Illinova SEC Reports, to Illinova's
knowledge, no event of default (or an event which, with notice or lapse of time
or both notice and lapse of time, would constitute an event of default) exists
under any material note, lease, mortgage, deed of trust, license, agreement or
other instrument or obligation to which any Person which owns or leases any of
the Illinova Power Generation Facilities is a party or by which any of the
Illinova Power Generation Facilities is subject or bound.
Section 6.16 Required Stockholder Vote or Consent.
The only vote of the holders of any class or series of Illinova's capital
stock necessary to consummate the Transactions is the approval of this
Agreement by the holders of two-thirds of the outstanding shares of Illinova
Common Stock (the "Illinova Stockholders' Approval").
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Section 6.17 Proxy Statement/Prospectus; Registration Statement.
None of the information to be supplied by any Illinova Company for inclusion
in (a) the Proxy Statement/Prospectus Dynegy, Illinova and Newco are to file
with the SEC, and any amendments or supplements thereto, or (b) the
Registration Statement that Newco is to file with the SEC in connection with
the Mergers, and any amendments or supplements thereto, will, at the respective
times such documents are filed, and, in the case of the Proxy
Statement/Prospectus, at the time the Proxy Statement/Prospectus or any
amendment or supplement thereto is first mailed to stockholders of Dynegy and
Illinova, at the time such stockholders vote on approval and adoption of this
Agreement and at the Effective Time, and, in the case of the Registration
Statement, when it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be made therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
Section 6.18 Intellectual Property.
Illinova or its Subsidiaries own, or are licensed or otherwise have the
right to use, all Intellectual Property currently used in the conduct of the
business of Illinova and its Subsidiaries, except where the failure to do so
would not, individually or in the aggregate, have an Illinova Material Adverse
Effect. No Person has notified either Illinova or any of its Subsidiaries that
their use of the Intellectual Property infringes on the rights of any Person,
subject to such claims and infringements as do not, individually or in the
aggregate, give rise to any liability on the part of Illinova and its
Subsidiaries that could have an Illinova Material Adverse Effect, and, to
Illinova's knowledge, no Person is infringing on any right of Illinova or any
of its Subsidiaries with respect to any such Intellectual Property. No Actions
are pending or, to Illinova's knowledge, threatened that Illinova or any of its
Subsidiaries is infringing or otherwise adversely affecting the rights of any
Person with regard to such other Person's Intellectual Property.
Section 6.19 Brokers.
No broker, finder or investment banker (other than Chase Securities Inc. and
Berenson Minella & Company, the fees and expenses of which Illinova will pay)
is entitled to any brokerage, finder's fee or other fee or commission payable
by Illinova or any of its Subsidiaries in connection with the Transactions.
True and correct copies of all agreements and engagement letters currently in
effect with Chase Securities Inc. and Berenson Minella & Company (the "Illinova
Engagement Letters") have been provided to Dynegy.
Section 6.20 Tax Free Reorganization.
Neither Illinova nor, to its knowledge, any of its affiliates has taken or
agreed to take any action that would prevent the IAC Merger and the other
Transactions from constituting a contribution of assets under Section 351 of
the Code.
Section 6.21 Fairness Opinion.
Illinova's Board of Directors has received written opinions from Chase
Securities Inc. and Berenson Minella & Company that, as of the date of such
opinions, the Illinova Consideration (taking into account the Aggregate Merger
Stock Consideration) is fair, from a financial point of view, to the holders of
Illinova Common Stock. True and complete copies of such opinions have been made
available to Dynegy.
Section 6.22 Year 2000 Issues.
The disclosures set forth in the Illinova SEC Reports concerning potential
computer hardware and software problems associated with the Year 2000 are true
and correct in all material respects as of the respective dates of filing and
the date hereof.
Section 6.23 Takeover Laws.
Illinova and its Board of Directors have each taken all action required to
be taken by it to exempt this Agreement and the Transactions from, and this
Agreement and the Transactions are exempt from, the
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requirements of any "moratorium," "control share," "fair price," "affiliate
transaction," "business combination" or other anti-takeover laws and
regulations of any state, including the State of Illinois, and including
Sections 7.85 and 11.75 of the IBCA.
Section 6.24 Illinova Unregulated Facilities.
Set forth in Section 6.24 of the Illinova Disclosure Schedule is a true,
accurate and complete list of (i) all of the Illinova Unregulated Facilities,
(ii) the direct or indirect equity interests therein of Illinova or any of its
Subsidiaries, and (iii) to Illinova's knowledge the direct or indirect equity
interests in any Illinova Unregulated Facility that is a Qualifying Facility of
any other "electric utility holding company," "electric utility," or any
combination thereof. For purposes hereof, the terms "electric utility" and
"electric utility holding company" shall mean a Person primarily engaged in the
generation or sale of electric power within the meaning of 18 C.F.R. (S)
292.206, other than electric power solely from facilities exempt under PUHCA as
"exempt wholesale generators" or "foreign utility companies."
Section 6.25 Status of Nuclear Facility.
(a) Except as listed in Section 6.25(a) of the Illinova Disclosure Schedule,
the operation of the Nuclear Facility has at all times been conducted in
compliance with applicable health, safety, environmental, regulatory and other
legal requirements, except where the failure to be so in compliance in the
aggregate does not have, and cannot reasonably be expected to have, an Illinova
Material Adverse Effect. Except as listed in Section 6.25(a) of the Illinova
Disclosure Schedule, the operations of the Nuclear Facility are not the subject
of any outstanding notices of violation or demands for information from the NRC
or any other agency with jurisdiction over such facility. Illinova maintains,
and is in compliance with, an emergency plan designed to protect the health and
safety of the public in the event of an unplanned release of radioactive
materials from the Nuclear Facility, and such plan has been duly filed with the
NRC, and the NRC has not identified any non-compliance with its requirements.
Liability insurance to the full extent required by law for operating nuclear
facilities and consistent with Illinova's view of the risks inherent in the
operations of the Nuclear Facility remains in full force and effect regarding
such facility, and the amount of such liability insurance meets all applicable
legal and regulatory requirements and is summarized in Section 6.25(a) of the
Illinova Disclosure Schedule. The "minimum decommissioning fund estimate"
reflected in Illinova's filing with the NRC on March 29, 1999, fully conforms
with the requirements of applicable law. The total estimate for decommissioning
of the Nuclear Facility contained in such study adequately reflects all costs
and expenses which Illinova reasonably believes would be incurred in the
decommissioning of the Nuclear Facility in compliance with all applicable law
and regulations. Illinova has funded all qualified and non-qualified
decommissioning trust funds to the extent required by law. Except as disclosed
in Section 6.25(a) of the Illinova Disclosure Schedule, Illinova has no
material commitments (written or oral) to Governmental Authorities with respect
to the Nuclear Facility, other than those routine commitments made in the
ordinary course of business.
(b) The Nuclear Facility Agreements have been duly authorized and validly
executed and delivered by IPC (and to Illinova's knowledge, PECO and AmerGen,
as applicable) and are Enforceable against IPC (and to Illinova's knowledge,
PECO and AmerGen, as applicable).
(c) IPC, and to Illinova's knowledge PECO and AmerGen, as applicable, is not
in breach or default of any Nuclear Facility Agreement, and no event has
occurred which, with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under any
Nuclear Facility Agreement. Neither Illinova nor, to Illinova's knowledge, PECO
or AmerGen, has repudiated any provision of any such agreement. IPC (and
Illinova believes that PECO and AmerGen, as applicable) has satisfied or will
be able to satisfy each covenant and condition in the Nuclear Facility
Agreements.
Section 6.26 Regulation as a Utility.
Illinova is an electric utility holding company and is the parent of IPC.
Except as listed in Section 6.26 of the Illinova Disclosure Schedule, neither
Illinova nor any "subsidiary company" or "affiliate" of Illinova
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(each term as defined in PUHCA) is subject to regulation as a public utility,
public utility holding company or public service company (or similar
designation) by any other state in the United States, by the United States or
any agency or instrumentality of the United States or by any foreign country.
Illinova is a holding company exempt from all provisions of PUHCA, except
Section 9(a)(2) of PUHCA, pursuant to Section 3(a)(1) of PUHCA.
Section 6.27 Hedging.
Except as listed in Section 6.27 of the Illinova Disclosure Schedule, as of
the date hereof, neither Illinova nor any of its Subsidiaries is bound by
futures, hedge, swap, collar, put, call, floor, cap, option or other contracts
that are intended to benefit from, relate to or reduce or eliminate the risk of
fluctuations in the price of commodities, currencies, securities or interest
rates, except (i) interest rate swaps, interest rate exchange agreements,
interest rate cap or collar protection agreements or interest rate options
entered into (and only in such amounts and pursuant to such terms and
conditions as are necessary and appropriate) to hedge against interest rate
risk to which Illinova and its Subsidiaries, taken as a whole, are actually
exposed under their debt obligations, or (ii) commodity swaps or other
commodity price-hedging instruments entered into (and only in such amounts and
pursuant to such terms and conditions as are necessary and appropriate) to
hedge against commodity price risk to which Illinova and its Subsidiaries,
taken as a whole, are actually exposed in the ordinary course of business,
consistent with past practices.
Section 6.28 Activities of Newco, DAC and IAC.
Other than entering into this Agreement and performing obligations
hereunder, none of Newco, DAC and IAC have entered into any agreements or
conducted any other business.
Article VII
CONDUCT OF BUSINESS PENDING THE MERGERS
Section 7.1 Conduct of Business by Dynegy Pending the DAC Merger.
From the date hereof until the Effective Time, unless Illinova otherwise
agrees in writing, or except as listed in the Dynegy Disclosure Schedule or as
otherwise contemplated by this Agreement, Dynegy will conduct, and will cause
its Subsidiaries to conduct, its business in the ordinary course consistent
with past practice and will use, and will cause each of its Subsidiaries to
use, all reasonable efforts to preserve intact their business organizations and
relationships with third parties and to keep available the services of its key
employees, directors and officers, subject to the terms of this Agreement.
Except as listed in the Dynegy Disclosure Schedule or as otherwise provided in
this Agreement, and without limiting the generality of the foregoing, from the
date hereof until the Effective Time, without the written consent of Illinova,
which consent will not be unreasonably withheld:
(a) Neither Dynegy nor any of its Subsidiaries will adopt or propose any
change to its certificate of incorporation or bylaws (or similar
organizational documents);
(b) Neither Dynegy nor any of its Subsidiaries will (i) declare, set
aside or pay any dividend or other distribution with respect to any shares
of capital stock of Dynegy or any of its respective Subsidiaries (except
for (A) dividends on the Dynegy Stock in amounts consistent with past
practices, and (B) intercompany dividends from direct or indirect wholly-
owned Subsidiaries or from or in connection with facilities listed in
Section 5.24 of the Dynegy Disclosure Schedule) or (ii) repurchase, redeem
or otherwise acquire any outstanding shares of capital stock or other
securities of, or other ownership interests in, Dynegy or any of its
Subsidiaries, other than intercompany acquisitions of stock;
(c) Neither Dynegy nor any of its Subsidiaries will merge or consolidate
with any Person other than a member of the consolidated group of
corporations of which Dynegy is the parent for purposes of Treasury
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Regulation Section 1.1502 or acquire assets of any other Person (other than
a member of such group) for consideration exceeding $20,000,000 singularly
or $75,000,000 in the aggregate, or enter a new line of business or
commence material business operations in any country in which Dynegy is not
operating as of the date of this Agreement other than acquisitions pursuant
to contractual commitments in effect on the date hereof;
(d) Except (i) as listed in Section 7.1(d) of the Dynegy Disclosure
Schedule or (ii) for the sale, exchange or other disposition of Qualifying
Facilities listed in Section 5.24 of the Dynegy Disclosure Schedule, Dynegy
will not, and will not permit any of its Subsidiaries to, sell, lease,
license or otherwise surrender, relinquish or dispose of any assets or
properties (other than among Dynegy and its direct and indirect wholly
owned Subsidiaries) with an aggregate fair market value exceeding
$20,000,000 singularly or $75,000,000 in the aggregate (other than sales of
petroleum liquids, electricity, gas and coal in the ordinary course of
business);
(e) Dynegy will not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement, as disclosed on
Section 7.1(f) of the Dynegy Disclosure Schedule, or in connection with the
sale, exchange or other disposition of Qualifying Facilities listed in
Section 5.24 of the Dynegy Disclosure Schedule, Dynegy and its Subsidiaries
will not issue any securities (whether through the issuance or granting of
options, warrants, rights or otherwise and except pursuant to existing
obligations disclosed in the Dynegy SEC Reports or the Dynegy Disclosure
Schedule), enter into any amendment of any term of any outstanding security
of Dynegy or of any of its Subsidiaries, incur any debt except trade debt
in the ordinary course of business and debt pursuant to existing credit
facilities or arrangements and (except as listed in Section 7.1(f) of the
Dynegy Disclosure Schedule), fail to make any required contribution to any
Dynegy Benefit Plan, increase compensation, bonus (except as listed in
Section 7.1(f) of the Dynegy Disclosure Schedule) or other benefits payable
to, or modify or amend (or waive any material provisions of) any employment
agreements or severance agreements with, any executive officer or former
employee or enter into any settlement or consent with respect to any
pending litigation other than settlements in the ordinary course of
business;
(g) Dynegy will not change any method of accounting or accounting
practice by Dynegy or any of its Subsidiaries, except for any such change
required by GAAP;
(h) Dynegy will not take any action that would give rise to a claim
under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(i) Dynegy will not amend or otherwise change the terms of the Dynegy
Engagement Letters, except to the extent that any such amendment or change
would result in terms more favorable to Dynegy;
(j) Neither Dynegy nor any of its Subsidiaries will enter into any
futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from, relate to or reduce or
eliminate the risk of fluctuations in the price of commodities, currencies,
securities or interest rates, except in the ordinary course of business,
consistent with past practices;
(k) Neither Dynegy nor any of its Subsidiaries will (i) take, or agree
or commit to take, any action that would make any representation and
warranty of Dynegy hereunder inaccurate in any respect at, or as of any
time prior to, the Effective Time or (ii) omit, or agree or commit to omit,
to take any action necessary to prevent any such representation or warranty
from being inaccurate in any respect at any such time;
(l) Neither Dynegy nor any of its Subsidiaries will:
(i) adopt, amend (other than amendments that reduce the amounts
payable by Dynegy or any Subsidiary, or amendments required by law to
preserve the qualified status of a Dynegy Benefit Plan) or assume an
obligation to contribute to any employee benefit plan or arrangement of
any type or
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collective bargaining agreement or enter into any employment, severance
or similar contract with any person (including contracts with
management of Dynegy or any Subsidiaries that might require that
payments be made upon the consummation of the Transactions) or amend
(or waive any material provision of) any such existing contracts to
increase any amounts payable thereunder or benefits provided
thereunder,
(ii) engage in any transaction (either acting alone or in
conjunction with any Dynegy Benefit Plan or trust created thereunder)
in connection with which Dynegy or any Subsidiary could be subjected
(directly or indirectly) to either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code,
(iii) terminate any Dynegy Benefit Plan in a manner, or take any
other action with respect to any Dynegy Benefit Plan, that could result
in the liability of Dynegy or any Subsidiary to any Person,
(iv) take any action that could adversely affect the qualification
of any Dynegy Benefit Plan or its compliance with the applicable
requirements of ERISA,
(v) fail to make full payment when due of all amounts which, under
the provisions of any Dynegy Benefit Plan, any agreement relating
thereto or applicable law, Dynegy or any Subsidiary are required to pay
as contributions thereto, or
(vi) fail to file, on a timely basis, all reports and forms required
by federal regulations with respect to any Dynegy Benefit Plan;
(m) Dynegy will not make any election under any of its stock option
plans to pay cash in exchange for terminating awards under such plans;
(n) Neither Dynegy nor any of its Subsidiaries will, except as required
or contemplated by this Agreement, engage in any activities which would
cause a change in its status, or that of the Dynegy Subsidiaries, under
PUHCA, or that would impair the ability of Illinova, Newco or any
Subsidiary to claim an exemption as of right under Rule 2 of PUHCA or that
would subject the DAC Surviving Corporation or any Subsidiary thereof to
regulation under PUHCA (other than under Section 9(a)(2) or as an exempt
holding company under Section 3 of PUHCA), following the DAC Merger; and
(o) Neither Dynegy nor any of its Subsidiaries will agree or commit to
do any of the foregoing.
Section 7.2 Conduct of Business by Illinova Companies Pending the IAC
Merger.
From the date hereof until the Effective Time, unless Dynegy otherwise
agrees in writing, or except as listed in the Illinova Disclosure Schedule or
as otherwise contemplated by this Agreement, Illinova will conduct, and will
cause its Subsidiaries to conduct, its business in the ordinary course
consistent with past practice and will use, and will cause each of its
Subsidiaries to use, all reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of its key employees, directors and officers, subject to the terms of
this Agreement. Except as listed in the Illinova Disclosure Schedule or as
otherwise provided in this Agreement, and without limiting the generality of
the foregoing, from the date hereof until the Effective Time, without the
written consent of Dynegy, which consent will not be unreasonably withheld:
(a) Neither Illinova nor any of its Subsidiaries will adopt or propose
any change to its articles of incorporation or bylaws (or similar
organizational documents);
(b) Neither Illinova nor any of its Subsidiaries will (i) declare, set
aside or pay any dividend or other distribution with respect to any shares
of capital stock of Illinova or any of its respective Subsidiaries (except
for (A) dividends on the Illinova Common Stock in amounts consistent with
past practices, (B) dividends on IPC's preferred stock outstanding as of
the date hereof pursuant to the terms of the certificates of designations
with respect thereto, and (C) intercompany dividends from direct or
indirect wholly-owned Subsidiaries) or (ii) repurchase, redeem or otherwise
acquire any outstanding shares of
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capital stock or other securities of, or other ownership interests in,
Illinova or any of its Subsidiaries, other than intercompany acquisitions
of stock;
(c) Neither Illinova nor any of its Subsidiaries will merge or
consolidate with any Person other than a member of the consolidated group
of corporations of which Illinova is the parent for purposes of Treasury
Regulation Section 1.1502 or acquire assets of any Person (other than a
member of such group) for consideration exceeding $20,000,000 singularly or
$75,000,000 in the aggregate or enter a new line of business or commence
business operations in any country in which Illinova is not operating as of
the date of this Agreement other than acquisitions pursuant to contractual
commitments in effect on the date hereof;
(d) Except as listed in Section 7.2(d) of the Illinova Disclosure
Schedule, Illinova will not and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise surrender, relinquish or dispose of any
assets or properties (other than among Illinova and its direct and indirect
wholly owned Subsidiaries) with an aggregate fair market value exceeding
$20,000,000 singularly or $75,000,000 in the aggregate (other than sales of
electricity and gas in the ordinary course of business);
(e) Illinova will not settle any material Audit, make or change any
material Tax election or file any material amended Tax Return;
(f) Except as otherwise permitted by this Agreement or as disclosed on
Section 7.2(f) of the Illinova Disclosure Schedule, Illinova and its
Subsidiaries will not issue any securities (whether through the issuance or
granting of options, warrants, rights or otherwise and except pursuant to
existing obligations disclosed in the Illinova SEC Reports or the Illinova
Disclosure Schedule), enter into any amendment of any term of any
outstanding security of Illinova or of any of its Subsidiaries, incur any
debt except trade debt in the ordinary course of business and debt pursuant
to existing credit facilities or arrangements, fail to make any required
contribution to any Illinova Benefit Plan, increase compensation, bonus
(except as listed in Section 7.2(f) of the Illinova Disclosure Schedule) or
other benefits payable to, or modify or amend (or waive any material
provisions of) any employment agreements or severance agreements with, any
executive officer or former employee or enter into any settlement or
consent with respect to any pending litigation other than settlements in
the ordinary course of business;
(g) Illinova will not change any method of accounting or accounting
practice by Illinova or any of its Subsidiaries, except for any such change
required by GAAP;
(h) Illinova will not take any action that would give rise to a claim
under the WARN Act or any similar state law or regulation because of a
"plant closing" or "mass layoff" (each as defined in the WARN Act);
(i) Illinova will not amend or otherwise change the terms of the
Illinova Engagement Letters, except to the extent that any such amendment
or change would result in terms more favorable to Illinova;
(j) Neither Illinova nor any of its Subsidiaries will enter into any
futures, hedge, swap, collar, put, call, floor, cap, option or other
contracts that are intended to benefit from, relate to or reduce or
eliminate the risk of fluctuations in the price of commodities, currencies,
securities or interest rates, except (i) interest rate swaps, interest rate
exchange agreements, interest rate cap or collar protection agreements or
interest rate options entered into (and only in such amounts and pursuant
to such terms and conditions as are necessary and appropriate) to hedge
against interest rate risk to which Illinova and its Subsidiaries, taken as
a whole, are actually exposed under their debt obligations, or (ii)
commodity swaps or other commodity price-hedging instruments entered into
(and only in such amounts and pursuant to such terms and conditions as are
necessary and appropriate) to hedge against commodity price risk to which
Illinova and its Subsidiaries, taken as a whole, are actually exposed in
the ordinary course of business, consistent with past practices;
(k) Neither Illinova nor any of its Subsidiaries will (i) take, or agree
or commit to take, any action that would make any representation and
warranty of Illinova hereunder inaccurate in any respect at, or as
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of any time prior to, the Effective Time or (ii) omit, or agree or commit
to omit, to take any action necessary to prevent any such representation or
warranty from being inaccurate in any respect at any such time;
(l) Neither Illinova nor any of its Subsidiaries will:
(i) adopt, amend (other than amendments that reduce the amounts
payable by Illinova or any Subsidiary, or amendments required by law to
preserve the qualified status of an Illinova Benefit Plan) or assume an
obligation to contribute to any employee benefit plan or arrangement of
any type or collective bargaining agreement or enter into any
employment, severance or similar contract with any person (including
contracts with management of Illinova or any Subsidiaries that might
require that payments be made upon consummation of the Transactions) or
amend (or waive any material provision of) any such existing contracts
to increase any amounts payable thereunder or benefits provided
thereunder,
(ii) engage in any transaction (either acting alone or in conjunction
with any Illinova Benefit Plan or trust created thereunder) in
connection with which Illinova or any Subsidiary could be subjected
(directly or indirectly) to either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of Section 502 of ERISA or a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code,
(iii) terminate any Illinova Benefit Plan in a manner, or take any
other action with respect to any Illinova Benefit Plan, that could
result in the liability of Illinova or any Subsidiary to any Person,
(iv) take any action that could adversely affect the qualification of
any Illinova Benefit Plan or its compliance with the applicable
requirements or ERISA,
(v) fail to make full payment when due of all amounts which, under
the provisions of any Illinova Benefit Plan, any agreement relating
thereto or applicable law, Illinova or any Subsidiary are required to
pay as contributions thereto, or
(vi) fail to file, on a timely basis, all reports and forms required
by federal regulations with respect to any Illinova Benefit Plan;
(m) Illinova will not make any election under any of its stock option
plans to pay cash in exchange for terminating awards under such plans;
(n) Neither Illinova nor any of its Subsidiaries will, except as
required or contemplated by this Agreement, engage in any activities which
would cause a change in its status, or that of the Illinova Subsidiaries,
under PUHCA, or that would impair the ability of Illinova, Newco or any
Subsidiary to claim an exemption as of right under Rule 2 of PUHCA or that
would subject the DAC Surviving Corporation or any Subsidiary thereof to
regulation under PUHCA (other than under Section 9(a)(2) or as an exempt
holding company under Section 3 of PUHCA), following the IAC Merger;
(o) None of Newco, DAC or IAC will enter into any agreements or engage
in any business other than entering into this Agreement and the Ancillary
Agreements and performing the transactions contemplated hereby and thereby;
(p) Neither Illinova nor any of its Subsidiaries will agree or commit to
do any of the foregoing; and
(q) Illinova agrees to use its commercially reasonable efforts to
provide title opinions, title policies, or other evidence of title,
reasonably satisfactory to Dynegy, to the Principal Power Facilities, such
evidence demonstrating that Illinova has marketable title to the site of
each Principal Power Facility, free and clear of all liens, easements,
restrictive covenants, or other restrictions, except liens, easements,
restrictive covenants, or other restrictions, (i) arising in the ordinary
course of business, (ii) securing long-term debt of IPC or Illinova and
reflected on the most recent balance sheet in Illinova's SEC Reports, (iii)
arising from real estate Taxes or other special assessments not yet due and
payable as of the Closing Date, (iv) which could not reasonably be expected
to cause Illinova to lose title to any Principal Power Facility, or (v)
which could not reasonably be expected to interfere with current or
proposed uses of any Principal Power Facility.
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Section 7.3 Certain Operating Issues.
(a) Nuclear Operations.
(i) Except as described in Section 7.3 of the Illinova Disclosure
Schedule or to the extent Dynegy otherwise consents in writing, during the
term of this Agreement and the effectiveness of the Nuclear Facility
Agreements, Illinova shall (A) cause IPC to operate the Nuclear Facility in
the ordinary course consistent with Good Utility Practice (as defined in
the Nuclear Facility Agreements) and applicable environmental, health,
safety, regulatory, and other legal requirements, (B) use reasonable
efforts to preserve intact the Nuclear Facility, (C) maintain customary
insurance coverage covering the Nuclear Facility, (D) not make any material
change in the nuclear fuel inventory customarily maintained by IPC, and (E)
not, except as required by law or Order and as arising under the Nuclear
Facility Agreements, propose or adopt a budget for decommissioning
expenses, which exceeds the "minimum decommissioning fund estimate"
referenced in Section 6.25 of the Illinova Disclosure Schedule. Illinova
will not permit IPC to engage in, or enter into the business of, the
transportation, treatment or disposal of radioactive waste generated by
third parties, and will inform Dynegy promptly of any changes in the
decommissioning funding plan for the Nuclear Facility as submitted to the
NRC on March 31, 1999. To the extent not prohibited by applicable laws,
regulations, facility licenses, permits and agreements with third parties
existing as of the date hereof, at all times prior to the Closing, Illinova
will make available to Dynegy, upon its request, any existing information
relevant to the operation or decommissioning of the Nuclear Facility, and
will inform Dynegy promptly of any proposed changes to the decommissioning
plan funding budget. If Illinova is prohibited by agreement with a third
party from providing information to Dynegy, Illinova will use its best
efforts (including taking into account Dynegy's willingness to execute
appropriate confidentiality agreements) to obtain the consent of such third
party to the release of such information. In addition, upon reasonable
notice, Illinova will allow access by individuals designated by Dynegy to
all portions of the Nuclear Facility, affording those persons the same
degree of access to facilities and information to the same extent afforded
the Chief Nuclear Officer. Access by the individuals selected by Dynegy
will be pursuant to existing procedures for access to the Nuclear Facility,
including any security clearance and training normally required of Illinova
nuclear personnel.
(ii) As soon as practicable following the date hereof, Dynegy and
Illinova will create a Nuclear Advisory Committee (the "Nuclear Advisory
Committee") consisting of three members appointed by Dynegy and three
members appointed by Illinova. The Nuclear Advisory Committee will have no
authority to control, manage, operate or participate in the management of
the Nuclear Facility or the decommissioning of such facility, but will be
advisory only. Each member of the Nuclear Advisory Committee will have
responsibility only to the entity that appointed such member. To the extent
not prohibited by applicable laws, regulations and facility licenses and
permits, the Nuclear Advisory Committee and each member thereof will have
access to the Nuclear Facility to the same extent granted to senior nuclear
personnel employed by Illinova, and Illinova employees will cooperate with
members of the Nuclear Advisory Committee in obtaining such access and in
promptly responding to all inquiries concerning the Nuclear Facility.
Access by the individuals selected by Dynegy will be pursuant to existing
procedures for access to the Nuclear Facility, including any security
clearance and training normally required of Illinova nuclear personnel. The
Nuclear Advisory Committee will consult with the management of Illinova and
Dynegy at regular intervals (but not less frequently than monthly)
concerning the progress of operating, decommissioning or selling the
Nuclear Facility.
(iii) Illinova will use all commercially reasonable efforts to execute a
definitive agreement, and close the transactions in a fashion that would
satisfy Section 9.3(e).
(b) Integration Committee.
As soon as practicable following the date hereof, Dynegy and Illinova will
create an Integration Committee (the "Integration Committee") initially
consisting of five members appointed by Dynegy and five members appointed by
Illinova, the chairman of which shall initially be a senior Illinova manager,
which will
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meet from time to time with respect to the planned integration of Illinova's
and Dynegy's businesses after the Closing, including with respect to each
company's power generation facilities, trading operations, petroleum liquids
facilities or otherwise. The Integration Committee will have no authority to
control, manage, operate or participate in the management of either Dynegy or
Illinova, but will be advisory only. Each member of the Integration Committee
will have responsibility only to the entity that appointed such member. To the
extent not prohibited by applicable laws, regulations and licenses and permits,
the Integration Committee and each member thereof will have access to the
business, facilities and records of Dynegy or Illinova, as applicable, to the
same extent granted to senior personnel employed by Dynegy or Illinova, as
applicable. Illinova and Dynegy's employees will cooperate with members of the
Integration Committee in obtaining such access and in promptly responding to
all inquiries concerning such business, facilities and records. Access to a
party's business, facilities and records by the individuals selected by the
other party will be pursuant to existing procedures for access to such
business, facilities and records. The Integration Committee will consult with
the management of Illinova and Dynegy at regular intervals (but not less
frequently than bi-monthly) concerning the progress of the proposed integration
of the two companies' business and operations.
Article VIII
ADDITIONAL AGREEMENTS
Section 8.1 Access and Information.
The parties will each afford to the other and to the other's financial
advisors, legal counsel, accountants, consultants, financing sources, and other
authorized representatives access during normal business hours throughout the
period prior to the Effective Time to all of its books, records, properties,
contracts, leases, plants and personnel and, during such period, each will
furnish promptly to the other (a) a copy of each report, schedule and other
document filed or received by it under federal or state securities laws, and
(b) all other information as such other party reasonably may request, provided
that no investigation pursuant to this Section 8.1 will affect any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Mergers. Each party will hold in
confidence, and will cause its representatives to hold in confidence, all
nonpublic information until such time as such information is otherwise publicly
available and, if this Agreement is terminated, each party will deliver to the
other all documents, work papers and other materials (including copies)
obtained by such party or on its behalf from the other party in connection with
this Agreement, whether so obtained before or after the execution hereof.
Notwithstanding the foregoing, the Confidentiality Agreements will survive the
execution and delivery of this Agreement.
Section 8.2 Acquisition Proposals.
(a) From the date hereof until the Termination Date, Illinova and its
Subsidiaries will not, and will cause their respective officers, directors,
employees or other agents not to, directly or indirectly, (i) take any action
to solicit, initiate or encourage any Illinova Acquisition Proposal or (ii)
engage in negotiations or discussions with, or disclose any nonpublic
information relating to Illinova or its Subsidiaries, or afford access to their
respective properties, books or records to any Person that may be considering
making, or has made, an Illinova Acquisition Proposal.
(b) Notwithstanding Section 8.2(a), nothing herein will prohibit Illinova
and its Board of Directors from (i) taking and disclosing a position with
respect to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a)
under the Exchange Act, or (ii) furnishing information, including nonpublic
information to, or entering into negotiations or discussions with, any Person
that has indicated its willingness to make an unsolicited bona fide proposal to
acquire Illinova pursuant to a merger, consolidation, share exchange, purchase
of a substantial portion of the assets, business combination or other similar
transaction, if, and only to the extent that:
(i) such unsolicited bona fide proposal relating to an Illinova
Acquisition Proposal is made by a third party that Illinova's Board of
Directors determines in good faith has the intent to proceed with
negotiations, and the financial capability to consummate, such Illinova
Acquisition Proposal,
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(ii) Illinova's Board of Directors, after duly considering the written
advice of outside legal counsel to Illinova, determines in good faith that
such action is required for Illinova's Board of Directors to comply with
its fiduciary duties to shareholders imposed by applicable law,
(iii) contemporaneously with furnishing such information to, or entering
into discussions or negotiations with, such third party, Illinova provides
written notice to Dynegy to the effect that it is furnishing information
to, or entering into discussions or negotiations with, such third party,
(iv) Illinova receives from the third party making such a proposal an
executed confidentiality agreement with terms no less favorable to Illinova
than those contained in the Confidentiality Agreements, and
(v) Illinova uses all reasonable efforts to keep Dynegy informed in all
material respects of the status and terms of any such negotiations or
discussions (including the identity of the third party with whom such
negotiations or discussions are being held) and provides Dynegy copies of
such written proposals and any amendments or revisions thereto or
correspondence related thereto; provided, that Dynegy agrees to execute a
confidentiality agreement, in form reasonably acceptable to it, with
respect to any such information delivered to Dynegy pursuant to this clause
(v), which confidentiality agreement shall be subject to Dynegy's
disclosure obligations arising under applicable law or securities exchange
regulations.
(c) From the date hereof until the Termination Date, Dynegy and its
Subsidiaries will not, and will cause their respective officers, directors,
employees or other agents not to, directly or indirectly, (i) take any action
to solicit, initiate or encourage any Dynegy Acquisition Proposal or (ii)
engage in negotiations or discussions with, or disclose any nonpublic
information relating to Dynegy or its Subsidiaries, or afford access to their
respective properties, books or records to any Person that may be considering
making, or has made, a Dynegy Acquisition Proposal.
(d) Notwithstanding Section 8.2(c), nothing herein will prohibit Dynegy and
its Board of Directors from (i) taking and disclosing a position with respect
to a tender offer by a third party pursuant to Rules 14d-9 and 14e-2(a) under
the Exchange Act, or (ii) furnishing information, including nonpublic
information to, or entering into negotiations or discussions with, any Person
that has indicated its willingness to make an unsolicited bona fide proposal to
acquire Dynegy pursuant to a merger, consolidation, share exchange, purchase of
a substantial portion of the assets, business combination or other similar
transaction, if, and only to the extent that:
(i) such unsolicited bona fide proposal relating to a Dynegy Acquisition
Proposal is made by a third party that Dynegy's Board of Directors
determines in good faith has the intent to proceed with negotiations, and
the financial capability to consummate, such Dynegy Acquisition Proposal,
(ii) Dynegy's Board of Directors, after duly considering the written
advice of outside legal counsel to Dynegy, determines in good faith that
such action is required for Dynegy's Board of Directors to comply with its
fiduciary duties to stockholders imposed by applicable law,
(iii) contemporaneously with furnishing such information to, or entering
into discussions or negotiations with, such Person, Dynegy provides written
notice to Illinova to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such Person,
(iv) Dynegy receives from the Person making such a proposal an executed
confidentiality agreement with terms no less favorable to Dynegy than those
contained in the Confidentiality Agreements, and
(v) Dynegy uses all reasonable efforts to keep Illinova informed in all
material respects of the status and terms of any such negotiations or
discussions (including the identity of the Person with whom such
negotiations or discussions are being held) and provides Illinova copies of
such written proposals and any amendments or revisions thereto or
correspondence related thereto; provided, that Illinova agrees to execute a
confidentiality agreement, in form reasonably acceptable to it, with
respect to any such information delivered to Illinova pursuant to this
clause (v), which confidentiality agreement shall be subject to Illinova's
disclosure obligations arising under applicable law or securities exchange
regulations.
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Section 8.3 Directors' and Officers' Indemnification and Insurance.
(a) Newco will indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who becomes prior to the
Effective Time, (i) an officer or director of Dynegy and its Subsidiaries or an
employee of Dynegy or any of its Subsidiaries who acts as a fiduciary under any
of the Dynegy Benefit Plans, (ii) an officer or director of Illinova and its
Subsidiaries or an employee of Illinova or any Subsidiary of Illinova who acts
in a fiduciary under any of the Illinova Benefit Plans (each an "Indemnified
Party") against all losses, claims, damages, liabilities, fees and expenses
(including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the prior written consent of Newco, which will
not be unreasonably withheld)) arising in whole or in part out of actual or
alleged actions or omissions in their capacity as such occurring at or prior to
the Effective Time to the fullest extent permitted under Illinois law or
Newco's articles of incorporation and bylaws and Dynegy's and Illinova's
indemnification obligations in effect at the date hereof, and shall advance
expenses incurred in the defense of any Action to the fullest extent permitted
by law; provided, that any determination required to be made with respect to
whether an Indemnified Party's conduct complies with the standards set forth
under Illinois law, Newco's articles of incorporation or bylaws or such
obligations, as the case may be, will be made by independent counsel mutually
acceptable to Newco and the Indemnified Party; and provided, further, that
nothing herein will impair any rights or obligations of any Indemnified Party.
If any claim or claims are brought against any Indemnified Party (whether
arising before or after the Effective Time), such Indemnified Party may select
counsel for the defense of such claim, which counsel should be reasonably
acceptable to Dynegy and Illinova (if selected prior to the Effective Time) and
Newco (if selected after the Effective Time).
(b) Newco will maintain Dynegy's and Illinova's existing officers' and
directors' liability insurance policies for not less than six years after the
Effective Time, but only to the extent related to actions or omissions prior to
the Effective Time; provided, that Newco may substitute therefor policies of
substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers; provided further, that the
aggregate annual premiums to be paid with respect to the maintenance of such
insurance for such six year period will not exceed 150% of the higher of Dynegy
or Illinova's current annual premium for its existing insurance.
Section 8.4 Further Assurances.
Each party hereto agrees to use all reasonable efforts to obtain all
consents and approvals and to do all other things necessary for the
consummation of the Transactions. The parties agree to take such further action
to deliver or cause to be delivered to each other at the Closing, and at such
other times thereafter as is reasonably agreed, such additional agreements or
instruments as any of them may reasonably request for the purpose of carrying
out this Agreement and agreements and transactions contemplated hereby and
thereby. The parties will afford each other access to all information,
documents, records and personnel who may be necessary for any party to comply
with laws or regulations (including the filing and payment of taxes and
handling tax audits), to fulfill its obligations with respect to
indemnification hereunder or to defend itself against suits or claims of
others. Illinova and Dynegy will duly preserve all files, records or any
similar items of Illinova or Dynegy received or obtained as a result of the
Mergers with the same care and for the same period of time as they would
preserve their own similar assets.
Section 8.5 Expenses.
(a) Except as provided in Section 8.5(b) or (c) and Section 12.8, all
Expenses incurred by the parties will be borne solely and entirely by the party
that has incurred such Expenses; provided, however, that if this Agreement is
terminated for any reason, then the allocable share of Illinova and Dynegy for
all Expenses (including fees and expenses of accountants, experts, and
consultants, but excluding the fees and expenses of legal counsel and
investment bankers) related to preparing, printing, filing and mailing the
Registration Statement, the Proxy Statement/Prospectus and all SEC and HSR
filing fees incurred in connection with the
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Registration Statement, Proxy Statement/Prospectus and HSR, will be one-half by
Illinova and one-half by Dynegy; provided further, if this Agreement is
terminated because one of the Dynegy Stockholders' Approval or the Illinova
Stockholders' Approval is not obtained, then the party whose stockholders'
approval has not been obtained will pay the other party's reasonably documented
Expenses up to $7.5 million.
(b) Dynegy agrees that, if:
(i) (A) Illinova terminates this Agreement pursuant to Section
11.1(g)(i) or (ii), or (B) Dynegy or Illinova terminates this Agreement
pursuant to Section 11.1(h), or
(ii) (A) Illinova terminates this Agreement pursuant to Section 11.1(b)
at a time that a Dynegy Breach exists, (B) Illinova terminates this
Agreement pursuant to Section 11.1(d), (C) Illinova terminates this
Agreement pursuant to Section 11.1(g)(iii) or (iv), or (D) Illinova or
Dynegy terminates this Agreement because the Dynegy Stockholders' Approval
has not been obtained, and in any case described in clauses (A), (B), (C)
or (D) within 18 months after the termination of this Agreement:
(1) a transaction is consummated, which transaction, when offered or
proposed, constitutes a Dynegy Acquisition Proposal,
(2) a definitive agreement (the execution and delivery of which has
been authorized by the boards of directors, or comparable bodies, that
would if consummated constitute a Dynegy Acquisition Proposal) for such
a transaction is entered into, or
(3) any Person has acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as defined under
Section 13(d) of the Exchange Act), has been formed that beneficially
owns, or has the right to acquire beneficial ownership of, outstanding
shares of capital stock of Dynegy representing 50% or more of the
combined power to vote generally for the election of directors, and
Dynegy's Board of Directors has taken any action has facilitated the
acquisition by such Person or group of such beneficial ownership,
then upon the first termination to occur under subparagraphs (i) or (ii) of
this Section 8.5(b), Dynegy will pay to Illinova a Termination Fee of $85
million, plus in the case of termination pursuant to subparagraph (i) or
clauses (A), (B) or (C) of subparagraph (ii), the reasonably documented
Expenses of Illinova up to $7.5 million. No Termination Fee will be payable
to Illinova (I) under clauses (i) or (ii) if Illinova's Board of Directors
withdraws, modifies or changes its recommendation of this Agreement or the
IAC Merger or Illinova's stockholders fail to give the Illinova
Stockholders' Approval when the proposals contemplated thereby are properly
submitted to a vote at the Illinova Special Meeting or any postponement or
adjournment thereof or (II) if, prior to the occurrence of any event
requiring payment of a Termination Fee under this Section 8.5(b), an event
has occurred requiring the payment of a Termination Fee to Dynegy pursuant
to Section 8.5(c). In the event of termination of this Agreement as
provided in this Section 8.5, payment of the fees and expenses contemplated
by this Section 8.5(b) shall be Illinova's sole remedy.
(c) Illinova agrees that, if:
(i) (A) Dynegy terminates this Agreement pursuant to Section 11.1(i)(i)
or (ii), or (B) Illinova or Dynegy terminates this Agreement pursuant to
Section 11.1(j), or
(ii) (A) Dynegy terminates this Agreement pursuant to Section 11.1(b) at
a time that an Illinova Breach exists, (B) Dynegy terminates this Agreement
pursuant to Section 11.1(c), (C) Dynegy terminates this Agreement pursuant
to Section 11.1(i)(iii) or (iv), or (D) Dynegy or Illinova terminates this
Agreement because the Illinova Stockholders' Approval has not been
obtained, and in any case described in clauses (A), (B), (C) or (D) within
18 months after the termination of this Agreement:
(1) a transaction is consummated, which transaction, when offered or
proposed, constitutes an Illinova Acquisition Proposal,
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(2) a definitive agreement (the execution and delivery of which has
been authorized by the boards of directors, or comparable bodies, that
would if consummated constitute an Illinova Acquisition Proposal) for
such a transaction is entered into, or
(3) any Person has acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as defined under
Section 13(d) of the Exchange Act), has been formed that beneficially
owns, or has the right to acquire beneficial ownership of, outstanding
shares of capital stock of Illinova representing 50% or more of the
combined power to vote generally for the election of directors, and
Illinova's Board of Directors has taken any action has facilitated the
acquisition by such Person or group of such beneficial ownership,
then upon the first termination to occur under subparagraphs (i) or (ii) of
this Section 8.5(c), Illinova will pay to Dynegy a Termination Fee of $85
million, plus in the case of termination pursuant to subparagraph (i) or
clauses (A), (B) or (C) of subparagraph (ii), the reasonably documented
Expenses of Dynegy up to $7.5 million. No Termination Fee will be payable
to Dynegy (I) under clauses (i) or (ii) if Dynegy's Board of Directors
withdraws, modifies or changes its recommendation of this Agreement or the
DAC Merger or Dynegy's stockholders fail to give the Dynegy Stockholders'
Approval when the proposals contemplated thereby are properly submitted to
a vote at the Dynegy Special Meeting or any postponement or adjournment
thereof or (II) if, prior to the occurrence of any event requiring payment
of a Termination Fee under this Section 8.5(c), an event has occurred
requiring the payment of a Termination Fee to Illinova pursuant to Section
8.5(b). In the event of termination of this Agreement as provided in this
Section 8.5, payment of the fees and expenses contemplated by this Section
8.5(c) shall be Dynegy's sole remedy.
Section 8.6 Cooperation.
Subject to compliance with applicable law, from the date hereof until the
Effective Time, each party shall confer on a regular and frequent basis with
one or more representatives of the other parties to report on material
operational matters and the general status of ongoing operations and shall
promptly provide the other party or its counsel with copies of all filings made
by such party with any Governmental Authority in connection with this Agreement
and the Transactions.
Section 8.7 Publicity.
Neither Dynegy, Illinova nor any of their respective affiliates will issue
or cause the publication of any press release or other announcement with
respect to this Agreement or the Transactions without the prior consultation of
the other party and, with respect to press releases, notice to BGAH, Chevron
and Nova, except as may be required by law or by any listing agreement with a
national securities exchange and will use reasonable efforts to provide copies
of such release or other announcement to the other party hereto, and give due
consideration to such comments as such other party may have, prior to such
release.
Section 8.8 Additional Actions.
Subject to the terms and conditions of this Agreement, each party agrees to
use all reasonable efforts to take, or cause to be taken, all action and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations, or to remove any injunctions or other impediments or
delays, to fulfill the conditions to Closing contained in Article IX and to
consummate and make effective the Transactions, subject, however, to the
appropriate vote of stockholders of Dynegy and Illinova required so to vote.
Section 8.9 Filings.
Each party will make all filings required to be made by such party in
connection herewith or desirable to achieve the purposes contemplated hereby,
and will cooperate as needed with respect to any such filing by any other party
hereto. Without by implication limiting the foregoing, prior to the Closing,
Newco shall file (i) the Amended and Restated Newco Articles with the Illinois
Secretary of State and (ii) a statement with the Illinois Secretary of State
pursuant to Section 6.10(b) of the IBCA with respect to the Series A
Convertible Preferred Stock.
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Section 8.10 Consents, Waivers and Approvals.
Each Illinova Company and Dynegy will use all reasonable efforts to obtain
all consents, waivers or approvals necessary or advisable in connection with
its obligations hereunder.
Section 8.11 Employee Matters; Benefit Plans.
(a) Illinova and Dynegy will evaluate their personnel needs and consider
continuing the employment of certain employees of Illinova, Dynegy and their
respective Subsidiaries on a case-by-case basis. At the Effective Time, the
Dynegy Stock Options and Illinova Stock Options shall be modified to the extent
provided in Section 4.6(c). In addition, Illinova and Dynegy shall take the
other employment related actions specified in Section 8.11(a) of the Dynegy
Disclosure Schedule and Section 8.11(a) of the Illinova Disclosure Schedule,
respectively. Otherwise, neither Illinova nor Dynegy shall, with respect to the
officers having an executive function of either party or their respective
material subsidiaries and with an expected aggregate annual salary and bonus of
$200,000 or more, amend any existing employment agreements, make any grants of
options, restricted stock or similar benefits, pay any bonuses or otherwise
materially modify the financial aspects of employment arrangements except to
the extent contractually obligated to as of the date hereof under agreements
listed in Section 5.11(a) of the Dynegy Disclosure Schedule or Section 6.11(a)
of the Illinova Disclosure Schedule, respectively;
(b) After the Effective Time, Newco will initially provide to any employees
of Illinova, Dynegy and their respective Subsidiaries who are employed by Newco
as of the Effective Time (the "Retained Employees") the same base salary or
wages provided to such employees prior to the Effective Time, subject to such
changes in base salary or wages as shall be determined by Newco after the
Effective Time. Newco will take all actions necessary or appropriate to permit
the Retained Employees to continue to participate from and after the Effective
Time in the employee benefit plans or arrangements in which such Retained
Employees were participating immediately prior to the Effective Time.
Notwithstanding the foregoing, Newco may permit any such employee benefit
plan or arrangement to be terminated or discontinued on or after the Effective
Time, provided that Newco will (a) take all actions necessary or appropriate to
permit the Retained Employees participating in such employee benefit plan or
arrangement to immediately thereafter participate in employee benefit plans or
arrangements comparable to those maintained with respect to the remainder of
the Retained Employees (the "Replacement Plans"), (b) with respect to a
Replacement Plan that is a group health plan (i) credit such Retained
Employees, for the year during which participation in the Replacement Plan
begins, with any deductibles and copayments already incurred during such year
under the terminated or discontinued group health plan and (ii) waive any
preexisting condition limitations applicable to the Retained Employees (and
their eligible dependents) under the Replacement Plan to the extent that a
Retained Employee's (or dependent's) condition would not have operated as a
preexisting condition under the terminated or discontinued group health plan,
and (c)(1) cause each Replacement Plan that is an employee pension benefit plan
(as such term is defined in Section 3(2) of ERISA) intended to be qualified
under Section 401 of the Code to be amended to provide that the Retained
Employees shall receive credit for participation and vesting purposes under
such plan for their period of employment with Illinova, Dynegy, their
Subsidiaries and predecessors to the extent such predecessor employment was
recognized by Illinova, Dynegy and their respective Subsidiaries and (2) credit
the Retained Employees under each other Replacement Plan that is not described
in the preceding clause for their period of employment with Illinova, Dynegy,
their respective Subsidiaries and predecessors to the extent such predecessor
employment was recognized by Illinova, Dynegy or their respective Subsidiaries.
At the Effective Time, Newco shall assume the obligations of (i) Dynegy under
the Dynegy Benefit Plans and (ii) Illinova under the Illinova Benefit Plans.
The terms of each such Dynegy Benefit Plan and Illinova Benefit Plan shall
continue to apply in accordance with their terms.
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Section 8.12 Stockholders Meetings.
(a) Dynegy will, as promptly as reasonably practicable after the date hereof
(i) take all steps reasonably necessary to call, give notice of, convene and
hold a special meeting of its stockholders (the "Dynegy Special Meeting") for
the purpose of securing the Dynegy Stockholders' Approval, (ii) distribute to
its stockholders the Proxy Statement/Prospectus in accordance with applicable
federal and state law and with its certificate of incorporation and bylaws,
which Proxy Statement/Prospectus will contain the recommendation of the Board
of Directors of Dynegy that its stockholders approve and adopt this Agreement
and the Transactions, (iii) use all reasonable efforts to solicit from its
stockholders proxies in favor of the approval and adoption of this Agreement
and the Transactions and to secure the Dynegy Stockholders' Approval, and (iv)
cooperate and consult with Illinova with respect to each of the foregoing
matters; provided, that this Section 8.12(a) will not prohibit the Dynegy Board
of Directors from failing to make or from withdrawing or modifying its
recommendation to the Dynegy stockholders hereunder if the Board of Directors
of Dynegy, after consultation with and based upon the written advice of
independent legal counsel, determines in good faith that such action is
necessary for such Board of Directors to comply with its fiduciary duties to
its stockholders under applicable law.
(b) Illinova will, as promptly as reasonably practicable after the date
hereof (i) take all steps reasonably necessary to call, give notice of, convene
and hold a special meeting of its stockholders (the "Illinova Special Meeting")
for the purpose of securing the Illinova Stockholders' Approval, (ii)
distribute to its shareholders the Proxy Statement/Prospectus in accordance
with applicable federal and state law and its articles of incorporation and
bylaws, which Proxy Statement/Prospectus will contain the recommendation of the
Illinova Board of Directors that its stockholders approve and adopt this
Agreement and the Transactions, and (iii) use all reasonable efforts to solicit
from its stockholders proxies in favor of approval and adoption of this
Agreement, and the Transactions and to secure the Illinova Stockholders'
Approval, and (iv) cooperate and consult with Dynegy with respect to each of
the foregoing matters; provided, that this Section 8.12(b) will not prohibit
the Illinova Board of Directors from failing to make or from withdrawing or
modifying its recommendation to the Illinova stockholders hereunder if the
Board of Directors of Illinova, after consultation with and based upon the
written advice of independent legal counsel, determines in good faith that such
action is necessary for such Board of Directors to comply with its fiduciary
duties to its stockholders under applicable law.
(c) The Illinova Special Meeting and the Dynegy Special Meeting shall be
held on the same day unless otherwise agreed by Illinova and Dynegy.
Section 8.13 Preparation of the Proxy Statement/Prospectus and Registration
Statement.
(a) Illinova, Newco and Dynegy will promptly prepare and file with the SEC a
preliminary version of the Proxy Statement/Prospectus and will cooperate with
each other in responding to the comments of the SEC in connection therewith and
to furnish all information required to prepare the definitive Proxy
Statement/Prospectus. The date that the Registration Statement is filed with
the SEC will be determined jointly by Illinova and Dynegy. Each of Illinova,
Newco and Dynegy will use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing. Newco will also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or filing a general consent to service of process in any
jurisdiction) required to be taken under any applicable state securities laws
in connection with the issuance of Newco Common Stock, the Class B Common Stock
and the Series A Convertible Preferred Stock in the Mergers and (i) Dynegy will
furnish all information concerning Dynegy and the holders of shares of Dynegy
capital stock, and (ii) Illinova will furnish all information concerning
Illinova and holders in Illinova capital stock as may be reasonably requested
in connection with any such action. Promptly after the effectiveness of the
Registration Statement, each of Illinova and Dynegy will cause the Proxy
Statement/Prospectus to be mailed to its respective stockholders, and if
necessary, after the definitive Proxy Statement/Prospectus will have been
mailed, promptly circulate amended, supplemented or supplemental proxy
materials and, if required in connection therewith, resolicit proxies.
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Illinova and Newco will advise Dynegy and Dynegy will advise Illinova, as
applicable, promptly after it receives notice thereof, of the time when the
Registration Statement will become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the Newco Common Stock for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information.
(b) Following receipt by PricewaterhouseCoopers LLP, Illinova's independent
auditors, of an appropriate request from Dynegy pursuant to SAS No. 72,
Illinova will use all reasonable efforts to cause to be delivered to Newco a
letter of PricewaterhouseCoopers LLP, dated a date within two business days
before the effective date of the Registration Statement, and addressed to
Newco, in form and substance reasonably satisfactory to Newco and customary in
scope and substance for "cold comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Proxy Statement/Prospectus.
(c) Following receipt by Arthur Andersen LLP, Dynegy's independent auditors,
of an appropriate request from Illinova pursuant to SAS No. 72, Dynegy will use
all reasonable efforts to cause to be delivered to Newco a letter of Arthur
Andersen LLP, dated a date within two business days before the effective date
of the Registration Statement, and addressed to Newco, in form and substance
satisfactory to Newco and customary in scope and substance for "cold comfort"
letters delivered by independent public accountants in connection with
registration statements and proxy statements similar to the Proxy
Statement/Prospectus.
Section 8.14 Stock Exchange Listing.
Newco will use all reasonable efforts to cause the Newco Common Stock to be
issued in the Mergers to be approved for listing on the New York Stock Exchange
(the "NYSE") prior to the Effective Time, in each case, subject to official
notice of issuance.
Section 8.15 Notice of Certain Events.
Each party to this Agreement will promptly as reasonably practicable notify
the other party hereto of:
(a) any notice or other communication from any Person alleging that the
consent of such Person (or other Person) is or may be required in
connection with the Transactions;
(b) any notice or other communication from any Governmental Authority in
connection with the Transactions;
(c) any Actions commenced or, to its knowledge, threatened against,
relating to or involving or otherwise affecting it or any of its
Subsidiaries which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 5.10, Section
5.12, Section 6.10 or Section 6.12 or which relate to the consummation of
the Transactions;
(d) any notice of, or other communication relating to, a default or
event that, with notice or lapse of time or both, would become a default,
received by it or any of its Subsidiaries subsequent to the date of this
Agreement, under any material agreement; and
(e) any Dynegy Material Adverse Effect or Illinova Material Adverse
Effect or the occurrence of any event which is reasonably likely to result
in a Dynegy Material Adverse Effect or an Illinova Material Adverse Effect,
as the case may be.
Section 8.16 Site Inspections.
Subject to compliance with applicable law (including applicable
Environmental Laws), from the date hereof until the Effective Time, each party
may undertake (at that party's sole cost and expense) an environmental
assessment or assessments (an "Assessment") of the other party's operations,
business and/or
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properties that are the subject of this Agreement to investigate any potential,
material environmental condition or compliance issues; provided, however, that
the performance and scope of such Assessment shall be subject to the prior
approval of the other party, such approval not to be unreasonably withheld. An
Assessment may include, but not be limited to, a review of permits, files and
records, as well as visual and physical inspections and testing. Before
conducting an Assessment, the party intending to conduct such Assessment (the
"Inspecting Party") will confer with the party whose operations, business or
property is the subject of such Assessment (the "Inspected Party") regarding
the nature, scope and scheduling of such Assessment, and will comply with such
conditions as the Inspected Party may reasonably impose to avoid interference
with the Inspected Party's operations or business. The Inspected Party will
cooperate in good faith with the Inspecting Party's effort to conduct an
Assessment. If requested by the Inspected Party, the Inspecting Party shall
provide to the Inspected Party a copy of all work plans, reports, data and
other results of the Assessment. If the Mergers are not consummated, the
Inspecting Party shall destroy all originals and copies of all work plans,
reports, data and other results, documentation and work product of any
Assessment.
Section 8.17 Affiliate Agreements; Tax Treatment.
(a) Dynegy and Illinova will identify in a letter to Newco all Persons who
are, on the date hereof, "affiliates" of Dynegy or Illinova, as the case may
be, as such term is used in Rule 145 under the Securities Act. Dynegy and
Illinova will use their reasonable efforts to cause their respective affiliates
to deliver to Newco not later than 10 days prior to the date of the Dynegy and
Illinova Special Meetings, a written agreement substantially in the form
attached as Exhibit 8.17, and will use their reasonable efforts to cause
Persons who become "affiliates" after such date but prior to the Closing Date
to execute and deliver these agreements at least 5 days prior to the Closing
Date.
(b) Each party will use all reasonable best efforts to cause the Mergers to
qualify, and will not take, and will use all reasonable best efforts to prevent
any subsidiary of such party from taking, any actions which could prevent the
Mergers from qualifying, as a contribution of assets to Newco under Section 351
of the Code.
Section 8.18 Stockholder Litigation.
Each of Illinova and Dynegy will give the other the reasonable opportunity
to participate in the defense of any Action against Illinova or Dynegy, as
applicable, and its directors relating to the Transactions.
Section 8.19 Indenture Matters.
Illinova and Dynegy will, and will cause their respective Subsidiaries to,
take all actions that are necessary or appropriate (as mutually agreed by
Illinova and Dynegy) for Illinova, Dynegy and certain of their Subsidiaries, as
applicable, to assume, guarantee or modify as appropriate the agreements
governing the outstanding publicly held debt securities of Dynegy and Illinova
referred to in the Dynegy SEC Reports and the Illinova SEC Reports and to avoid
defaults thereunder.
Section 8.20 Credit Facility.
Illinova and Dynegy will use all reasonable efforts, and will cooperate, to
obtain as promptly as practicable commitments from financing sources to
refinance or amend the existing bank credit facilities of Dynegy, Illinova and
their respective Subsidiaries, if necessary.
Section 8.21 Employment Agreements and Severance Agreements.
Newco will assume the obligations under the employment agreements and
severance agreements to which Dynegy or Illinova is a party or is otherwise
subject, to the extent such agreements are listed on Section 5.11(a) of the
Dynegy Disclosure Schedule or Section 6.11(a) of the Illinova Disclosure
Schedule.
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Section 8.22 Nuclear Facility Sale
Illinova will use its commercially reasonable efforts to enter into a
definitive agreement to sell (and to close the transactions contemplated by
such agreement) the Nuclear Facility as contemplated by the Nuclear Facility
Agreements on terms and conditions consistent with those set forth in the
Interim Agreement or as otherwise reasonably satisfactory to Dynegy.
Article IX
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 9.1 Conditions to the Obligation of Each Party.
The respective obligations of each party to effect the Mergers will be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The Dynegy Stockholders' Approval and the Illinova Stockholders'
Approval will have been obtained;
(b) No Action instituted by any Governmental Authority will be pending
and no statute, rule or regulation and no Order of any court or
Governmental Authority of competent jurisdiction will be in effect, in each
case which would prohibit, restrain, enjoin or restrict the consummation of
the Transactions;
(c) The Registration Statement will have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceeding for such
purpose will be pending before or threatened by the SEC;
(d) Each of Dynegy and the Illinova Companies will have obtained all
necessary or appropriate permits, authorizations, consents, waivers or
approvals (including SEC Final Orders granting exemptions or any exemption
under PUHCA resulting from a filing which obviates any otherwise applicable
requirement to register under PUHCA) (collectively, "Approvals"). Any
Approval required for Dynegy and the Illinova Companies with respect to the
Transactions from the ICC, the NRC, the FERC or other Governmental
Authority will (in cases other than the SEC) have been obtained on terms
reasonably satisfactory to Illinova and Dynegy, and will have become final
and nonappealable;
(e) The shares of Newco Common Stock to be issued in the Mergers will
have been approved for listing on the NYSE, subject to official notice of
issuance;
(f) Any applicable waiting period under the HSR Act will have expired or
been terminated;
(g) The purchase of the capital stock of BG Holdings by Newco
contemplated by the BG Stock Purchase Agreement shall have closed.
(h) There will be no Order of any court or Governmental Authority of
competent jurisdiction applicable to Chevron in effect that would prohibit,
restrain, enjoin or restrict, or award any significant monetary recovery
with respect to, Chevron's ownership or voting of its shares of Class B
Common Stock.
(i) The Ancillary Agreements shall have been executed and delivered by
the other parties thereto and shall be in full force and effect.
Section 9.2 Conditions to Illinova's Obligations.
Illinova's obligation to effect the IAC Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Dynegy will have performed in all material respects its obligations
under this Agreement required to be performed by it at or prior to the
Effective Time and the representations and warranties of Dynegy
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contained in this Agreement, will be true and correct in all respects, in
each case as of the date of this Agreement and at and as of the Effective
Time as if made at and as of such time, except (i) as expressly
contemplated by the Dynegy Disclosure Schedule or this Agreement, (ii) that
the accuracy of representations and warranties that by their terms speak as
of the date of this Agreement or some other date will be determined as of
such date, and (iii) for inaccuracies in Dynegy's representations and
warranties as of the Effective Time resulting solely from conditions
generally existing in the natural gas or electricity marketing industry,
the petroleum liquids industry or the electric power generation industry
after the date of this Agreement; and Illinova will have received a
certificate of the Chief Executive Officer and Chief Financial Officer of
Dynegy as to the satisfaction of this condition;
(b) All proceedings to be taken by Dynegy in connection with the
Transactions and all documents, instruments and certificates to be
delivered by Dynegy in connection with the Transactions will be reasonably
satisfactory in form and substance to Illinova;
(c) From the date hereof through the Effective Time, there will not have
occurred any change in the financial condition, business or operations of
Dynegy and its Subsidiaries, taken as a whole, that would constitute a
Dynegy Material Adverse Effect, other than any such (i) change that affects
both Illinova and Dynegy in a substantially similar manner or (ii) change
applicable to Dynegy primarily resulting from conditions generally existing
in the natural gas or electricity marketing industry, the petroleum liquids
industry or the electric power generation industry;
(d) Illinova shall have received an opinion from Troutman Sanders LLP
prior to the effectiveness of the Registration Statement to the effect that
(i) the Transactions will constitute a contribution of assets under Section
351 of the Code or as a tax-free reorganization under the Code, (ii) no
gain or loss will be recognized by Illinova because of the IAC Merger, and
(iii) no gain or loss will be recognized by stockholders of Illinova upon
receipt of shares of Newco Common Stock in exchange for shares of Illinova
Common Stock pursuant to the IAC Merger;
(e) Dynegy shall have taken appropriate action with respect to its
ownership interests in the Dynegy Qualifying Facilities (whether through a
sale, exchange or other disposition of all or a portion of its interest
therein, conversion of such Qualifying Facilities into "exempt wholesale
generators" under PUHCA or otherwise), such that the ultimate ownership by
Newco of direct or indirect ownership interests in the Dynegy Qualifying
Facilities, after the Effective Date, shall not result in a Dynegy Material
Adverse Effect.
Section 9.3 Conditions to Dynegy's Obligations.
Dynegy's obligation to effect the DAC Merger is subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(a) Illinova will have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Effective Time and the representations and warranties of Illinova
contained in this Agreement will be true and correct in all respects, in
each case as of the date of this Agreement and at and as of the Effective
Time as if made at and as of such time, except (i) as expressly
contemplated by the Illinova Disclosure Schedule or this Agreement, (ii)
that the accuracy of representations and warranties that by their terms
speak as of the date of this Agreement or some other date will be
determined as of such date, and (iii) for inaccuracies in Illinova's
representations and warranties as of the Effective Time resulting solely
from conditions generally existing in the electric utility or gas
distribution industries after the date of this Agreement, and Dynegy will
have received a certificate of the Chief Executive Officer and Chief
Financial Officer of Illinova as to the satisfaction of this condition;
(b) All proceedings to be taken by Illinova in connection with the
Transactions and all documents, instruments and certificates to be
delivered by Illinova in connection with the Transactions will be
reasonably satisfactory in form and substance to Dynegy;
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(c) From the date hereof through the Effective Time, there will not have
occurred any change in the financial condition, business or operations of
Illinova and its Subsidiaries, taken as a whole, that would constitute an
Illinova Material Adverse Effect, other than any such (i) change that
affects both Illinova and Dynegy in a substantially similar manner or (ii)
change applicable to Illinova primarily resulting from conditions generally
existing in the electric utility or gas distribution industries;
(d) Dynegy will have received an opinion from Akin, Gump, Strauss, Hauer
& Feld, L.L.P. prior to the effectiveness of the Registration Statement to
the effect that (i) the Transactions will constitute a contribution of
assets under Section 351 of the Code or is a tax-free reorganization under
the Code, (ii) no gain or loss will be recognized by Dynegy because of the
DAC Merger, and (iii) no gain or loss will be recognized by the
stockholders of Dynegy upon the receipt of shares of Newco Common Stock in
exchange for shares of Dynegy Stock pursuant to the DAC Merger except with
respect to any Cash Consideration received;
(e) With respect to the Nuclear Facility, (i) the NRC license and future
operating and ownership responsibility for the Nuclear Facility shall have
been transferred to an unrelated third party, whose financial and economic
status meets or exceeds all applicable standards of the NRC for the
transfer of NRC licenses, in a sales transaction on terms substantially
consistent with those set forth on Schedule 9.3(e)-1 or which (A) are
satisfactory to Dynegy in its reasonable judgment as not resulting in (or
reasonably expected to result in) an Illinova Material Adverse Effect, and
(B) are no less favorable than the recorded net impairment loss relating to
disposal of the Nuclear Facility as referenced in the Illinova Balance
Sheet and (ii) subsequent to the transfer of the Nuclear Facility the
potential liability of Newco will be covered by insurance in amounts and
type consistent with the provisions of Schedule 9.3(e)-2.
(f) (i) As of the date all other conditions to Closing are met,
Chevron, having filed and maintained in effect a good faith application
for exemption from the registration requirements of PUHCA as required
by Section 2.1(a) of the Shareholder Agreement, shall either (A) have
received a final order of the SEC (which order shall be in full force
and effect) exempting it from the requirement to register under PUHCA
on terms acceptable to Chevron, or (B) not have received an adverse
ruling from the SEC or a "Staff Objection," as defined in Section
9.3(f)(iii).
(ii) If a Staff Objection is received and if, after the parties to
the Shareholder Agreement follow the procedure set forth in Section
2.1(c) of the Shareholder Agreement to explore appropriate
modifications to their agreements, Chevron files a revised application
for exemption from the registration requirements of PUHCA, the
conditions to Closing specified in Section 9.3(f)(i) shall apply to the
revised application. If, however, the parties to the Shareholder
Agreement do not agree upon and implement any appropriate modifications
to their agreements within ninety (90) days after the receipt of a
Staff Objection and any party to the Shareholder Agreement gives notice
terminating the Shareholder Agreement, this Agreement shall terminate
simultaneously with the termination of the Shareholder Agreement.
(iii) As used in this Section 9.3(f), the term "Staff Objection"
shall mean informal advice received by a filing party or parties from
the staff of the SEC's Division of Investment Management at a level of
Assistant Director or higher (the "Staff"), that (x) the Staff
disagrees with the basis on which the exemption is being sought, or (y)
the Staff is not prepared to support and recommend approval by the SEC
of the exemptions sought unless Chevron agrees and undertakes to make
material changes involving its ownership interest (including without
limitation Chevron's continuing ability to acquire "foreign utility
companies" under Section 33 of PUHCA) or its minority shareholder
protection rights (including governance and voting rights) pertaining
to Newco, or (z) the Staff has concluded, after conferences with
Commissioners' offices informally, that it is unlikely that the SEC
would grant the exemption.
(g) The ICC shall have issued a certification (which certification shall
be in full force and effect) under Section 33 of PUHCA which has the
effect, in the reasonable judgment of Chevron, of allowing Chevron, any
parent, or any "subsidiary company" (as defined in PUHCA) of such parent to
acquire and
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maintain an interest in the business of one or more "foreign utility
companies" as defined in Section 33 of PUHCA, or Illinova shall have
provided evidence reasonably satisfactory to Dynegy and Chevron that such
certification is unnecessary for acquiring or maintaining such an interest.
For purposes of this subsection (g), a "parent" shall mean any person of
which Chevron is a "subsidiary company."
Article X
SURVIVAL
Section 10.1 Survival of Representations and Warranties.
The representations and warranties of the parties contained in this
Agreement will not survive the Effective Time.
Section 10.2 Survival of Covenants and Agreements.
The covenants and agreements of the parties to be performed after the
Effective Time contained in this Agreement will survive the Effective Time.
Article XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination.
This Agreement may be terminated at any time prior to the Effective Time,
whether before or after approval by the stockholders of Dynegy or Illinova:
(a) by the mutual written consent of Illinova and Dynegy;
(b) by either Illinova or Dynegy if the Effective Time has not occurred
on or before the Termination Date;
(c) by Dynegy if there has been a breach by Illinova of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within 20 business days following receipt by Illinova of notice of
such breach, which breach could reasonably be expected to cause an Illinova
Material Adverse Effect (other than an Illinova Material Adverse Effect
caused by conditions generally existing in the electric utility or gas
distribution industries) (an "Illinova Breach");
(d) by Illinova, if there has been a breach by Dynegy of any
representation, warranty, covenant or agreement set forth in this Agreement
which breach (if susceptible to cure) has not been cured in all material
respects within 20 business days following receipt by Dynegy of notice of
such breach which breach could reasonably be expected to cause a Dynegy
Material Adverse Effect (other than a Dynegy Material Adverse Effect caused
by conditions generally existing in the natural gas or electricity
marketing industry, the petroleum liquids industry or the electric power
generation industry) (a "Dynegy Breach");
(e) by either Dynegy or Illinova, if there is any applicable law, rule
or regulation that makes consummation of either Merger illegal or if any
Order will restrain or prohibit the consummation of either Merger, and such
Order has become final and nonappealable;
(f) by either Dynegy or Illinova, if the stockholder approvals referred
to in Section 8.12 have not been obtained because of the failure to obtain
the requisite vote upon a vote at a Dynegy Special Meeting or the Illinova
Special Meeting or at any adjournment or postponement thereof;
(g) by Illinova, if (i) following or at the time a Dynegy Acquisition
Proposal is made (which in the judgment of an independent, nationally
recognized investment bank retained by any party is reasonably
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capable of being consummated) Dynegy's Board of Directors withdraws,
modifies or changes its recommendation of this Agreement or the DAC Merger
in a manner adverse to Illinova or has resolved to do any of the foregoing;
(ii) a tender offer or exchange offer for outstanding shares of capital
stock of Dynegy then representing 50% or more of the combined power to vote
generally for the election of directors is commenced, and Dynegy's Board of
Directors does not, within the applicable period required by law, recommend
that Dynegy's stockholders not tender their shares into such tender or
exchange offer and the Mergers fail to occur; (iii) Dynegy's Board of
Directors withdraws, modifies or changes its recommendation of this
Agreement or the DAC Merger in a manner adverse to Illinova or has resolved
to do any of the foregoing or Dynegy's Board of Directors shall have
recommended to the stockholders of Dynegy any Dynegy Acquisition Proposal
or resolved to do so; or (iv) a tender offer or exchange offer for
outstanding shares of capital stock of Dynegy then representing 50% or more
of the combined power to vote generally for the election of directors is
commenced, and Dynegy's Board of Directors does not, within the applicable
period required by law, recommend that Dynegy's stockholders not tender
their shares into such tender or exchange offer;
(h) by Dynegy or Illinova, if Dynegy accepts a Dynegy Superior Proposal
and makes payment as required pursuant to Section 8.5 and of the Expenses
for which Dynegy is responsible under Section 8.5. For this Agreement,
"Dynegy Superior Proposal" means an unsolicited bona fide proposal made by
a third party relating to a Dynegy Acquisition Proposal on terms that
Dynegy's Board of Directors determines it cannot reject in favor of the DAC
Merger, based on applicable fiduciary duties and the advice of Dynegy's
outside counsel; provided, however, that Dynegy shall not be permitted to
terminate this Agreement pursuant to this Section 11.1(h) unless it has
used all reasonable efforts to provide Illinova with four business days
prior written notice of its intent to so terminate this Agreement together
with a detailed summary of the terms and conditions of such Dynegy
Acquisition Proposal; provided, further, that prior to any such
termination, Dynegy shall, and shall cause its respective financial and
legal advisors to, negotiate in good faith with Illinova to make such
adjustments in this Agreement's terms and conditions as would enable Dynegy
to proceed with the Transactions, and it is acknowledged by Illinova that
such negotiations with Illinova shall be conducted in a manner consistent
with the fiduciary duties of the Dynegy Board of Directors;
(i) by Dynegy, if (i) following or at the time an Illinova Acquisition
Proposal is made (which in the judgment of an independent, nationally
recognized investment bank retained by any party is reasonably capable of
being consummated) Illinova's Board of Directors withdraws, modifies or
changes its recommendation of this Agreement or the IAC Merger in a manner
adverse to Dynegy or has resolved to do any of the foregoing; (ii) a tender
offer or exchange offer for outstanding shares of capital stock of Illinova
then representing 50% or more of the combined power to vote generally for
the election of directors is commenced, and Illinova's Board of Directors
does not, within the applicable period required by law, recommend that
Illinova's shareholders not tender their shares into such tender or
exchange offer and the Mergers fail to occur; (iii) Illinova's Board of
Directors withdraws, modifies or changes its recommendation of this
Agreement or the IAC Merger in a manner adverse to Dynegy or has resolved
to do any of the foregoing or Illinova's Board of Directors shall have
recommended to the stockholders of Illinova any Illinova Acquisition
Proposal or resolved to do so; or (iv) a tender offer or exchange offer for
outstanding shares of capital stock of Illinova then representing 50% or
more of the combined power to vote generally for the election of directors
is commenced, and Illinova's Board of Directors does not, within the
applicable period required by law, recommend that Illinova's stockholders
not tender their shares into such tender or exchange offer;
(j) by Illinova or Dynegy, if Illinova accepts an Illinova Superior
Proposal and makes payment as required pursuant to Section 8.5 and of the
Expenses for which Illinova is responsible under Section 8.5. For purposes
of this Agreement, "Illinova Superior Proposal" means an unsolicited bona
fide proposal made by a third party relating to an Illinova Acquisition
Proposal on terms that Illinova's Board of Directors determines it cannot
reject in favor of the IAC Merger, based on applicable fiduciary duties and
the advice of Illinova's outside counsel; provided, however, that Illinova
shall not be permitted to
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terminate this Agreement pursuant to this Section 11.1(j) unless it has
used all reasonable efforts to provide Dynegy with four business days prior
written notice of its intent to so terminate this Agreement together with a
detailed summary of the terms and conditions of such Illinova Acquisition
Proposal; provided, further, that prior to any such termination, Illinova
shall, and shall cause its respective financial and legal advisors to,
negotiate in good faith with Dynegy to make such adjustments in this
Agreement's terms and conditions as would enable Illinova to proceed with
the Transactions, and it is acknowledged by Dynegy that such negotiations
with Dynegy shall be conducted in a manner consistent with the fiduciary
duties of the Illinova Board of Directors.
Section 11.2 Effect of Termination.
Upon termination of the Agreement and the abandonment of either Merger
pursuant to this Article XI, all obligations of the parties shall terminate,
except the obligations of the parties pursuant to this Section 11.2 and except
for the provisions of Section 8.5, Section 8.7, Section 12.8 and the last two
sentences of Section 8.1, provided that nothing herein shall relieve any party
from liability for any breaches hereof.
Article XII
MISCELLANEOUS
Section 12.1 Notices.
All notices or communications hereunder shall be in writing (including
facsimile or similar writing) addressed as follows:
To any Illinova Company:
Illinova Corporation
5008 South 27th St.
Decatur, Illinois 62525
Attention: Chief Legal Officer
Facsimile No.: (217) 362-7417
With a copy (which shall not constitute notice) to:
Troutman Sanders LLP
600 Peachtree Street NE, Suite 5200
Atlanta, Georgia 30308
Attention: W. Brinkley Dickerson, Jr.
Facsimile No.: (404) 962-6743
To Dynegy, Newco, IAC or DAC:
Dynegy Inc.
1000 Louisiana, Ste. 5800
Houston, Texas 77002
Attention: Senior Vice President and General Counsel
Facsimile No.: (713) 507-6808
With a copy (which shall not constitute notice) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana; Suite 1900 South
Houston, Texas 77002
Attention: Robert B. Allen
Facsimile No.: (713) 236-0822
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Any such notice or communication shall be deemed given (i) when made, if
made by hand delivery, and upon confirmation of receipt, if made by facsimile,
(ii) one business day after being deposited with a next-day courier, postage
prepaid, or (iii) three business days after being sent certified or registered
mail, return receipt requested, postage prepaid, in each case addressed as
above (or to such other address as such party may designate in writing from
time to time).
Section 12.2 Separability.
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect.
Section 12.3 Assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, legal representatives, successors, and
assigns; provided, however, that neither this Agreement nor any rights
hereunder shall be assignable or otherwise subject to hypothecation and any
assignment in violation hereof shall be null and void.
Section 12.4 Construction.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
The parties have participated jointly in the negotiation and drafting of this
Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement is to be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of this Agreement's provisions. Any reference
to any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" means "including without limitation."
The parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any party has breached any
representation, warranty, or covenant contained herein in any respect, the fact
that there exists another representation, warranty, or covenant relating to the
same subject matter (regardless of the relative levels of specificity) which
the party has not breached shall not detract from or mitigate the fact that the
party is in breach of the first representation, warranty, or covenant.
Section 12.5 Counterparts.
This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same Agreement, and shall become effective when
one or more such counterparts have been signed by each of the parties and
delivered to each party.
Section 12.6 Entire Agreement.
This Agreement and the Confidentiality Agreements represent the entire
Agreement of the parties with respect to the subject matter hereof and shall
supersede any and all previous contracts, arrangements or understandings
between the parties hereto with respect to the subject matter hereof, including
the letter agreement dated May 3, 1999 between Illinova and Dynegy, as amended.
Section 12.7 Governing Law.
This Agreement shall be construed, interpreted, and governed in accordance
with the laws of Delaware, without reference to rules relating to conflicts of
law other than to the extent this Agreement pertains to the internal affairs of
an Illinois corporation, in which event, and only with respect to such event,
the IBCA shall apply.
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Section 12.8 Attorneys' Fees.
If any Action, including an Action for declaratory relief, is brought to
enforce or interpret any provision of this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees and expenses (including
related expert and consultant fees and expenses) from the other party, which
fees and expenses shall be in addition to any other relief which may be
awarded.
Section 12.9 No Third Party Beneficiaries.
Except as provided in Section 8.3, no Person other than the parties is an
intended beneficiary of this Agreement or any portion hereof.
Section 12.10 Disclosure Schedules.
(a) The disclosures made on the Dynegy and Illinova Disclosure Schedules
(collectively, the "Disclosure Schedules") with respect to any representation
or warranty shall be deemed to be made with respect to any other representation
or warranty requiring the same or similar disclosure to the extent that the
relevance of such disclosure to other representations and warranties is evident
from the face of the disclosure schedule. The inclusion of any matter on either
Disclosure Schedule will not be deemed an admission by any party that such
listed matter is material or that such listed matter has or would have a Dynegy
Material Adverse Effect or an Illinova Material Adverse Effect, as applicable.
Any inadvertent disclosure of privileged information by Dynegy or Illinova in
the Disclosure Schedules or in connection with their respective diligence
examination will not be deemed to be a waiver by such inadvertently disclosing
party of the applicable privilege.
(b) The Disclosure Schedules shall be deemed to constitute an integral part
of this Agreement and to modify the respective representations, warranties,
covenants or agreements of the parties contained herein to the extent that such
representations, warranties, covenants or agreements expressly refer to the
applicable Disclosure Schedule. Anything to the contrary contained herein or in
the Disclosure Schedules notwithstanding, any and all statements,
representations, warranties or disclosures set forth in the Disclosure
Schedules delivered on or before the date hereof shall be deemed to have been
made on and as of the date hereof. From time to time prior to the Closing, the
parties shall promptly supplement or amend the Disclosure Schedules with
respect to any matter, condition or occurrence hereafter arising which, if
existing or occurring at the date of this Agreement, would have been required
to be listed or described in the Disclosure Schedules. No supplement or
amendment shall be deemed to cure any breach or any representation or warranty
made in this Agreement or have any effect for the purpose of determining
satisfaction of the conditions set forth in Article IX.
Section 12.11 Amendments and Supplements.
At any time before or after approval of the matters presented in connection
with the Merger by the respective stockholders of Illinova and Dynegy and prior
to the Effective Time, this Agreement may be amended or supplemented in writing
by Illinova and Dynegy with respect to any of the terms contained in this
Agreement, except as otherwise provided by law; provided, however, that
following approval of this Agreement by the stockholders of Illinova there
shall be no amendment or change to the provisions hereof with respect to (a)
the number of shares of Newco Common Stock into which each share of Illinova
Common Stock is convertible, (b) the Termination Date, or (c) any other change
that is materially adverse to the stockholders of Illinova without further
approval by the stockholders of Illinova, and provided further that following
approval and adoption of this Agreement by the stockholders of Dynegy there
shall be no amendment or change to the provisions hereof with respect to (i)
the Exchange Ratio (ii) the amount and nature of the Aggregate Merger
Consideration payable per share of Dynegy Stock, (iii) the Termination Date or
(iv) any other change that is materially adverse to the stockholders of Dynegy
without further approval by the affected stockholders of Dynegy.
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Section 12.12 Consent to Jurisdiction.
Each Party (a) consents to submit itself to the personal jurisdiction of any
federal court located in the State of Delaware or any Delaware state court if
any Action arises out of this Agreement or the Transactions, (b) agrees that it
will not attempt to defeat or deny such personal jurisdiction by motion or
other request for leave from any such court, and (c) agrees that it will not
bring any Action relating to this Agreement or any of the Transactions in any
court other than a federal court sitting in the State of Delaware or a Delaware
state court. Illinova, IAC and Newco hereby irrevocably appoint The Corporation
Trust Company located at 1209 Orange Street in Wilmington, Delaware, as its
lawful agent in Delaware to receive and forward on their behalf service of all
necessary processes in any Action arising under this Agreement that may be
brought against Illinova, IAC or Newco in any court (including federal court)
in Delaware. Such service of process or notice received thereof by the agent
will have the same force and effect as if served upon Illinova, IAC or Newco.
Section 12.13 Extensions, Waivers, Etc.
At any time prior to the Effective Time, either party may:
(a) extend the time for the performance of any of the obligations or
acts of the other party;
(b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto;
or
(c) subject to the proviso of Section 12.11 waive compliance with any of
the agreements or conditions of the other party contained herein.
Notwithstanding the foregoing, no failure or delay by Illinova or Dynegy in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
[Remainder of Page Intentionally Blank.]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Merger
Agreement as of the day and year first above written.
ILLINOVA CORPORATION
/s/ Charles Bayless
By: _________________________________
President
DYNEGY INC.
/s/ C. L. Watson
By: _________________________________
Chairman and Chief Executive
Officer
ENERGY CONVERGENCE
HOLDING COMPANY
/s/ Charles Bayless
By: _________________________________
President
ENERGY CONVERGENCE ACQUISITION
CORPORATION
/s/ Charles Bayless
By: _________________________________
President
DYNEGY ACQUISITION CORPORATION
/s/ C. L. Watson
By: _________________________________
President
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APPENDIX II
ILLINOIS BUSINESS CORPORATION ACT
Section 11.70. Procedure to Dissent
(a) If the corporate action giving rise to the right to dissent is to be
approved at a meeting of shareholders, the notice of meeting shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to the meeting, the corporation furnishes to the shareholders material
information with respect to the transaction that will objectively enable a
shareholder to vote on the transaction and to determine whether or not to
exercise dissenters' rights, a shareholder may assert dissenters' rights only
if the shareholder delivers to the corporation before the vote is taken a
written demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 [805 ILCS 5/11.30 or 805
ILCS 5/7.10] shall inform the shareholders of their right to dissent and the
procedure to dissent. If, prior to or concurrently with the notice, the
corporation furnishes to the shareholders material information with respect to
the transaction that will objectively enable a shareholder to determine whether
or not to exercise dissenters' rights, a shareholder may assert dissenter's
rights only if he or she delivers to the corporation within 30 days from the
date of mailing the notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate action giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the corporation of the certificate or certificates,
or other evidence of ownership, with respect to the shares, or instructions to
the dissenting shareholder to sell his or her shares within 10 days after
delivery of the corporation's statement to the shareholder. The corporation may
instruct the shareholder to sell only if there is a public market for the
shares at which the shares may be readily sold. If the shareholder does not
sell within that 10 day period after being so instructed by the corporation,
for purposes of this Section the shareholder shall be deemed to have sold his
or her shares at the average closing price of the shares, if listed on a
national exchange, or the average of the bid and asked price with respect to
the shares quoted by a principal market maker, if not listed on a national
exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement of
value, shall notify the corporation in writing of the shareholder's estimated
fair value and amount of interest due and demand payment for the difference
between the shareholder's estimate of fair value and interest due and the
amount of the payment by the corporation or the proceeds of sale by the
shareholder, whichever is applicable because of the procedure for which the
corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing
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upon the fair value of the shares and interest due, the corporation shall
either pay the difference in value demanded by the shareholder, with interest,
or file a petition in the circuit court of the county in which either the
registered office or the principal office of the corporation is located,
requesting the court to determine the fair value of the shares and interest
due. The corporation shall make all dissenters, whether or not residents of
this State, whose demands remain unsettled parties to the proceeding as an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law. Failure of the corporation to commence an
action pursuant to this Section shall not limit or affect the right of the
dissenting shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the power described in the
order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under subsection
(g), but shall exclude the fees and expenses of counsel and experts for the
respective parties. If the fair value of the shares as determined by the court
materially exceeds the amount which the corporation estimated to be the fair
value of the shares or if no estimate was made in accordance with subsection
(c), then all or any part of the costs may be assessed against the corporation.
If the amount which any dissenter estimated to be the fair value of the shares
materially exceeds the fair value of the shares as determined by the court,
then all or any part of the costs may be assessed against that dissenter. The
court may also assess the fees and expenses of counsel and experts for the
respective parties, in amounts the court finds equitable, as follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court
may award to that counsel reasonable fees to be paid out of the amounts awarded
to the dissenters who are benefited. Except as otherwise provided in this
Section, the practice, procedure, judgment and costs shall be governed by the
Code of Civil Procedure [735 ILCS 5/1-101 et seq.].
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action, unless exclusion would be
inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
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APPENDIX III
LEHMAN BROTHERS
June 14, 1999
Board of Directors
Dynegy Inc.
1000 Louisiana, Suite 5800
Houston, Texas 77002
Members of the Board:
We understand that Dynegy Inc. ("Dynegy"), Illinova Corporation
("Illinova"), Energy Convergence Acquisition Corporation ("IAC"), a newly
formed Illinois corporation and a subsidiary of Illinova, Dynegy Acquisition
Corporation ("DAC"), a newly formed Delaware company and a subsidiary of
Illinova, and Energy Convergence Holding Corporation, a newly formed Illinois
corporation and a subsidiary of Illinova ("Newco" and together with Dynegy,
Illinova, IAC and DAC, the "Companies") have entered into an Agreement and Plan
of Merger dated June 14, 1999 (the "Agreement"), pursuant to which, among other
things, (i) DAC will merge with Dynegy, with Dynegy surviving as a subsidiary
of Newco, and (ii) IAC will merge with Illinova, with Illinova surviving as a
subsidiary of Newco (collectively, the "Merger"). Upon effectiveness of the
Merger, each outstanding share of common stock of Dynegy will be converted into
the right to receive either $16.50 in cash (the "Cash Consideration") or 0.69
shares of the Class A common stock (the "Exchange Ratio") of Newco (the "Stock
Consideration" and, together with the Cash Consideration, the "Merger
Consideration"), with approximately 40% of the outstanding shares of common
stock of Dynegy to be converted into the right to receive the Cash
Consideration (the "Proposed Transaction"). In addition, in lieu of receiving
shares of Newco Class A common stock in the Merger as a result of being
shareholders of Dynegy, (i) BG plc and Nova Corporation will instead receive
shares of a class of voting perpetual convertible preferred stock of Newco (the
"Convertible Preferred Stock"); and (ii) Chevron U.S.A. Inc. will instead
receive shares of Class B common stock of Newco (the "Class B Stock"). Upon
effectiveness of the Merger, each outstanding share of common stock of Illinova
will be converted into the right to receive one share of the Class A common
stock of Newco. The terms and conditions of the Merger are set forth in more
detail in the Agreement.
We have been requested by the Board of Directors of Dynegy to render our
opinion with respect to the fairness, from a financial point of view, to the
shareholders of Dynegy (the "Public Shareholders") other than Chevron U.S.A.
Inc., BG plc and Nova Corporation (collectively, the "Industrial Shareholders")
of the Merger Consideration to be offered to the Public Shareholders in the
Proposed Transaction. We also have been requested to address the relative fair
market value of both the Convertible Preferred Stock to be issued to BG plc and
Nova Corporation and the Class B Stock to be issued to Chevron U.S.A. Inc. in
comparison to the fair market value of the Stock Consideration. We have not
been requested to opine as to, and our opinion does not in any manner address,
Dynegy's underlying business decision to proceed with or effect the Proposed
Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement, the
terms of the Convertible Preferred Stock, the terms of the Class B Stock, the
amended and restated Articles of Incorporation of Newco, the Resolution
establishing the Series A Convertible Preferred Stock, the Bylaws of Newco,
various other agreements to be entered into by one or more Industrial
Shareholders with each other or with one or more of the Companies in connection
with the Merger, and the specific terms of the Merger and the Proposed
Transaction, including corporate governance provisions set forth therein; (2)
such publicly available information concerning Dynegy and Illinova that we
believe to be relevant to our analysis, including, without limitation, each of
the periodic reports and proxy statements filed by Dynegy and Illinova since
January 1, 1998 (including the audited and unaudited financial statements
included in such reports and statements); (3) financial and operating
information with respect to the respective businesses, operations and prospects
of Dynegy and Illinova as furnished to us by Dynegy and Illinova, respectively,
including financial projections based on the
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respective business plans of Dynegy and Illinova, and, in particular, the
amounts and timing of the cost savings and operating synergies expected by the
managements of Dynegy and Illinova to result from a combination of the
businesses of Dynegy and Illinova; (4) a trading history of Dynegy's common
stock from June 11, 1998 to June 10, 1999 and a comparison of that trading
history with those of other companies that we deemed relevant, including
Illinova; (5) a trading history of Illinova's common stock from June 11, 1998
to June 10, 1999 and a comparison of that trading history with those of other
companies that we deemed relevant, including Dynegy; (6) a comparison of the
historical financial results and present financial condition of Dynegy with
those of other companies that we deemed relevant; (7) a comparison of the
historical financial results and present financial condition of Illinova with
those of other companies that we deemed relevant; (8) the potential pro forma
impact of the Proposed Transaction on Dynegy (including the cost savings and
operating synergies expected by management of Dynegy to result from a
combination of the businesses of Dynegy and Illinova); (9) the potential pro
forma impact of the Proposed Transaction on Illinova (including the cost
savings and operating synergies expected by management of Illinova to result
from the combination of the businesses of Dynegy and Illinova); (10) the
relative contribution of Dynegy and Illinova to the historical and pro forma
financial condition and operating results of Newco following consummation of
the Merger; (11) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant; (12) the fair market value of the Class B Stock and the effect
on such value of the terms pursuant to which the Class B Stock will be issued,
which include, among other things, certain restrictions on the transfer of such
shares; and (13) the fair market value of the Convertible Preferred Stock based
on assumptions we believe are reasonable and the effect on such value of the
terms pursuant to which the Convertible Preferred Stock will be issued, which
include, among other things, certain restrictions on the transfer of such
shares. In addition, we have (i) had discussions with the managements of Dynegy
and Illinova concerning their respective businesses, operations, financial
conditions, assets and prospects and the cost savings, operating synergies and
strategic benefits expected by the managements of Dynegy and Illinova to result
from a combination of the businesses of Dynegy and Illinova and (ii) undertaken
such other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of the managements of Dynegy and Illinova
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Dynegy, Illinova and Newco following the consummation of the Merger
(including the cost savings and operating synergies expected to result from a
combination of the businesses of Dynegy and Illinova), upon advice of Dynegy
and Illinova, we have assumed that such projections have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the managements of Dynegy and Illinova, as the case may be, as to
the future financial performance of Dynegy, Illinova and Newco and that each of
Dynegy and Illinova would perform, and Newco will perform, substantially in
accordance with such projections. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of Dynegy or
Illinova and have not made or obtained any evaluations or appraisals of the
assets or liabilities of Dynegy or Illinova. Upon advice of Dynegy and its
legal and accounting advisors, we have assumed that (i) the Merger will qualify
for reverse merger purchase accounting treatment and (ii) the Proposed
Transaction will qualify as a contribution of assets within the meaning of
Section 351 of the Internal Revenue Code of 1986, as amended, and therefore as
a tax free transaction to the shareholders of Dynegy who receive only Stock
Consideration. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.
In addition, we express no opinion as to the prices at which shares of Class
A common stock of Newco actually will trade following consummation of the
Merger and this opinion should not be viewed as providing any assurance that
the market value of the shares of Class A common stock of Newco to be held by
shareholders of Dynegy after the Merger will be in excess of the market value
of the shares of common stock of Dynegy owned by such shareholders at any time
prior to announcement or consummation of the Proposed Transaction.
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Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Merger Consideration to
be offered to the Public Shareholders in the Proposed Transaction is fair to
the Public Shareholders.
In addition, based upon and subject to the foregoing, including specifically
our analysis of (i) the fair market value of the Convertible Preferred Stock
based on assumptions we believe are reasonable and the effect on such value of
the terms pursuant to which the Convertible Preferred Stock will be issued,
which include, among other things, certain restrictions on the transfer of such
shares, and (ii) the fair market value of the Class B Stock and the effect on
such value of the terms pursuant to which the Class B Stock will be issued,
which include, among other things, certain restrictions on the transfer of such
shares, we also are of the opinion as of the date hereof that, from a financial
point of view, (a) the fair market value of the shares of Convertible Preferred
Stock to be issued to BG plc and Nova Corporation for each share of Dynegy
common stock is not greater than the fair market value of the Stock
Consideration to be offered to the Public Shareholders for each share of Dynegy
common stock in the Proposed Transaction and (b) the fair market value of the
shares of Class B Stock to be issued to Chevron U.S.A. Inc. for each share of
Dynegy common stock is not greater than the fair market value of the Stock
Consideration to be offered to the Public Shareholders for each share of Dynegy
common stock in the Proposed Transaction.
We have acted as financial advisor to Dynegy in connection with the Merger
and will receive a fee for our services, a substantial portion of which is
contingent upon the consummation of the Merger. In addition, Dynegy has agreed
to indemnify us for certain liabilities that may arise out of the rendering of
this opinion. We also have performed various investment banking services for
Dynegy in the past and have received customary fees for such services. With
your consent, we expect to provide certain services to Illinova following
announcement of the Proposed Transaction, for customary compensation, relating
to the potential re-purchase of Illinova shares in the market. In the ordinary
course of our business, we actively trade in the debt and equity securities of
Dynegy and Illinova for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities. We also have performed and continue to perform various investment
banking services for each of the Industrial Shareholders for which we have
received and will receive customary fees for such services.
This opinion is for the use and benefit of the Board of Directors of Dynegy
and is rendered to the Board of Directors in connection with its consideration
of the Proposed Transaction. This opinion is not intended to be and does not
constitute a recommendation to any shareholder of Dynegy as to how such
shareholder should vote with respect to the Merger or whether to elect to
receive the Cash Consideration and/or the Stock Consideration.
Very truly yours,
LEHMAN BROTHERS
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APPENDIX IV
Berenson Minella
June 13, 1999
The Board of Directors
Illinova Corporation
500 S. 27th Street
Decatur, Illinois 62521
Gentlemen:
Berenson Minella & Company ("Berenson Minella") understands that Illinova
Corporation, an Illinois corporation (the "Company") and Dynegy Inc., a
Delaware Corporation ("Dynegy"), and certain affiliated entities of the Company
and Dynegy, intend to enter into an Agreement and Plan of Merger (the "Merger
Agreement"), whereby the Company and Dynegy, through one or more subsidiaries
or affiliated entities, will merge (the "Merger") into a new holding company
("Newco") through a series of mergers which are intended to qualify as
contributions of assets under the provisions of Section 351 of the United
States Internal Revenue Code of 1986, as amended. Berenson Minella further
understands that, through a series of steps, in accordance with the terms of
the Merger Agreement and certain other agreements to be entered into
simultaneously with the Merger Agreement, including the stock purchase
agreement between Newco and British Gas Atlantic Holdings BV, a Netherlands
corporation (together with all affiliates thereof, "BG"), approximately 64.3
million to 66.7 million shares of Dynegy common stock, par value $.01 per share
(the "Dynegy Common Stock") will be converted into $16.50 in cash per share
(the "Cash Consideration"), and approximately 47.4 million to 49.8 million
shares of Dynegy Common Stock will be converted into fully paid and non-
assessable shares of common stock, no par value, of Newco ("Newco Common
Stock") at an exchange ratio of 0.69:1 (the "Common Stock Consideration"), in
each case as the holders have elected, or are deemed to have elected, in
accordance with the terms of the Merger Agreement. Berenson Minella further
understands that, in accordance with the terms of the Merger Agreement, at the
Effective Time (as defined in the Merger Agreement), all shares of Dynegy
Common Stock and all shares of series A participating preferred stock, par
value $.01 per share, of Dynegy, held by Chevron U.S.A. Inc., a Pennsylvania
corporation ("Chevron") (approximately 38.8 million and 7.8 million shares,
respectively, as of the date hereof), will be converted into class B common
stock, no par value, of Newco ("Newco Class B Common Stock") at an exchange
ratio of 0.69:1 (the "Chevron Consideration").
Berenson Minella further understands that, simultaneously with the execution
of the Merger Agreement, Chevron shall enter into a subscription agreement with
Newco, by which Chevron will, immediately after the closing of the Merger, for
aggregate cash consideration of at least $200 million and up to $240 million,
purchase from Newco such number of shares of Newco Class B Common Stock equal
to the cash consideration paid by Chevron to Newco divided by the lesser of (i)
$16.50 or (ii) the mean average of the closing prices of Dynegy Common Stock
over the 20 consecutive trading days ending immediately prior to two business
days prior to the Effective Time, in either case divided by 0.69.
Berenson Minella further understands that, in accordance with the terms of
the Merger Agreement and certain other agreements to be entered into
simultaneously therewith, and notwithstanding anything contrary to the above,
Nova Gas Services (U.S.) Inc., a Delaware corporation ("Nova"), and BG, to the
extent that either Nova or BG would otherwise be entitled to receive Newco
Common Stock, shall receive shares of series A convertible preferred stock, no
par value, of Newco ("Newco Convertible Preferred") in lieu of the Newco Common
Stock they were otherwise entitled to receive (the "Preferred Stock
Consideration", and together with the Cash Consideration, the Common Stock
Consideration, and the Chevron Consideration, the
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"Aggregate Merger Consideration"). For each share of Newco Common Stock that
each of Nova and BG were otherwise entitled to receive, Nova and BG will each
receive a number of shares of Newco Convertible Preferred equal to the mean
average of the closing prices of the common stock, no par value, of the
Company ("Illinova Common Stock") over the five consecutive trading days
ending on the Election Date (as defined in the Merger Agreement), divided by
$50.00.
Berenson Minella further understands that, at the Effective Time, and
pursuant to the terms of the Merger Agreement, each outstanding share of
Illinova Common Stock will be converted into one share of Newco Common Stock
(the "Illinova Consideration"). The terms and conditions of the Merger are
more fully set forth in the Merger Agreement. A copy of the most recent draft
of the Merger Agreement was received and reviewed by Berenson Minella on June
12, 1999.
You have asked us, as investment bankers, to render an opinion to you as to
whether or not the Illinova Consideration (taking into account the Aggregate
Merger Consideration) is fair, from a financial point of view, to the holders
of Illinova Common Stock.
In arriving at our opinion, we have, among other things:
(i) reviewed drafts of the Merger Agreement and certain other voting,
subscription, registration rights, stock purchase, and shareholder
agreements to be entered into simultaneously therewith, as well as drafts
of the Articles of Incorporation, Bylaws, and Statement of Resolution
Establishing Series of Series A Convertible Preferred Stock of Newco, each
draft received and reviewed by us on June 12, 1999;
(ii) reviewed, and discussed with members of management of the Company
and Dynegy, certain publicly available business and financial information
relating to the Company and Dynegy that we deemed relevant;
(iii) reviewed, and discussed with members of management of the Company
and Dynegy, certain information, including budgets and financial forecasts
(collectively, the "Forecasts") relating to the businesses, earnings, cash
flows, assets, liabilities and prospects of the Company and Dynegy,
respectively, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Merger,
furnished to us by the Company and Dynegy;
(iv) reviewed, and discussed with members of management of the Company
and Dynegy, Dynegy's Forecasts, as revised by management of the Company
taking into account the Purvin & Gertz Inc. commodity price forecasts for
natural gas, natural gas liquids, and crude oil (the "P&G Forecasts");
(v) reviewed the historical stock prices and trading volumes of Illinova
Common Stock and Dynegy Common Stock;
(vi) reviewed certain publicly available information regarding publicly
traded companies we deemed reasonably comparable to the Company and Dynegy,
respectively;
(vii) reviewed certain publicly available information regarding merger
and acquisition transactions we deemed relevant;
(viii) performed discounted cash flow analyses based on the Forecasts
and the P&G Forecasts, for both the Company and Dynegy, as applicable, and
for the combined company giving effect to the Merger;
(ix) reviewed the terms of certain publicly traded convertible preferred
securities we deemed relevant;
(x) participated, to a limited extent, in certain discussions and
negotiations among representatives of the Company and Dynegy and their
respective financial and legal advisors;
(xi) reviewed the potential pro forma impact of the Merger; and
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(xii) reviewed such other information, performed such other analyses and
taken into account such other factors as we deemed relevant.
For purposes of rendering our opinion, we have assumed and relied upon the
accuracy and completeness of all information provided to us by and on behalf of
the Company and Dynegy and have not assumed any responsibility for independent
verification of such information or for any independent valuation or appraisal
of any assets of the Company or Dynegy, nor were we furnished with any such
valuations or appraisals. We did not assume any obligation to, and accordingly
did not, conduct any physical inspection of the properties or facilities of the
Company or Dynegy. We have assumed, without independent investigation, the
accuracy of all representations and statements made by officers and management
of the Company and Dynegy. With respect to the Forecasts and the cost savings
and related expenses and synergies expected to result from the Merger furnished
to or discussed with us by the Company or Dynegy, we have assumed and relied
upon the fact that they were reasonably prepared and reflect the best currently
available estimates and good faith judgments of the Company's and Dynegy's
management as to the expected future financial performance of the Company and
Dynegy, respectively. We have assumed that the Merger will qualify as a tax-
free reorganization for U.S. federal income tax purposes. Based on discussions
with the Company and Dynegy and the accountants to the Company and Dynegy, we
have assumed that the transaction will be accounted for as a reverse merger
whereby Dynegy is considered to have acquired Illinova for financial reporting
purposes. We have assumed that the terms of any future agreements between Newco
and BG, Chevron, or Nova will be commercially reasonable and the product of
arms-length negotiations. In addition, we have assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restrictions, including any divestiture
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger. Our opinion
is necessarily based on economic, market and other conditions, and information
made available to us as of the date hereof.
This opinion is provided at the request and for the benefit of the Board of
Directors of the Company in connection with its consideration of the Merger and
shall not be reproduced, summarized, described, relied upon, or referred to, or
furnished to any other person without Berenson Minella's prior written consent;
provided that, subject to our prior review, the Company may refer to this
opinion in any Proxy Statement filed by the Company with respect to the Merger,
without such written consent. This opinion does not and will not constitute a
recommendation to the Company to enter into the Merger Agreement or a
recommendation to the shareholders of the Company to vote in favor of the
Merger. This opinion is delivered subject to the conditions, scope of
engagement, standard of care, limitations, and understandings set forth herein
and in the engagement agreement between Berenson Minella and the Company, dated
May 23, 1999.
This opinion is delivered with the explicit understanding that this opinion
is based on standards of assessment in existence as of the date hereof, and
that standards of assessment may change in the future. Berenson Minella
disclaims any responsibility for any impact any such changes may have on the
assessment of the Merger. Unforeseen future events that could affect the
fairness of the Illinova Consideration, taking into account the Aggregate
Merger Consideration, from a financial point of view, have not been factored
into this opinion. Berenson Minella disclaims any obligation to update or
revise this opinion for events occurring subsequent to the date hereof, whether
foreseen or unforeseen.
This opinion is a fairness opinion only from a financial point of view.
Berenson Minella makes no representations with respect to questions of legal
interpretation or enforceability and expressly disclaims that this opinion may
be construed in any way as a legal, accounting, or tax opinion. In addition,
without limiting the foregoing, we express no opinion as to the prices at which
the Illinova Common Stock or the Dynegy Common Stock will trade following the
announcement of the Merger and no opinion as to at what price the Newco Common
Stock will trade following the consummation of the Merger.
We note that we have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services, significant portions
of which are contingent upon the execution of the Merger Agreement, upon the
public announcement of the Merger and upon the consummation of the Merger.
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Based upon and subject to the foregoing, and subject to the various
assumptions, qualifications, and limitations set forth herein, it is our
opinion, as investment bankers, that, as of the date hereof, the Illinova
Consideration (taking into account the Aggregate Merger Consideration) is fair
to holders of Illinova Common Stock, from a financial point of view.
Very truly yours,
BERENSON MINELLA & COMPANY
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APPENDIX V
Chase Securities Inc.
270 Park Avenue
New York, NY 10017-2070
June 13, 1999
Board of Directors
Illinova Corporation
500 S. 27th Street
Decatur, Illinois 62521
Members of the Board:
You have informed us that Illinova Corporation ("Illinova"), Energy
Convergence Holding Corporation ("Newco"), Dynegy Acquisition Corporation
("DAC"), Energy Convergence Acquisition Corporation ("IAC") and Dynegy Inc.
("Dynegy") propose to enter into an Agreement and Plan of Merger, dated as of
June 13, 1999 (the "Merger Agreement"), which provides, among other things,
that DAC merge with and into Dynegy (the "DAC Merger") and that IAC merge with
and into Illinova (the "IAC Merger", and together with the DAC Merger, the
"Mergers"). As set forth more fully in the Merger Agreement, as a result of the
IAC Merger, each share of common stock, no par value, of Illinova ("Illinova
Common Stock") will be converted into one share (the "Illinova Consideration")
of Class A common stock, no par value, of Newco ("Newco Common Stock").
Additionally, as more fully set out in the Merger Agreement, as a result of the
DAC Merger: (a) each share of common stock, par value $.01, of Dynegy ("Dynegy
Common Stock") will be converted, at the election of the holder thereof, into
either (i) $16.50 in cash or (ii) 0.69 shares of Newco Common Stock, (b) each
share of preferred stock, par value $.01 per share, of Dynegy will be converted
into the right to received 0.69 shares of Class B common stock, no par value,
of Newco ("Newco Class B Common Stock"), (c) for each share of Newco Common
Stock Nova Gas Services (U.S.) Inc. would be entitled to receive, in lieu
thereof, it shall receive that number of shares of Series A Convertible
Preferred Stock equal to the quotient of the average of the closing prices on
the New York Stock Exchange, Inc. of the Illinova Common Stock over 20
consecutive trading days ending on the second business day prior to the
effective time of the Mergers divided by $50.00, and (d) to the extent Chevron
U.S.A. Inc. is entitled to receive Newco Common Stock, in lieu thereof, it
shall receive one share of Newco Class B Common Stock for each share of Newco
Common Stock it was to receive (the share conversions described in the
foregoing clauses (a)-(d) are collectively referred to as the "Dynegy Aggregate
Merger Consideration"). You have also informed us that the Merger Agreement
provides that 40% of the shares of Dynegy Common Stock will receive cash in the
DAC Merger and that the Mergers are expected to be tax-free to each of Illinova
and its shareholders and Dynegy and, to the extent they do not receive cash,
Dynegy's shareholders.
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Illinova Common Stock of the
Illinova Consideration, taking into account the Dynegy Aggregate Merger
Consideration to be paid in the DAC Merger.
In arriving at the opinion set forth below, we have, among other things:
(a) reviewed a draft of the Merger Agreement in the form provided to us
and have assumed that the final form of the Merger Agreement will not vary
in any regard that is material to our analysis;
(b) reviewed certain publicly available business and financial
information that we deemed relevant relating to Illinova and Dynegy and the
respective industries in which they operate;
(c) reviewed certain internal non-public financial and operating data
provided to us by the management of Illinova and Dynegy relating to such
businesses, including certain forecast and projection
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information as to future financial results of such businesses, and solely
with respect to such data provided to us by the management of Illinova,
information as to the amount and timing of the cost savings and the related
expenses and synergies expected to result from the Mergers (the "Expected
Synergies");
(d) discussed with members of Illinova's and Dynegy's senior management,
Illinova's and Dynegy's operations, historical financial statements and
future prospects, before and after giving effect to the Mergers, as well as
their views of the business, operational and strategic benefits and other
implications of the Mergers, including, solely with respect to the members
of Illinova's management, their views of the Expected Synergies, and such
other matters as we deemed necessary or appropriate;
(e) compared the financial and operating performance of Illinova and
Dynegy with publicly available information concerning certain other
companies we deemed comparable and reviewed the relevant historical stock
prices and trading volumes of Illinova Common Stock, Dynegy Common Stock
and certain publicly traded securities of such other companies;
(f) reviewed the financial terms of certain recent business combinations
and acquisition transactions we deemed reasonably comparable to the Mergers
and otherwise relevant to our inquiry; and
(g) made such other analyses and examinations as we have deemed
necessary or appropriate.
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available, for purposes of this opinion. We have neither made nor obtained any
independent evaluations or appraisals of the assets or liabilities of Illinova
or Dynegy, nor have we conducted a physical inspection of the properties and
facilities of Illinova or Dynegy. We have assumed that the financial forecast
and projection information and the Expected Synergies provided to or discussed
with us by or on behalf of Illinova and Dynegy have been reasonably determined
on bases reflecting the best currently available estimates and judgments of the
managements of Illinova and Dynegy as to the future financial performance of
Illinova or Dynegy, as the case may be, and the Expected Synergies. We have
further assumed that, in all material respects, such forecasts, projections and
Expected Synergies will be realized in the amounts and times indicated thereby.
We express no view as to such forecast or projection information or the
Expected Synergies or the assumptions on which they were based.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it
under the Merger Agreement and that all conditions to the consummation of the
Mergers will be satisfied without waiver thereof. We have also assumed that all
material governmental, regulatory or other consents and approvals will be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either of Illinova or Dynegy are party, as
contemplated by the Merger Agreement, no restrictions will be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits to Illinova of the Mergers.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of Illinova Common Stock of the Illinova Consideration, taking into
account the Dynegy Aggregate Merger Consideration to be paid in the DAC Merger,
and we express no opinion as to the merits of the underlying decision by
Illinova to engage in the Mergers. We also express no opinion as to the
potential trading range of Newco Common Stock after the effectiveness of the
Mergers.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as financial advisor to Illinova in
connection with the Mergers and will
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receive a fee for our services, including for rendering this opinion. In
addition, Illinova has agreed to indemnify us for certain liabilities arising
out of our engagement. As we have previously advised you, The Chase Manhattan
Corporation and its affiliates, including Chase Securities Inc., in the
ordinary course of business, have, from time to time, provided, and in the
future may continue to provide, commercial and/or investment banking services
to Illinova and Dynegy. In the ordinary course of business, we or our
affiliates may trade in the debt and equity securities of Illinova or Dynegy
for our own accounts and for the accounts of our customers and, accordingly,
may at any time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Illinova Consideration, taking into account the Dynegy
Aggregate Merger Consideration to be paid in the DAC Merger, is fair, from a
financial point of view, to the holders of Illinova Common Stock.
This opinion is for the use and benefit of the Board of Directors of
Illinova in its evaluation of the Mergers and shall not be used for any other
purpose. This opinion is not intended to be relied upon or confer any rights or
remedies upon any creditor or shareholder of Illinova or any other third party.
Other than as contemplated in the tenth paragraph of the Letter Agreement,
dated as of April 2, 1999, between Illinova and Chase Securities Inc., neither
this opinion nor any other opinion or advice (written or oral) of Chase
Securities Inc., shall be reproduced, disseminated, quoted or summarized, in
any manner or for any purpose, without the prior consent of Chase Securities
Inc., provided that copies of this opinion may be distributed to the members of
the Board of Directors of Illinova.
Very truly yours,
CHASE SECURITIES INC.
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APPENDIX VI
DYNEGY INC.
2000 LONG TERM INCENTIVE PLAN
I. PURPOSE
The purpose of the DYNEGY INC. 2000 LONG TERM INCENTIVE PLAN (the "Plan") is
to provide a means through which Energy Convergence Holding Company (to be
renamed Dynegy Inc.), an Illinois corporation (the "Company"), and its
subsidiaries may attract able persons to enter the employ of the Company and
its affiliates and to provide a means whereby those individuals upon whom the
responsibilities of the successful administration and management of the Company
and its affiliates rest, and whose present and potential contributions to the
welfare of the Company and its affiliates are of importance, can acquire and
maintain stock ownership, thereby strengthening their concern for the welfare
of the Company and its affiliates.
A further purpose of the Plan is to provide such individuals with additional
incentive and reward opportunities designed to enhance the profitable growth of
the Company and its affiliates. Accordingly, the Plan provides for granting
Incentive Stock Options, options that do not constitute Incentive Stock
Options, Restricted Stock Awards, Performance Awards, and Phantom Stock Awards,
or any combination of the foregoing, as is best suited to the circumstances of
the particular employee as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
"Affiliate" means any corporation, partnership, limited liability company or
partnership, association, trust or other organization which, directly or
indirectly, controls, is controlled by, or is under common control with, the
Company. For purposes of the preceding sentence, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any entity or organization, shall mean the
possession, directly or indirectly, of the power (i) to vote more than 50% of
the securities having ordinary voting power for the election of directors of
the controlled entity or organization, or (ii) to direct or cause the direction
of the management and policies of the controlled entity or organization,
whether through the ownership of voting securities or by contract or otherwise.
"Award" means, individually or collectively, any Option, Restricted Stock
Award, Performance Award or Phantom Stock Award.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in the
Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under such section.
"Committee" means a committee of the Board that is selected by the Board as
provided in Paragraph IV(a).
"Common Stock" means the Class A common stock, no par value per share, of
the Company, or any security into which such common stock may be changed by
reason of any transaction or event of the type described in Paragraph XI.
"Company" means Energy Convergence Holding Company, an Illinois corporation.
"Director" means an individual elected to the Board by the stockholders of
the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
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An "employee" means any person (including a Director) in an employment
relationship with the Company or any Affiliate.
"Fair Market Value" means, as of any specified date, the closing sales
price of the Common Stock reported on the stock exchange composite tape on
that date, or, if no prices are reported on that date, on the last preceding
date on which such prices of the Common Stock are so reported. In the event
Common Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market value
shall be made by the Committee in such manner as it deems appropriate.
"Holder" means an employee who has been granted an Award.
"Incentive Stock Option" means an incentive stock option within the meaning
of section 422 of the Code.
"Non-Employee Director" means a Director who is not employed by the Company
or any of its subsidiaries;.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
that do not constitute Incentive Stock Options to purchase Common Stock.
"Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
"Performance Award" means an Award granted under Paragraph IX of the Plan.
"Performance Award Agreement" means a written agreement between the Company
and a Holder with respect to a Performance Award.
"Phantom Stock Award" means an Award granted under Paragraph X of the Plan.
"Phantom Stock Award Agreement" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.
"Plan" means the Energy Convergence Holding Company 1999 Long Term
Incentive Plan, as amended from time to time.
"Restricted Stock Agreement" means a written agreement between the Company
and a Holder with respect to a Restricted Stock Award.
"Restricted Stock Award" means an Award granted under Paragraph VIII of the
Plan.
"Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as such
may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
"Stock Appreciation Right" shall have the meaning assigned to such term in
Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the Effective Time under the Agreement
and Plan of Merger dated June 14, 1999, among the Company, Dynegy Inc.,
Illinova Corporation, Dynegy Acquisition Corporation and Energy Convergence
Acquisition Corporation (the "Merger Agreement"). Notwithstanding any
provision in the Plan, no Option shall be exercisable and no Award shall vest
or become satisfiable prior to such stockholder approval. No further Awards
may be granted under the Plan after ten years from the Effective Time under
the
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Merger Agreement. The Plan shall remain in effect until all Options granted
under the Plan have been exercised or expired, all Restricted Stock Awards
granted under the Plan have vested or been forfeited, and all Performance
Awards and Phantom Stock Awards have been satisfied or expired.
IV. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by a committee
of, and appointed by, the Board, and such committee shall be comprised of two
or more outside Directors (within the meaning of the term "outside directors"
as used in section 162(m) of the Code and applicable interpretive authority
thereunder and within the meaning of "Non-Employee Director" as defined in Rule
16b-3).
(b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its sole discretion, to determine which employees
shall receive an Award, the time or times when such Award shall be made,
whether an Incentive Stock Option or nonqualified Option shall be granted, and
the number of shares to be subject to each Option or Restricted Stock Award,
the number of shares subject to or the value of each Performance Award, and the
value of each Phantom Stock Award. In making such determinations, the Committee
shall take into account the nature of the services rendered by the respective
employees, their present and potential contribution to the Company's success
and such other factors as the Committee in its sole discretion shall deem
relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, this shall include the power to construe the Plan and
the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
V. SHARES SUBJECT TO THE PLAN; GRANT OF OPTIONS; GRANT OF RESTRICTED STOCK
AWARDS
(a) Shares Subject to the Plan and Award Limits. Subject to adjustment in
the same manner as provided in Paragraph XI with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 5,000,000
shares. Shares shall be deemed to have been issued under the Plan only to the
extent actually issued and delivered pursuant to an Award. To the extent that
an Award lapses or the rights of its Holder terminate, any shares of Common
Stock subject to such Award shall again be available for the grant of an Award
under the Plan. Notwithstanding any provision in the Plan to the contrary, the
maximum number of shares of Common Stock that may be subject to Options,
Restricted Stock Awards (subject to performance forfeiture restrictions
described in Paragraph VIII) and Performance Awards denominated in shares of
Common Stock granted to any one individual during any calendar year may not
exceed 1,000,000 shares of Common Stock (subject to adjustment in the same
manner as provided in Paragraph XI with respect to shares of Common Stock
subject to Options then outstanding) and the maximum value of any Performance
Award denominated in cash (including the Fair Market Value of any shares of
Common Stock paid in satisfaction of such Performance Award) granted to any one
individual during any calendar year may not exceed $5,000,000. The limitations
set forth in the preceding sentence shall be applied in a manner which will
permit compensation generated under the Plan to constitute "performance-based"
compensation for purposes of section 162(m) of the Code, including, without
limitation, counting against such maximum number of shares, to the extent
required under section 162(m) of the Code and applicable interpretive authority
thereunder, any shares subject to Options that are canceled or repriced.
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(b) Grant of Awards. The Committee may from time to time grant Awards to
one or more employees determined by it to be eligible for participation in the
Plan in accordance with the terms of the Plan.
(c) Stock Offered. Subject to the limitations set forth in Paragraph
V(a),the stock to be offered pursuant to the grant of an Award may be
authorized but unissued Common Stock or Common Stock previously issued and
outstanding and reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Awards at the termination of
the Plan shall cease to be subject to the Plan but, until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees of the Company and its Affiliates, or Non-Employee Directors. An
Award may be granted on more than one occasion to the same person, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option, an Option that is not an Incentive Stock Option, a
Restricted Stock Award, a Performance Award, a Phantom Stock Award, or any
combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is employed by the Company or
any parent or subsidiary corporation (as defined in section 424 of the Code)
at the time the Option is granted. To the extent that the aggregate Fair
Market Value (determined at the time the respective Incentive Stock Option is
granted) of Common Stock with respect to which Incentive Stock Options granted
after 1986 are exercisable for the first time by an individual during any
calendar year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as Options which do not constitute Incentive Stock
Options. The Committee shall determine, in accordance with applicable
provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Holder's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the Holder of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted
the option price is at least 110% of the Fair Market Value of the Common Stock
subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws of descent
and distribution, and shall be exercisable during the Holder's lifetime only
by such Holder or the Holder's guardian or legal representative.
(d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of employment on the exercisability of the Option. An Option
Agreement may provide for the payment of the option price, in whole or in
part, by the delivery of a number of shares of Common Stock (plus cash if
necessary) having a Fair Market Value equal to such option price. Moreover, an
Option Agreement may provide for a "cashless exercise" of the Option by
establishing procedures satisfactory to the Committee with respect thereto.
Further, an Option Agreement may provide for the surrender of the right to
purchase shares under the Option in return for a payment in cash or
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shares of Common Stock or a combination of cash and shares of Common Stock
equal in value to the excess of the Fair Market Value of the shares with
respect to which the right to purchase is surrendered over the option price
therefor ("Stock Appreciation Rights"), on such terms and conditions as the
Committee in its sole discretion may prescribe. In the case of any such Stock
Appreciation Right that is granted in connection with an Incentive Stock
Option, such right shall be exercisable only when the Fair Market Value of the
Common Stock exceeds the price specified therefor in the Option or the portion
thereof to be surrendered. The terms and conditions of the respective Option
Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Common Stock may
be purchased upon exercise of an Option shall be determined by the Committee
but, in the case of Incentive Stock Options only, subject to adjustment as
provided in Paragraph XI shall not be less than the Fair Market Value of a
share of Common Stock on the date such Incentive Stock Option is granted. The
Option or portion thereof may be exercised by delivery of an irrevocable notice
of exercise to the Company, as specified by the Committee. The purchase price
of the Option or portion thereof shall be paid in full in the manner prescribed
by the Committee. Separate stock certificates shall be issued by the Company
for those shares acquired pursuant to the exercise of an Incentive Stock Option
and for those shares acquired pursuant to the exercise of any Option that does
not constitute an Incentive Stock Option.
(f) Stockholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a stockholder only with respect to such shares of
Common Stock as have been purchased under the Option and for which certificates
of stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation or other business combination of the employing corporation with
the Company or any Affiliate.
(h) Non-Employee Director Option Grants. Upon his or her election or
appointment as a Director, each Non-Employee Director shall receive, without
any further action on the part of the Committee, the award of an Option to
purchase 3,000 shares of Common Stock, which Option shall (i) be priced at Fair
Market Value, (ii) vest and become exercisable on the first anniversary of the
date of grant, and (iii) with respect to any unexercised portion thereof,
automatically and without further notice, terminate and become null and void on
the tenth anniversary of the date of grant of such Option or on the third
anniversary of the date such Director's service on the Board terminates. Each
Option shall be evidenced by an Option Agreement. In the event a Director is
unable to, or chooses not to, accept the Award, he or she should decline to
execute the Option Agreement.
VIII. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances(the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon
(i) the attainment of one or more performance measures established by
the Committee that are based on:
(1) the price of a share of Common Stock,
(2) the Company's earnings per share,
(3) the Company's market share,
(4) the market share of a business unit of the Company designated by
the Committee,
(5) the Company's sales,
(6) the sales of a business unit of the Company designated by the
Committee,
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(7) the net income (before or after taxes) of the Company or any
business unit of the Company designated by the Committee,
(8) the cash flow return on investment of the Company or any
business unit of the Company designated by the Committee,
(9) the earnings before or after interest, taxes, depreciation,
and/or amortization of the Company or any business unit of the Company
designated by the Committee,
(10) the economic value added,
(11) the return on stockholders' equity achieved by the Company, or
(12) the total stockholders' return achieved by the Company,
(ii) the Holder's continued employment with the Company for a
specified period of time,
(iii) the occurrence of any event or the satisfaction of any other
condition specified by the Committee in its sole discretion, or
(iv) a combination of any of the foregoing. The performance measures may
be subject to adjustment for specified significant extraordinary items or
events, and may be absolute, relative to one or more other companies, or
relative to one or more indexes, and may be contingent upon future
performance of the Company or any Affiliate, division, or department
thereof by or in which the Holder is employed during the performance
period. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the sole discretion of the Committee.
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall have
the right to receive dividends with respect to Common Stock subject to a
Restricted Stock Award, to vote Common Stock subject thereto and to enjoy all
other stockholder rights, except that
(i) the Holder shall not be entitled to delivery of the stock
certificate until the Forfeiture Restrictions have expired,
(ii) the Company shall retain custody of the stock until the Forfeiture
Restrictions have expired,
(iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the stock until the Forfeiture Restrictions have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement shall cause a
forfeiture of the Restricted Stock Award. At the time of such Award, the
Committee may, in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Restricted Stock Awards, including,
but not limited to, rules pertaining to the termination of employment (by
retirement, disability, death or otherwise) of a Holder prior to expiration
of the Forfeitures Restrictions. Such additional terms, conditions or
restrictions shall be set forth in a Restricted Stock Agreement made in
conjunction with the Award.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a Holder
shall not be required to make any payment for Common Stock received pursuant to
a Restricted Stock Award, except to the extent otherwise required by law.
(d) Committee's Discretion to Accelerate Vesting of Restricted Stock Awards.
The Committee may, in its discretion and as of a date determined by the
Committee, fully vest any or all Common Stock awarded to a Holder pursuant to a
Restricted Stock Award and, upon such vesting, all restrictions applicable to
such Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among individual Holders and
may vary among the Restricted Stock Awards held by any individual Holder.
Notwithstanding the preceding provisions of this Subparagraph, the Committee
may not take any action described in this Subparagraph with respect to a
Restricted Stock Award that has been granted to a "covered employee" (within
the meaning of Treasury Regulation section 1.162-27(c)(2)) if such Award has
been designed to meet the exception for performance-based compensation under
section 162(m) of the Code.
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(e) Restricted Stock Agreements. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, the number of shares of Common Stock
subject to, or the maximum value of, the Performance Award and the performance
period over which the performance applicable to the Performance Award shall be
measured.
(b) Performance Measures. A Performance Award shall be awarded to a Holder
contingent upon future performance of the Company or any Affiliate, division,
or department thereof by or in which such Holder is employed during the
performance period. The Committee shall establish the performance measures
applicable to such performance either (I) prior to the beginning of the
performance period or (II) within ninety days after the beginning of the
performance period if the outcome of the performance targets is substantially
uncertain at the time such targets are established, but not later than the date
that 25% of the performance period has elapsed; provided such measures may be
made subject to adjustment for specified significant extraordinary items or
events. The performance measures may be absolute, relative to one or more other
companies, or relative to one or more indexes. The performance measures
established by the Committee may be based upon
(i) the price of a share of Common Stock,
(ii) the Company's earnings per share,
(iii) the Company's market share,
(iv) the market share of a business unit of the Company designated by
the Committee,
(v) the Company's sales,
(vi) the sales of a business unit of the Company designated by the
Committee,
(vii) the net income (before or after taxes) of the Company or any
business unit of the Company designated by the Committee,
(viii) the cash flow return on investment of the Company or any business
unit of the Company designated by the Committee,
(ix) the earnings before or after interest, taxes, depreciation, and/or
amortization of the Company or any business unit of the Company designated
by the Committee,
(x) the economic value added,
(xi) the return on stockholders' equity achieved by the Company,
(xii) the total stockholders' return achieved by the Company, or
(xiii) a combination of any of the foregoing. The Committee, in its sole
discretion, may provide for an adjustable Performance Award value based
upon the level of achievement of performance measures.
(c) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
The Committee, in its sole discretion, may provide for a reduction in the value
of a Holder's Performance Award during the performance period.
(d) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount not
exceeding the number of shares of Common Stock subject to or the maximum value
of the Performance Award, based on the achievement of the performance measures
for
VI-7
<PAGE>
such performance period, as determined by the Committee. Payment of a
Performance Award may be made in cash, Common Stock, or a combination thereof,
as determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. If a Performance Award covering
shares of Common Stock is to be paid in cash, such payment shall be based on
the Fair Market Value of the Common Stock on the payment date.
(e) Termination of Award. A Performance Award shall terminate if the Holder
does not remain continuously in the employ of the Company and its Affiliates at
all times during the applicable performance period, except as may be determined
by the Committee.
(f) Performance Award Agreements. At the time any Award is made under this
Paragraph IX, the Company and the Holder shall enter into a Performance Award
Agreement setting forth each of the matters contemplated hereby, and such
additional matters as the Committee may determine to be appropriate. The terms
and provisions of the respective Performance Award Agreements need not be
identical.
X. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares
of Common Stock (or the Fair Market Value thereof), or rights to receive an
amount equal to any appreciation or increase in the Fair Market Value of Common
Stock over a specified period of time, which vest over a period of time as
established by the Committee, without satisfaction of any performance criteria
or objectives. The Committee may, in its discretion, require payment or other
conditions of the Holder respecting any Phantom Stock Award.
(b) Award Period. The Committee shall establish, with respect to and at the
time of each Phantom Stock Award, a period over which the Award shall vest with
respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for a Phantom Stock
Award (or at such other time as the applicable Phantom Stock Award Agreement
may provide), the Holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Common Stock, or a combination thereof as determined
by the Committee. Payment shall be made in a lump sum or in installments as
prescribed by the Committee. Any payment to be made in cash shall be based on
the Fair Market Value of the Common Stock on the payment date. Cash dividend
equivalents may be paid during or after the vesting period with respect to a
Phantom Stock Award, as determined by the Committee.
(e) Termination of Award. A Phantom Stock Award shall terminate if the
Holder does not remain continuously in the employ of the Company and its
Affiliates at all times during the applicable vesting period, except as may be
otherwise determined by the Committee.
(f) Phantom Stock Award Agreements. At the time any Award is made under this
Paragraph X, the Company and the Holder shall enter into a Phantom Stock Award
Agreement setting forth each of the matters contemplated hereby, and such
additional matters as the Committee may determine to be appropriate. The terms
and provisions of the respective Phantom Stock Award Agreements need not be
identical.
XI. RECAPITALIZATION OR REORGANIZATION
(a) No Effect on Right or Power. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
Affiliate's capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity
VI-8
<PAGE>
securities ahead of or affecting Common Stock or the rights thereof, the
dissolution or liquidation of the Company or any Affiliate or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.
(b) Subdivision or Consolidation of Shares; Stock Dividends. The shares with
respect to which Awards may be granted are shares of Common Stock as presently
constituted, but if, and whenever, prior to the expiration of an Award
theretofore granted, the Company shall effect a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend on Common Stock
without receipt of consideration by the Company, the number of shares of Common
Stock with respect to which such Award may thereafter be exercised or
satisfied, as applicable
(i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall
be proportionately reduced, and
(ii) in the event of a reduction in the number of outstanding shares
shall be proportionately reduced, and the purchase price per share shall be
proportionately increased. Any factional share resulting from such
adjustment shall be rounded down to the next whole share.
(c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Award theretofore granted shall be adjusted so that such Award shall
thereafter cover the number and class of shares of stock and securities to
which the Holder would have been entitled pursuant to the terms of there
capitalization if, immediately prior to the recapitalization, the Holder had
been the holder of record of the number of shares of Common Stock then covered
by such Award. If (i) the Company shall not be the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity), (ii)
the Company sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets to any other person or entity, (iii) the
Company is to be dissolved and liquidated, (iv) any person or entity, including
a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or
gains ownership or control (including, without limitation, power to vote) of
more than 50% of the outstanding shares of the Company's voting stock (based
upon voting power), or (v) as a result of or in connection with a contested
election of Directors, the persons who were Directors of the Company before
such election shall cease to constitute a majority of the Board (each such
event is referred to herein as a "Corporate Change"), no later than (x) ten
days after the approval by the stockholders of the Company of such merger,
consolidation, reorganization, sale, lease or exchange of assets or dissolution
or such election of Directors or (y) thirty days after a Corporate Change of
the type described in clause (iv), the Committee, acting in its sole discretion
without the consent or approval of any Holder, shall effect one or more of the
following alternatives, which alternatives may vary among individual Holders
and which may vary among Options held by any individual Holder:
(1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after such
Corporate Change)fixed by the Committee, after which specified date all
unexercised Options and all rights of Holders thereunder shall terminate,
(2) require the mandatory surrender to the Company by selected Holders
of some or all of the outstanding Options held by such Holders
(irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and the Company shall pay (or cause to be
paid) to each Holder an amount of cash per share equal to the excess, if
any, of the amount calculated in Subparagraph d below (the "Change of
Control Value") of the shares subject to such Option over the exercise
price(s) under such Options for such shares,
(3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Corporate Change (provided, however, that
the Committee may determine in its sole discretion that no adjustment is
necessary to Options then outstanding), or
VI-9
<PAGE>
(4) provide that the number and class of shares of Common Stock covered
by an Option theretofore granted shall be adjusted so that such Option
shall thereafter cover the number and class of shares of stock or other
securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately
prior to such merger, consolidation or sale of assets and dissolution, the
Holder had been the holder of record of the number of shares of Common
Stock then covered by such Option.
(d) Change of Control Value. For the purposes of clause (2) in
Subparagraph(c) above, the "Change of Control Value" shall equal the amount
determined in clause (i), (ii) or (iii), whichever is applicable, as follows:
(i) the per share price offered to stockholders of the Company in any
such merger, consolidation, sale of assets or dissolution transaction,
(ii) the price per share offered to stockholders of the Company in any
tender offer or exchange offer whereby a Corporate Change takes place, or
(iii) if such Corporate Change occurs other than pursuant to a tender or
exchange offer, the Fair Market Value per share of the shares into which
such Options being surrendered are exercisable, as determined by the
Committee as of the date determined by the Committee to be the date of
cancellation and surrender of such Options. In the event that the
consideration offered to stockholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other than
cash.
(e) Other Changes in the Common Stock. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph XI, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual may be
appropriately adjusted by the Committee, whose determination shall be
conclusive. Notwithstanding the foregoing, upon the occurrence of a Corporate
Change, the Committee, acting in its sole discretion without the consent or
approval of any Holder, may require the mandatory surrender to the Company by
selected Holders of some or all of the outstanding Performance Awards and
Phantom Stock Awards as of a date, before or after such Corporate Change,
specified by the Committee, in which event the Committee shall there upon
cancel such Performance Awards and Phantom Stock Awards and the Company shall
pay (or cause to be paid) to each Holder an amount of cash equal to the maximum
value of such Performance Award or Phantom Stock Award which, in the event the
applicable performance or vesting period set forth in such Performance Award or
Phantom Stock Award has not been completed, shall be multiplied by a fraction,
the numerator of which is the number of days during the period beginning on the
first day of the applicable performance or vesting period and ending on the
date of the surrender, and the denominator of which is the aggregate number of
days in the applicable performance or vesting period.
(f) Stockholder Action. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(g) No Adjustments unless Otherwise Provided. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
VI-10
<PAGE>
XII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in any Award theretofore
granted may be made which would impair the rights of the Holder without the
consent of the Holder, and provided, further, that the Board may not, without
approval of the stockholders, amend the Plan to (a) increase the maximum
aggregate number of shares that may be issued under the Plan or (b) change the
class of individuals eligible to receive Awards under the Plan.
XIII. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan nor any action of
the Board or of the Committee shall be deemed to give an employee any right to
be granted an Option, a right to a Restricted Stock Award, a right to a
Performance Award or a right to a Phantom Stock Award, or any other rights
hereunder except as may be evidenced by an Award agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the performance of its
obligations under any Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i)confer upon any employee any right with respect to continuation of
employment with the Company or any Affiliate or (ii) interfere in any way with
the right of the Company or any Affiliate to terminate his or her employment
relationship at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to issue any
Common Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any Affiliate from taking any action
which is deemed by the Company or such Affiliate to be appropriate or in its
best interest, whether or not such action would have an adverse effect on the
Plan or any Award made under the Plan. No employee, beneficiary or other person
shall have any claim against the Company or any Affiliate as a result of any
such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than
(i) by will or the laws of descent and distribution,
(ii) pursuant to a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder, or
(iii) with the consent of the Committee.
(f) Governing Law. The Plan shall be construed in accordance with the laws
of the State of Illinois.
VI-11
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Officers and Directors
(i) Section 8.75 of the Illinois Business Corporation Act empowers Illinois
corporations to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative by reason
of the fact that the person is or was a director, officer, employee or agent of
the registrant, or is or was serving at the request of the registrant as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding, so
long as such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the registrant and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. For actions or suits by or in the
right of the registrant, no indemnification is permitted in respect of any
claim, issue or matter as to which such person is adjudged to be liable to the
registrant, unless, and only to the extent that, the court in which such action
or suit was brought determines upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
deems proper. Any indemnification (unless ordered by a court) will be made by
the registrant only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because the person has met the applicable standard of conduct
set forth above. Such determination shall be made (1) by the board of directors
by a majority vote of a quorum consisting of the directors who are not parties
to such action, suit or proceeding, or (2) if such a quorum is not obtainable
or if such directors so direct, by independent legal counsel in a written
opinion, or (3) by the shareholders. Such indemnification is not exclusive of
any other rights to which those indemnified may be entitled under any bylaws,
agreement, vote of shareholders or otherwise.
Section 8.75 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of the
registrant, or a person who is or was serving at the request of the registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred by such person in any capacity, or arising out
of the person's status as such, whether or not the registrant has the power to
indemnify the person against such liability.
(ii) The articles of incorporation of Energy Convergence require
indemnification of directors and officers, and the bylaws of Energy Convergence
allow indemnification of employees and agents generally in accordance with the
language of Section 8.75. Additionally, the articles of incorporation authorize
Energy Convergence to purchase and maintain insurance on behalf of any
director, officer, employee or agent of Energy Convergence against any
liability asserted against or incurred by them in such capacity or arising out
of their status as such whether or not Energy Convergence would have the power
to indemnify such director, officer, employee or agent against such liability
under the applicable provisions of the articles of incorporation.
(iii) Section 8.3 of the merger agreement provides for indemnification by
Energy Convergence under certain circumstances of the directors, officers and
certain employees of Dynegy and Illinova. Additionally, the merger agreement
provides that Energy Convergence will maintain Dynegy's and Illinova's existing
officers' and directors' insurance policies or provide substantially similar
insurance coverage for at least six years.
ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
A list of the exhibits included as part of this registration statement is
set forth on the Exhibit Index immediately preceding such exhibits and is
incorporated herein by reference.
Part II-1
<PAGE>
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, amounts which would otherwise be required to be shown
with respect to any item are not material, are inapplicable or the required
information has already been provided elsewhere in the registration statement.
ITEM 22. Undertakings
The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) That for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired or involved
therein, that was not the subject of and included in the registration
statement when it became effective.
Part II-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
------- ----------- --------
<C> <S> <C>
1.1 --Agreement and Plan of Merger dated as of June Included in Appendix
14, 1999, as amended, by and among Energy I to Joint Proxy
Convergence, Dynegy, Illinova, Dynegy Statement/Prospectus
Acquisition Corporation and Energy Convergence
Acquisition Corporation.
3.1 --Articles of Incorporation of Energy
Convergence.
3.2 --Articles of Amendment to Articles of
Incorporation of Energy Convergence
3.3 --Bylaws of Energy Convergence.
4.1 --Form of Class A Common Stock Certificate.*
4.2 --Form of Class B Common Stock Certificate.*
4.3 --Form of Series A Convertible Preferred Stock
Certificate.*
5.1 --Opinion of Troutman Sanders LLP regarding
legality of the shares of common stock being
offered.
8.1 --Opinion of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. regarding certain tax matters.
8.2 --Opinion of Troutman Sanders LLP regarding
certain tax matters.
10.1 --Subscription Agreement between Energy
Convergence Holding Company and Chevron U.S.A.
Inc.**
10.2 --Stock Purchase Agreement between Energy
Convergence Holding Company and British Gas
Atlantic Holdings BV, and related Guaranty by
British Gas Overseas Holdings Limited.**
10.3 --Voting Agreement between Illinova and BG
Holdings, Inc.**
10.4 --Voting Agreement between Illinova and NOVA
Gas Services (U.S.) Inc.**
10.5 --Voting Agreement between Illinova and Chevron
U.S.A. Inc.**
10.6 --Shareholder Agreement of Energy Convergence
Holding Company with Chevron U.S.A. Inc.**
10.7 --Registration Rights Agreement (NOVA Gas
Services (U.S.) Inc. and British Gas Atlantic
Holdings BV).**
10.8 --Registration Rights Agreement (Chevron U.S.A.
Inc.).**
23.1 --Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in the opinion filed as
Exhibit 8.1).
23.2 --Consent of Troutman Sanders LLP (included in
the opinions filed as Exhibits 5.1 and 8.2).
23.3 --Consent of Arthur Andersen LLP.
23.4 --Consent of Pricewaterhouse Coopers LLP.
23.5 --Consent of Lehman Brothers Inc.*
23.6 --Consent of Berenson Minella & Company.*
23.7 --Consent of Chase Securities Inc.*
99.1 --Form of Illinova Proxy Card (Form of Dynegy
Proxy Card was previously filed).
99.2 --Form of Election Form and Cover Letter.
</TABLE>
- --------
* Previously filed.
** Incorporated by reference to the Exhibits filed with the Form 8-K filed by
Dynegy Inc. (File No. 1-11156) on June 14, 1999.
Part II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Decatur,
State of Illinois, on September 7, 1999.
ENERGY CONVERGENCE HOLDING COMPANY
By: /s/ Charles Bayless
-----------------------------------
Charles Bayless
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities indicated on September 7, 1999.
<TABLE>
<S> <C>
Signature Title
/s/ Charles Bayless President, Principal Executive
- ----------------------------------- Officer and Director
Charles Bayless
/s/ C.L. Watson Director
- -----------------------------------
C.L. Watson
/s/ John U. Clarke Vice President, Principal Accounting
- ----------------------------------- Officer and Principal Financial
John U. Clarke Officer
</TABLE>
Part II-4
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
This space for use by Secretary of State
Form BCA-2.10 File #
(Rev. Jan. 1999)
Jesse White Submit in Duplicate
Secretary of State This space for use by
Department of Business Services Secretary of State
Springfield, IL 62756
http://www.sos.state.il.us Date 6-11-99
Payment must be made by certified check, Franchise Tax $ 25.00
cashier's check, Illinois attorney's check, Filing Fee $ 75.00
Illinois C.P.A.'s check or money order,
payable to "Secretary of State." Penalty $ 0
Approved: $100.00
1. CORPORATE NAME: ENERGY CONVERGENCE HOLDING COMPANY
-------------------------------------------------------------
-----------------------------------------------------------------------------
(The corporate name must contain the word "corporation", "company,"
"incorporated," "limited" or an abbreviation thereof.)
2. Initial Registered Agent: LEAH M. STETZNER
--------------------------------------------------
First Name Middle Initial Last name
Initial Registered Office: 500 SOUTH 27TH STREET
--------------------------------------------------
Number Street Suite #
DECATUR IL MACON 62525
--------------------------------------------------
City County Zip Code
3. Purpose or purposes for which the corporation is organized:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
To transact any or all lawful businesses for which corporation may be
incorporated under the Business Corporation Act of 1983, as amended from time
to time.
4. Paragraph 1: Authorized Shares, Issued Shares and Consideration Received:
Par Value Number of Shares Number of Shares Consideration to be
Class per Share Authorized Proposed to be Issued Received Therefor
- --------------------------------------------------------------------------------
Common $ .01 1,000 1,000 $ 1,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total=$ 1,000
Paragraph 2: The preferences, qualifications, limitations, restrictions and
special or relative rights in respect of the shares of each class are:
(If not sufficient space to cover this point, add one or more sheets of this
size.)
(over)
<PAGE>
5. OPTIONAL: (a) Number of directors constituting the initial board of
directors of the corporation: ________________________________
(b) Names and addresses of the persons who are to serve as
directors until the first annual meeting of shareholders or
until their successors are elected and qualify:
Name Residential Address City, State, Zip
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
6. OPTIONAL: (a) It is estimated that the value of all
property to be owned by the corporation
for the following year wherever located
will be: $_________________
(b) It is estimated that the value of the
property to be located within the State
of Illinois during the following year
will be: $_________________
(c) It is estimated that the gross amount
of business that will be transacted by
the corporation during the following
year will be: $_________________
(d) It is estimated that the gross amount
of business that will be transacted
from places of businesses in the State
of Illinois during the following year
will be: $_________________
7. OPTIONAL: OTHER PROVISIONS
Attach a separate sheet of this size for any other provision to be
included in the Articles of Incorporation, e.g., authorizing
preemptive rights, denying cumulative voting, regulating internal
affairs, voting majority requirements, fixing a duration other than
perpetual, etc.
8. NAME(S) & ADDRESS(ES) OF INCORPORATOR(S)
The undersigned incorporator(s) hereby declare(s), under penalties of perjury,
that the statements made in the foregoing Articles of Incorporation are true.
Dated June 11, 1999
-------------------------------
(Month & Day) Year
Signature and Name Address
1. /s/ DELANE CATHERS 1. 3612 Spanish Trace
----------------------------------- ------------------------------
Signature Street
Delane Cathers Springfield, IL 62707
----------------------------------- ------------------------------
(Type or Print Name) City/Town State ZIP Code
2. 2.
----------------------------------- ------------------------------
Signature Street
----------------------------------- ------------------------------
(Type or Print Name) City/Town State ZIP Code
3. 3.
----------------------------------- ------------------------------
Signature Street
----------------------------------- ------------------------------
(Type or Print Name) City/Town State ZIP Code
(Signatures must be in BLACK INK on original document. Carbon copy, photocopy or
rubber stamp signatures may only be used on conformed copies.)
NOTE: If a corporation acts as incorporator, the name of the corporation and the
state of incorporation shall be shown and the execution shall be by its
president or vice president and verified by him, and attested by its secretary
or assistant secretary.
- --------------------------------------------------------------------------------
FEE SCHEDULE
. The initial franchise tax is assessed at the rate of 15/100 of 1 percent
($1.50 per $1,000) on the paid-in capital represented in this state, with a
minimum of $25.
. The filing fee is $75.
. The MINIMUM TOTAL DUE (franchise tax + filing fee) is $100.
(Applies when the Consideration to be Received as set forth in Item 4 does
not exceed $16,667)
. The Department of Business Services in Springfield will provide assistance in
calculating the total fees if necessary.
Illinois Secretary of State Springfield, IL 62756
Department of Business Services Telephone (217) 782-9522 or 782-9523
C-162.20
<PAGE>
EXHIBIT 3.2
ARTICLES OF AMENDMENT
Form BCA-10.30 File #6053-811-5
(Rev. Jan. 1989)
Jesse White Submit in Duplicate
Secretary of State This space for use by
Department of Business Services Secretary of State
Springfield, IL 62758
Telephone (217) 782-1832 Date 8-27-99
Remit payment in check or money Franchise Tax $
order, payable to "Secretary of State." Filing Fee* $25.00
The filing fee for restated articles of Penalty $
amendment--$100.00 Approved
http://www.sos.state.il.us
1. CORPORATE NAME: ENERGY CONVERGENCE HOLDING COMPANY
(Note 1)
2. MANNER OF ADOPTION OF AMENDMENT:
The following amendment of the Articles of Incorporation was adopted on
August 20, 1999. In the manner indicated below. ("X" one box only)
(Month, Day & Year)
[ ] By a majority of the incorporators, provided no directors were named in
the articles of incorporation and no directors have been elected;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.10, the corporation having issued no shares as of the time of adoption
of this amendment;
(Note 2)
[ ] By a majority of the board of directors, in accordance with Section
10.15, shares having been issued but shareholder action not being
required for the adoption of the amendment;
(Note 3)
[ ] By the shareholders, in accordance with Section 10.20, a resolution of
the board of directors having been duly adopted and submitted to the
shareholders. At a meeting of shareholders, not less than the minimum
number of votes required by statute and by the articles of incorporation
were voted in favor of the amendment;
(Note 4)
[ ] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
shareholders having not less than the minimum number of votes required by
statute and by the articles of incorporation. Shareholders who have not
consented in writing have been given notice in accordance with Section
7.10;
(Notes 4 & 5)
[X] By the shareholders, in accordance with Sections 10.20 and 7.10, a
resolution of the board of directors having been duly adopted and
submitted to the shareholders. A consent in writing has been signed by
all the shareholders entitled to vote on this amendment.
(Note 5)
3. TEXT OF AMENDMENT:
a. When amendment effects a name change, insert the new corporate name below.
Use Page 2 for all other amendments.
Article I: The name of the corporation is:
----------------------------------------------------------------------------
(NEW NAME)
All changes other than name, include on page 2
(over)
<PAGE>
TEXT OF AMENDMENT
b. (If amendment affects the corporate purpose, the amended purpose is required
to be set forth in its entirety. If there is not sufficient space to do so, add
one or more sheets of this size.)
- --------------------------------------------------------------------------------
Article 4, Paragraph 1, is hereby amended to read and be as follows:
No. Shares Consideration
Par Value No. Shares Proposed to be to be Received
Class Per Share Authorized Issued Therefor
----- --------- ---------- -------------- --------------
Class A Common No Par Value 300,000,000 -0- -0-
Class B Common No Par Value 120,000,000 -0- -0-
Preferred No Par Value 70,000,000 -0- -0-
Article 4, Paragraph 2, is hereby amended to read and be as follows:
(See Schedule A attached hereto and made a part hereof for all purposes.)
Page 2
<PAGE>
4. The manner, if not set forth in Article 3b, in which any exchange,
reclassification or cancellation of issued shares, or a reduction of the
number of authorized shares of any class below the number of issued shares of
that class, provided for or effected by this amendment, is as follows: (if
not applicable, insert "No change")
(See Schedule A attached hereto.)
5. (a) the manner, if not set forth in Article 3b, in which said amendment
effects a change in the amount of paid-in capital (Paid-in capital replaces
the terms Stated Capital and Paid-in Surplus and is equal to the total of
these accounts) is as follows: (If not applicable, insert "No change")
(See Schedule A attached hereto.)
(b) The amount of paid in capital (Paid-in Capital replace the terms Stated
Capital and Paid-in Surplus and is equal to the total of these accounts) as
changed by this amendment is as follows: (if not applicable, insert "No
change")
Before Amendment After Amendment
Paid-in Capital $ NO CHANGE $ NO CHANGE
___________ __________
(Complete either item 6 or 7 below. All signatures must be in BLACK INK.)
6. The undersigned corporation has caused this statement to be signed by its
duly authorized officers, each of whom affirms, under penalties of perjury,
that the facts stated herein are true.
Dated August 26 , 1999 ENERGY CONVERGENCE HOLDING COMPANY
--------------------- ---- ---------------------------------------
(Month & Day) (Year) (Exact Name of Corporation at
date of execution)
attested by /s/ Larry Altenbaumer by /s/ Charles Bayless
---------------------------- ----------------------------------
(Signature of Secretary or (Signature of President or
Assistant Secretary) Vice President)
Larry Altenbaumer, Secretary Charles Bayless, President
---------------------------- ----------------------------------
(Type or Print Name and Title) (Type or Print Name and Title)
7. If amendment is authorized pursuant to Section 10.10 by the incorporators,
the incorporators must sign below, and type or print name and title.
OR
If amendment is authorized by the directors pursuant to Section 10.10 and
there are no officers, then a majority of the directors or such directors as
may be designated by the board, must sign below, and type or print name and
title.
The undersigned affirms, under the penalties of perjury, that the facts
stated herein are true.
Dated
--------------------------------------
(Month & Day) (Year)
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
------------------------------------- -----------------------------------
Page 3
<PAGE>
SCHEDULE A
Energy Convergence Holding Corporation
Article 4, Paragraph 2, continued:
A. General
All holders of Class A Common Stock (as defined) shall be entitled to
cumulative voting rights, as that term is used in Section 7.40 of the Illinois
Business Corporation Act of 1983, as amended from time to time (the "IBCA"), in
any election of directors. Holders of Class B Common Stock (as defined) shall
not be entitled to cumulative voting rights.
B. Provisions Relating to Preferred Stock
(1) Authority is hereby expressly vested in the Board of Directors (the
"Board") to divide, and to provide for the issue from time to time of, the
Preferred Stock in series and to fix and determine as to each such series:
(a) the designation of, and the number of shares to be issuable in, such
series;
(b) the dividend rate for the shares for such series;
(c) the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(d) the amount payable upon each of such shares in the event of
involuntary dissolution of the corporation;
(e) the amount payable upon each of such shares in the event of
voluntary dissolution of the corporation;
(f) sinking fund provisions, if any, for the redemption or purchase of
such shares (the term "sinking fund," as used herein, including any
analogous fund, however designated);
(g) if such shares are to be issued with the privilege of conversion
into shares of the Common Stock or other securities, the terms and
conditions on which such shares may be so converted; and
(h) the voting rights or the grant of special voting rights, provided
that the voting rights of such Preferred Stock are no greater in proportion
than to the economic interest of such Shares.
In all other respects the shares of Preferred Stock of all series shall be
identical. Holders of Preferred Stock shall have no preemptive rights.
Additional series of preferred stock may be issued pursuant to designation
by resolution of the Board of Directors and such series may have preferences
which are junior to, parri passu with or
1
<PAGE>
superior to an outstanding series of preferred stock set forth in these articles
of incorporation or created by designation without any vote of such outstanding
series of preferred stock unless the designation or terms of the outstanding
series of preferred stock expressly provides otherwise.
So long as any shares of any series of the Preferred Stock established by
resolution of the Board of Directors shall be outstanding, such resolution shall
not be amended so as to affect any of the preferences or other rights of the
holders of the shares of such series without the affirmative vote or the written
consent of the holders of at least a majority of the shares of such series
outstanding at the time or as of a record date fixed by the Board of Directors,
but such resolution may be so amended with such vote or consent.
C. Provisions Relating to Common Stock
(1) The total number of shares of common stock that the corporation shall
have authority to issue is 420,000,000 of which (i) 300,000,000 shares shall be
shares of Class A Common Stock, no par value per share (the "Class A Common
Stock"), and (ii) 120,000,000 shares shall be shares of Class B Common Stock, no
par value per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Common Stock").
(2) Holders of the Common Stock shall have no preemptive rights. Except as
contemplated by Article 4, Paragraph 2C., each outstanding share of Common Stock
shall entitle the holder thereof to one vote (and not more than one vote) on
each matter submitted to a vote at a meeting of holders of Common Stock.
(3) The following is a statement of the relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations and restrictions of the Class A Common Stock and Class B Common
Stock:
(a) Class A Common Stock and Class B Common Stock
Except as otherwise set forth in this Article 4, Paragraph 2C,
the relative powers, preferences and participating, optional or other
special rights, and the qualifications, limitations or restrictions of
the Class A Common Stock and Class B Common Stock shall be identical
in all respects.
(b) Dividends
Subject to the rights of the holders of Preferred Stock, and
subject to any other provisions of these Articles, holders of Common
Stock shall be entitled to receive such dividends and other
distributions in cash, stock of any corporation (other than Common
Stock) or property of the corporation as may be declared thereon by
the Board of Directors from time to time out of assets or funds of the
corporation legally available therefor and shall share equally on a
per share basis in all such dividends and other distributions. In the
case of dividends or other distributions payable in Common Stock,
including distributions pursuant to stock splits or divisions of
Common Stock, only shares of Class A Common Stock shall be paid or
distributed with respect to Class A Common Stock and only shares of
Class B Common Stock shall be paid or distributed with respect to
Class B Common Stock. The number of shares of Class A Common Stock and
Class B Common Stock
2
<PAGE>
so distributed on each share shall be equal in number. Neither the
shares of Class A Common Stock nor the shares of Class B Common Stock
may be reclassified, subdivided or combined unless such
reclassification, subdivision or combination occurs simultaneously and
in the same proportion for each class.
(c) Voting.
(i) Except as may be otherwise required by law or by the
provisions of this Article 4, Paragraph 2C.(3)(c), the holders of the Class
B Common Stock shall vote together with the holders of the Class A Common
Stock as a single class on every matter coming before any meeting of the
shareholders or otherwise to be acted upon by the shareholders, subject to
any voting rights which may be granted to holders of any other class or
series of Preferred Stock. So long as any Class B Common Stock is
outstanding, the corporation shall not (x) without the affirmative vote of
66 2/3% of the shares of Class A and Class B Common Stock outstanding,
voting as a single class, effect any mergers, consolidations,
reorganizations, or sales of assets requiring shareholder approval under
the IBCA or disposition of all or substantially all of the corporation's
assets, or (y) without the affirmative vote of 66 2/3% of the shares of
Class B Common Stock outstanding, voting as a separate class, and the
affirmative vote of a majority of the shares of Class A and Class B Common
Stock, voting as a single class, (1) amend any provision of this Article 4,
Paragraph 2C.(3)(c)(i) relating to the Common Stock or (2) (unless such
amendment shall be approved by a majority of the Class B directors present
at the meeting where such amendment is considered and a majority of the
Directors then in office) amend Section 7 of Article III or Article X of
the corporation's By-laws.
(ii) The Board of Directors of the corporation shall consist of
at least twelve members and no more than fifteen members as established
from time to time by resolution of the Board of Directors, except that such
numbers are subject to automatic adjustment as necessary, under those
circumstances and during those time periods that holders of any other class
or series of the corporation's outstanding Preferred Stock have rights to
elect members of the Board of Directors (the "Preferred Stock Directors"),
as set forth in these Articles of Incorporation or in the resolution of the
Board of Directors establishing and designating such series and fixing and
determining the relative rights and preferences thereof. So long as any
shares of Class B Common Stock are outstanding, the holders of the Class B
Common Stock, as such holders, shall be entitled to vote as a separate
class for the election of three directors of the corporation (the "Class B
Directors") and the holders of the Class A Common Stock shall be entitled
to vote as a separate class for the remaining directors of the corporation
(the "Class A Directors"), excluding Preferred Stock Directors, if any. At
such time as no Class B Common Stock is outstanding, the term of all Class
B Directors shall immediately end.
(iii) For purposes of electing Class B Directors, the Board of
Directors will nominate such individuals as may be specified by a majority
vote of the then existing Class B Directors or, if there are no Class B
Directors, by holders of a majority of the Class B Common Stock. The
remaining directors will be nominated in accordance with the corporation's
Bylaws.
3
<PAGE>
(iv) At any meeting having as a purpose the election of
directors by holders of the Common Stock, the presence, in person or by
proxy, of the holders of a majority of the shares of relevant class of
Common Stock then outstanding shall be required and be sufficient to
constitute a quorum of such class for the election of any director by such
holders. Each director shall be elected by the vote or written consent
required under the IBCA of the holders of such class. At any such meeting
or adjournment thereof, (i) the absence of a quorum of such holders of an
applicable class of Common Stock shall not prevent the election of the
directors to be elected by the holders of shares other than such class of
Common Stock, and (ii) in the absence of such quorum (either of holders of
such class of Common Stock or of shares other than such class of Common
Stock, or both), a majority of the holders, present in person or by proxy,
of the class or classes of stock which lack a quorum shall have power to
adjourn the meeting for the election of directors which they are entitled
to elect, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
(v) Any vacancy in the office of a class of director may be
filled by the remaining directors of such class, unless such vacancy
occurred because of the removal (with or without cause) of a director, in
which event such vacancy shall be filled by the affirmative vote of the
holders of a majority of the outstanding shares of the applicable class of
Common Stock. Any or all of the directors may be removed, with or without
cause, by vote or by written consent in each case in accordance with
Section 8.35 of the IBCA by the holders of the applicable class of Common
Stock and not otherwise. Any director elected to fill a vacancy shall serve
the same remaining term as that of his or her predecessor, subject,
however, to prior death, resignation, retirement, disqualification, or
removal from office.
(vi) Without the affirmative vote of the holders of at least 66
2/3% of the outstanding shares of the Class B Common Stock or the written
consent of such holders of the Class B Common Stock, the corporation may
not effect any change in the rights, privileges or preferences of the Class
B Common Stock. This provision shall not be applicable to any amendment to
the Articles of Incorporation or adoption of resolutions of the Board of
Directors which establishes or designates one or more classes or series of
Preferred Stock in accordance with Article 4, Paragraph 2B.(1).
(vii) With respect to actions by the holders of Class B Common
Stock upon those matters on which such holders are entitled to vote as a
separate class, such actions may be taken without a shareholders meeting by the
written consent of holders of the Class B Common Stock who would be entitled to
vote at a meeting those shares having voting power to cast not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares of Class B Common Stock entitled to vote were
present and voted. Notice shall be given in accordance with the applicable
provisions of the IBCA of the taking of corporate action without a meeting by
less than unanimous written consent to those holders of Class B Common Stock on
the record date whose shares were not represented on the written consent.
4
<PAGE>
(d) Transfer.
(i) If any person holding shares of Class B Common Stock of record (a
"Class B Holder") purports to transfer such shares of Class B Common Stock,
whether by sale, assignment, gift, bequest or otherwise, except to a Permitted
Transferee, such transfer shall be deemed to constitute a request by the Class B
Holder for conversion of such shares and shall result in such shares being
converted into Class A Common Stock as provided by Article 4, Paragraph
2C.(3)(e).
(ii) In the case of a Class B Holder acquiring record and beneficial
ownership of the shares of Class B Common Stock in question upon initial
issuance by the corporation (an "Original Holder"), a "Permitted Transferee"
shall mean any Affiliate (as defined) of such Original Holder.
In the case of a Class B Holder which is a Permitted Transferee of an
Original Holder, a "Permitted Transferee" shall mean:
(y) any Original Holder, or
(z) any Permitted Transferee of any Original Holder.
For this paragraph and Article 4, Paragraph 2C.(3)(e), "Affiliate" means
any corporation, partnership, limited liability company or other entity (each, a
"Person") that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, another Person,
and includes any Person acting in concert with another Person.
(iii) With respect to a Class B Holder which holds shares by virtue of its
status as an Affiliate, the subsequent loss of Affiliate status shall, unless
within 15 days thereafter all shares of Class B Common Stock held by such Class
B Holder are transferred to an Original Holder or a Permitted Transferee of an
Original Holder, result in the automatic conversion of all of its shares of
Class B Common Stock into shares of Class A Common Stock, and stock certificates
formerly representing such shares of Class B Common Stock shall thereupon and
thereafter be deemed to represent shares of Class A Common Stock as provided by
Article 4, Paragraph 2C.(3)(e).
(iv) Any transfer of shares of Class B Common Stock not permitted hereunder
shall result in the conversion of the transferee's shares of Class B Common
Stock into shares of Class A Common Stock as provided by Article 4, Paragraph
2C.(3)(e), effective as of the date on which certificates representing such
shares are presented for transfer on the books of the corporation or on such
earlier date that the corporation receives notice of such attempted transfer.
The corporation may, in connection with preparing a list of stockholders
entitled to vote at any meeting of stockholders, or as a condition to the
transfer or the registration of shares of Class B Common Stock on the
corporation's books, require the furnishing of such affidavits or other proof as
it deems necessary to establish that the person is
5
<PAGE>
the beneficial owner of shares of Class B Common Stock or is a Permitted
Transferee.
(v) Shares of Class B Common Stock shall be registered in the names of the
beneficial owners thereof and not in "street" or "nominee" name. For this
purpose, a "beneficial owner" of any shares of Class B Common Stock shall mean a
person who, or any entity which, possesses the powers, either singly or jointly,
to direct the voting or disposition of such shares. Certificates for shares of
Class B Common Stock shall bear a legend referencing the restrictions on
transfer imposed by this Article 4, Paragraph 2C.(3)(d).
(e) Conversion.
(i) Each share of Class B Common Stock shall be converted at such time, in
such manner and upon such terms and conditions as provided herein into one fully
paid and non-assessable share of Class A Common Stock.
(ii) Each share of Class B Common Stock shall automatically convert into a
share of Class A Common Stock upon the earlier to occur of (i) the holders of
all Class B Common Stock ceasing to own in the aggregate 15% of the issued and
outstanding Common Stock, and (ii) as provided in Article 4, Paragraph
2C.(3)(d). Upon automatic conversion of shares of Class B Common Stock, the
corporation shall reflect such conversion, and the issuance of Class A Common
Stock in connection therewith on its books and records for all purposes even if
certificates reflecting such converted shares of Class B Common Stock are not
surrendered to the corporation or its transfer agent. All shares of Class B
Common Stock, upon conversion thereof into Class A Common Stock, shall retain
their designation as Class B Common Stock and shall have the status of
authorized and unissued shares of Class B Common Stock; provided that if all
shares of Class B Common Stock outstanding are converted into shares of Class A
Common Stock, then all authorized but unissued shares or treasury shares of
Class B Common Stock shall automatically convert into authorized but unissued or
treasury shares of Class A Common Stock, as the case may be, and no further
shares of Class B Common Stock shall exist. Except as specifically contemplated
under this Article 4, Paragraph 2C.(3)(e), shares of Class B Common Stock may
not be converted into Class A Common Stock.
(iii) Each share of Class A Common Stock owned (within the meaning of
Article 4, Paragraph 2C.(3)(d)) by Chevron U.S.A. Inc., a Pennsylvania
corporation ("Chevron") or its Affiliates shall simultaneous with acquiring such
ownership automatically be converted into one fully paid and non-assessable
share of Class B Common Stock; provided, however, that for purposes of any
shares of Class B Common Stock so issued, only Chevron will be deemed to be the
Original Holder thereof for purposes of the provisions of Article 4, Paragraph
2C.(3)(d), and provided, further, that this provision shall not apply with
respect to shares of Class A Common Stock issued upon conversion of all Class B
Common Stock in accordance with the first sentence of Article 4, Paragraph
2C.(3)(e)(ii)(i), or any shares of Class A Common Stock owned by Chevron or its
Affiliates, after such conversion shall have occurred. Upon automatic conversion
of shares of Class A Common Stock, the
6
<PAGE>
corporation shall reflect such conversion and the issuance of Class B Common
Stock in connection therewith on its books and records for all purposes even if
certificates reflecting such converted shares of Class A Common Stock are not
surrendered to the corporation for transfer. All shares of Class B Common Stock
shall be subject to the restrictions and provisions contained in the
corporation's Articles of Incorporation. All shares of Class A Common Stock,
upon conversion thereof into Class B Common Stock, shall retain their
designation as Class A Common Stock and shall have the status of authorized and
unissued shares of Class A Common Stock.
(iv) Nothing herein shall prevent the Original Holder (or any Permitted
Transferee) of the Class B Common Stock and the corporation from executing an
agreement allowing the Original Holder (or any Permitted Transferee), at its
option, to convert the Class B Common Stock into Class A Common Stock, nor the
conversion of any Class B Common Stock pursuant to such agreement.
(v) The corporation will, as soon as practicable after such deposit of a
certificate or certificates for Common Stock to be converted in accordance with
this Article 4, Paragraph 2C.(3)(e), issue and deliver at the office of the
corporation or of its transfer agent to the person for whose account such Common
Stock was so surrendered, a certificate or certificates for the number of full
shares of Common Stock into which the shares represented by the surrendered
certificate are converted. If surrendered certificates for Common Stock are
converted only in part, the corporation will issue and deliver to the holder,
without charge therefor, a new certificate or certificates representing the
aggregate of the unconverted shares of such class of Common Stock. The failure
of the holder to deliver to the corporation certificates representing shares of
a class of Common Stock converted in accordance with this Article 4, Paragraph
2C.(3)(e), shall in no way affect the automatic conversion of such shares.
(vi) The issuance of certificates for shares of a class of Common Stock
upon conversion of shares of the other class of Common Stock shall be made
without charge for any issue, stamp or other similar tax in respect of such
issuance; provided, however, if any such certificate is to be issued in a name
other than that of the holder of the share or shares of the class of Common
Stock converted, the person or persons requesting the issuance thereof shall pay
to the corporation the amount of any tax which may be payable in respect of any
transfer involved in such issuance or shall establish to the satisfaction of the
corporation that such tax has been paid.
(vii) The corporation shall at all times reserve and keep available, solely
for the purpose of issuance upon conversion of the outstanding shares of Class B
Common Stock, such number of shares of Class A Common Stock as shall be issuable
upon the conversion of all such outstanding shares, provided that nothing
contained herein shall be construed to preclude the corporation from satisfying
the obligations in respect of the conversion of the outstanding shares of Class
B Common Stock by delivery of shares of Class A Common Stock which are held in
the treasury of the corporation. The corporation shall take all such corporate
and other actions as from time to time may be necessary to insure that all
shares of
7
<PAGE>
Class A Common Stock issuable upon conversion of shares of Class B Common Stock
upon issue will be duly and validly authorized and issued, fully paid and
nonassessable and free of any preemptive or similar rights. In order that the
corporation may issue shares of Class A Common Stock upon conversion of the
Class B Common Stock, the corporation will endeavor to comply with all
applicable Federal and state securities laws and will endeavor to list such
shares to be issued upon conversion on such securities exchange on which the
Class A Common Stock is then listed.
(viii) The corporation shall at all times reserve and keep available,
solely for the purpose of issuance upon conversion of the outstanding shares of
Class A Common Stock a number of shares of Class B Common Stock equal to 40% of
the number of outstanding shares of Class A Common Stock, provided that nothing
contained herein shall be construed to preclude the corporation from satisfying
the obligations in respect of the conversion of the outstanding shares of Class
A Common Stock by delivery of shares of Class B Common Stock which are held in
the treasury of the corporation. The corporation shall take all such corporate
and other actions as from time to time may be necessary to insure that all
shares of Class B Common Stock issuable upon conversion of shares of Class A
Common Stock upon issue will be duly and validly authorized and issued, fully
paid and nonassessable and free of any preemptive or similar rights. In order
that the corporation may issue shares of Class B Common Stock upon conversion of
the Class A Common Stock, the corporation will endeavor to comply with all
applicable Federal and state securities laws.
(f) Except as may otherwise be required by law and for the equitable rights
and remedies which may otherwise be available to holders of Common Stock, the
shares of Common Stock shall not have any designations, preferences, limitations
or relative rights, other than those specifically set forth in these Articles of
Incorporation.
(g) The headings of the various subdivisions of this Section are for
convenience of reference only and shall not affect the interpretation of any of
the provisions of this Section.
Article 7, Paragraph 1:
A. Right to Indemnification.
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 8.65 of the IBCA, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the IBCA is amended to authorize corporate action further eliminating or
limiting the personal liability of Directors, then the liability of a director
or the corporation shall be eliminated or limited to the full extent permitted
under the IBCA, as so amended. Any repeal or modification of this Article 7,
Paragraph 1 by the shareholders of the
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corporation shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification.
The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to be the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to be the best interests of the
corporation, or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
B. Suit by Corporation or Shareholder
The corporation shall indemnify any person who was or is a party, or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director or officer of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to the best interests of the
corporation, and except that no indemnification shall be made with respect to
any claim, issue or matter as to which such person has been finally adjudged to
have been liable to the corporation, unless, and only to the extent that the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
C. Director Discretion
Any indemnification under Article 7, Paragraphs 1A. and B. (unless ordered
by a court) shall be made only as authorized in the specific case, upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Article 7, Paragraphs 1A. and B. Such determination shall be made (1) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable (or, even if obtainable, a quorum of disinterested directors so
directs) by independent legal counsel in a written opinion, or (3) by the
shareholders. In any event, to the extent that a director or officer of the
corporation has been successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in Article 7, Paragraphs 1A. and B.
or in defense of any claim, issue or matter therein, he shall be indemnified
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against expenses (including reasonable attorneys' fees) actually and reasonable
incurred by him in connection therewith.
D. Advancement of Expenses
(1) Reasonable expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the corporation in advance of the final
deposition of such action, suit or proceeding, upon receipt of (i) a statement
signed by such director or officer to the effect that such director or officer
acted in good faith and in a manner which he believed to be in, or not opposed
to the best interests of the corporation and (ii) an undertaking by or on behalf
of the director or officer to repay such amount, if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article.
(2) The board of directors may, by separate resolution adopted under and
referring to this Article of the by-laws, provide for securing the payment of
authorized advances by the creation of escrow accounts, the establishment of
letters of credit or such other means as the board deems appropriate and with
such restrictions, limitations and qualifications with respect thereto as the
board deems appropriate in the circumstances.
E. Non-Exclusivity of Rights and Contractual Nature
(1) The indemnification and advancement of expenses provided by or granted
under other subsections of this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any by-law, agreement, vote of shareholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
(2) The provisions of this Article 7, Paragraph 1 shall be deemed to be a
contract between the corporation and each director and officer who serves in
such capacity at anytime while this Article 7, Paragraph 1 is in effect and any
indemnification provided under Article 7, Paragraph 1 to a person shall continue
after such person ceases to be an officer, director, agent or employee of the
corporation as to all facts, circumstances and events occurring while such
person was such officer, director, agent or employee, and shall not be decreased
or diminished in scope without such person's consent, regardless of their repeal
or modification of this Article or any repeal or modification of the Illinois
Business Corporation Act or any other applicable law. If the scope of indemnity
provided by this Article 7, Paragraph 1 or any replacement article, or pursuant
to the Illinois Business Corporation Act or any modification or replacement
thereof is increased, then such person shall be entitled to such increased
indemnification as is in existence at the time indemnity is provided to such
person, it being the intent, subject to Article 7, Paragraph 1K., to indemnify
persons under this Article 7, Paragraph 1 to the fullest extent permitted by
law.
F. Insurance
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
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venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article.
G. Report to Shareholders
The corporation shall report in writing to shareholders any indemnity or
advanced expenses paid to a director, officer, employee or agent with or before
the notice of the next shareholders' meeting.
H. Right of Claimant to Bring Suit
Subject to Article 7, Paragraph 1K., if a claim under this Article is not
promptly paid by the corporation after a written claim has been received by the
corporation or if expenses pursuant to Section 4 of this Article have not been
promptly advanced after a written request for such advancement accompanied by
the statement and undertaking required by Article 7, Paragraph 1D. of this
Article has been received by the corporation, the director or officer may at any
time thereafter bring suit against the corporation to recover the unpaid amount
of the claim or the advancement of expenses. If successful, in whole or in
part, in such suit, such director or officer shall also be entitled to be paid
the reasonable expense thereof, including attorneys' fees. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking has been tendered to the corporation)
that the director or officer has not met the standards of conduct which make it
permissible under the Illinois Business Corporation Act for the corporation to
indemnify the director or officer for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
shareholders) to have made a determination, if required, prior to the
commencement of such action that indemnification of the director or officer is
proper in the circumstances because he or she has met the applicable standard of
conduct required under the Illinois Business Corporation Act, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel, or its shareholders) that the director or officer had not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the director or officer had not met the applicable standard
of conduct.
I. Definition of "corporation"
For purposes of this Article, references to "the corporation" shall
include, in addition to the surviving corporation, any merging corporation
(including any corporation having merged with a merging corporation) absorbed in
a merger which, if its separate existence had continued, would have had the
power and authority to indemnify its directors, officers and employees or
agents, so that any person who was a director or officer of such merging
corporation, or was serving at the request of such merging corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article with respect to the surviving corporation as such person would have with
respect to such merging corporation if its separate existence had continued.
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J. Employee Benefit Plans
For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and references
to "officers" shall include elected and appointed officers. A person who acted
in good faith and in a manner he reasonably believed to be in the best interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interest of the
corporation" as referred to in this Article.
K. Reimbursement
Anything herein to the contrary notwithstanding, if the corporation
purchases insurance in accordance with Article 7, Paragraph 1F., the corporation
shall not be required to, but may (if the board of directors so determines in
accordance with this Article 7, Paragraph 1) reimburse any party instituting any
action, suit or proceeding if a result of the institution thereof is the denial
of or limitation of payment of losses under such insurance when such losses
would have been paid thereunder if a non-insured third party had instituted such
action, suit or proceedings.
L. Severability
If any portion of this Article shall be invalidated or held to be
unenforceable on any ground by any court of competent jurisdiction, the decision
of which shall not have been reversed on appeal, such invalidity or
unenforceability shall not affect the other provisions hereof, and this Article
shall be construed in all respects as if such invalid or unenforceable
provisions had been omitted therefrom.
Article 7, Paragraph 2:
Without the consent of the holders of eighty-five percent (85%) of the
outstanding Common Stock, voting as a single class, the corporation may (and may
permit any subsidiary of the corporation over which it has control to) sell the
following products:
(1) crude oil;
(2) other products usually and normally refined as petroleum products from
crude oils; and
(3) natural gas liquids or liquefied petroleum gases;
irrespective of where such sales or products are made, only when the seller has
no actual knowledge that the sale is not for consumption or resale in one or
more of the following areas:
(a) the United States or any of its territories or possessions;
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(b) any country wholly located in the Western Hemisphere and/or Europe or
surrounded by the Mediterranean Sea;
(c) any country all of the territory of which was formerly contained within
the Union of Soviet Socialist Republics;
(d) any country whose territory is contained within the territories
constituting as of the date hereof the countries known as Algeria, Angola,
Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Cote
D'Ivoire, Equatorial Guinea, Gabon, Gambia, Ghana, Greenland, Guinea, Guinea
Bissau, Iceland, Liberia, Libya, Mali, Mauritania, Mongolia, Morocco, Niger,
Nigeria, Rio Muni, Senegal, Sierra Leone, Togo, Tunisia, Turkey, Western Sahara
and/or Zaire;
(e) Antarctica; and
(f) international waters;
unless (x) otherwise permitted by the terms of that certain Scope of Business
Agreement, dated May 22, 1996, between Dynegy Inc. and Chevron, as the same may
from time to time be amended in accordance with the terms thereof, or (y) such
Scope of Business Agreement is terminated pursuant to its terms, upon which
termination the provisions of this Article 7, Paragraph 2 shall be of no further
force and effect. A copy of such Scope of Business Agreement, as the same may
be amended, shall be available for inspection by any stockholder of the
corporation at the principal offices of the corporation. Except as indicated
above or as may otherwise be provided in these Articles of Incorporation or by
Illinois law, stockholders shall have no right to approve specific business
activities of the corporation, and the above provisions shall not otherwise
affect corporate powers and purposes as stated in Article 3.
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EXHIBIT 3.3
ENERGY CONVERGENCE HOLDING COMPANY
BY-LAWS
ARTICLE I
CORPORATE OFFICES
Section 1. Illinois Registered Office. The registered office of the
corporation in the State of Illinois may, but need not, be identical with the
principal office in the State of Illinois, and the address of the registered
office may be changed from time to time by the board of directors.
Section 2. Other Offices. The principal office of the corporation in the
State of Illinois shall initially be located in the City of Decatur and County
of Macon. The corporation may also have offices at such other places both
within and without the State of Illinois as the board of directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Times and Places of Meetings. Meetings of shareholders for any
purpose may be held at such time and place, within or without the State of
Illinois, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of shareholders, commencing
with the year 2000, shall be held on the 1st of May if not a legal holiday, and
if a legal holiday, then on the next business day following, or at such other
time as may be provided in a resolution by the board of directors, for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting. If the election of directors shall
not be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a meeting of the shareholders as soon thereafter as conveniently may be.
Section 3. Special Meetings. Special meetings of shareholders may be
called by the chairman of the board, the chief executive officer, the president,
the board directors, or the holders of not less than one-fifth of all the
outstanding shares entitled to vote on the matter for which the meeting is
called.
Section 4. Notice of Meetings. Written notice stating the place, day and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the
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meeting, or in the case of a merger, consolidation, share exchange, dissolution
or sale, lease or exchange of assets, not less than twenty nor more than sixty
days before the date of the meeting, either personally or by mail, by or at the
direction of the chairman of the board, chief executive officer, president or
the secretary or other persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at the shareholder's address as it appears on the records of the
corporation, with postage thereon prepaid.
Section 5. Waiver of Notice. Whenever any notice whatsoever is required
to be given under the provisions of the Business Corporation Act or the articles
of incorporation or these by-laws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute waiver of notice thereof unless the
person at the meeting objects to the holding of the meeting because proper
notice was not given.
Section 6. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than sixty days and, for a meeting of
shareholders, not less than ten days, or in the case of a merger, consolidation,
share exchange, dissolution or sale, lease or exchange of assets, not less than
twenty days, immediately preceding such meeting or other action. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive payment
of a dividend, the date on which notice of the meeting is mailed or the date on
which the resolution of the board of directors declaring such dividend is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided herein, such determination
shall apply to any adjournment thereof.
Section 7. Voting Lists. The officer or agent having charge of the
transfer books for shares of the corporation shall make, within twenty days
after the record date for a meeting of shareholders or ten days before such
meeting, whichever is earlier, a complete list of the shareholders entitled to
vote at such meeting, arranged in alphabetical order, with the address of and
the number of shares held by each, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof kept
in this State, shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or to vote at any
meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares entitled to vote
on a matter, represented in person or by proxy, shall constitute a quorum for
consideration of such matter at
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any meeting of shareholders; provided, that if less than a majority of such
outstanding shares are represented at the meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice
until a quorum shall attend. If a quorum is present, the affirmative vote of the
majority of such shares represented at the meeting and entitled to vote on a
matter shall be the act of the shareholders, unless the vote of a greater number
or voting by classes is required by the Business Corporation Act, the articles
of incorporation or these by-laws.
Section 9. Proxies. A shareholder may appoint a proxy to vote or
otherwise act for that shareholder by signing a proxy appointment form and
delivering it to the person so appointed. Such proxy shall be filed with the
secretary of the corporation before the time of the meeting. No proxy shall be
valid after eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy continues in full force and effect until revoked by the
person executing it prior to the vote thereon, except to the extent such proxy
is irrevocable under applicable law. Such revocation may be effected by a
writing delivered to the secretary of the corporation stating that the proxy is
revoked, or by a subsequent proxy executed by, or by attendance at the meeting
and voting in person by, the person executing the proxy. The dates contained on
the forms of proxy presumptively determine the order of execution, regardless of
the postmark dates on the envelopes in which they are mailed.
Section 10. Voting of Shares. Except as otherwise provided by the
articles of incorporation or by resolutions of the board of directors providing
for the issue of any shares of preferred or special classes in series, each
outstanding share, regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of shareholders.
Section 11. Voting of Shares by Certain Holders. Shares registered in the
name of another corporation, domestic or foreign, may be voted by any officer,
agent, proxy or other legal representative authorized to vote such shares under
the law of incorporation of such corporation. The corporation may treat the
president or other person holding the position of chief executive officer of
such other corporation as authorized to vote such shares, together with any
other person indicated and any other holder of an office indicated by the
corporate shareholder to the corporation as a person or an office authorized to
vote such shares. Such persons and offices indicated shall be registered by the
corporation on the transfer books for shares and included in any voting list
prepared in accordance with the Business Corporation Act and these by-laws.
Shares registered in the name of a deceased person, a minor ward or a person
under legal disability may be voted by his administrator, executor or court-
appointed guardian, either in person or by proxy, without a transfer of such
shares into the name of such administrator, executor or court-appointed
guardian. Shares registered in the name of a trustee may be voted by such
trustee, either in person or by proxy. Shares registered in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
the receiver's name if authority so to do is contained in an appropriate order
of the court by which such receiver was appointed. A shareholder whose shares
are pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred. Shares of the corporation owned by
the corporation shall not be
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voted, directly or indirectly, at any meeting and shall not be counted in
determining the total number of outstanding shares entitled to vote at any given
time, but shares of the corporation held by the corporation in a fiduciary
capacity may be voted and shall be counted in determining the total number of
outstanding shares entitled to vote at any given time.
Section 12. Inspectors. The board of directors, in advance of any meeting
of shareholders, may appoint one or more persons as inspectors to act at such
meeting or any adjournment thereof. If inspectors of election are not so
appointed, the chairman of the meeting may, or upon the request of any
shareholder shall, appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders. Each report of an inspector shall be in writing and signed by
the inspector or by a majority of them if there is more than one inspector
acting at such meeting. If there is more than one inspector, the report of a
majority shall be the report of the inspectors. The report of the inspector or
inspectors on the number of shares represented at the meeting and the results of
the voting shall be prima facie evidence thereof.
Section 13. Voting by Ballot. Voting on any question or in any election
may be by voice vote unless the presiding officer shall order that voting be by
ballot.
Section 14. Organization of Meetings. At each meeting of shareholders,
one of the following officers shall act as chairman and shall preside thereat,
in the following order of precedence: the chairman of the board; the president;
any vice president acting in place of the president as provided by these by-
laws; any person designated by the affirmative vote of the holders of a majority
of the shares represented at the meeting in person or by proxy and entitled to
vote.
Section 15. Notice of Shareholder Business and Nominations.
(A) Annual Meetings of Shareholders.
(1) Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
shareholders may be made at an annual meeting of shareholders (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the board of
directors, (c) as expressly provided in the corporation's articles of
incorporation, or (d) by any shareholder of record of the corporation at the
relevant time, provided that shareholders of common stock of the corporation
(the "COMMON STOCK SHAREHOLDERS") comply with the notice procedures set forth in
Section 15(A)(2)-(3) below.
(2) For nominations or other business to be properly brought before an
annual meeting by a Common Stock Shareholder, such shareholder must have given
timely notice thereof in writing to the secretary of the corporation and such
other business must be a proper matter for shareholder action. To be timely, the
Common Stock Shareholder's notice shall be delivered to the secretary of the
corporation at the principal executive offices of the corporation not later than
the close of business on the 90th day nor earlier than the close of business on
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the 120th day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the shareholder to be timely must be so delivered not earlier
than the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a Common Stock Shareholder's notice as described above. Such
shareholder's notice shall set forth: (a) as to each person whom the shareholder
proposes to nominate for election or reelection as a director, all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of the business described to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the
corporations' book and of such beneficial owner and (ii) the class and number of
shares of the corporation which are owned beneficially and of record by such
shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Section 15 to the contrary and except with respect to the first
annual meeting of the corporation, in the event that the number of directors to
be elected to the board of directors of the corporation is increased and there
is no public announcement naming the nominees for director or specifying the
size of the increased board of directors made by the corporation at least 100
days prior to the first anniversary of the preceding year's annual meeting, a
Common Stock Shareholder's notice required by this Section 15 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary of the
corporation at the principal executive offices of the corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the corporation.
(B) Special Meetings of Shareholders. Only such business shall be conducted
at a special meeting of shareholders as shall have been brought before
the meeting pursuant to a notice of meeting given pursuant to Section 4
of this Article II. Nominations of persons for election to the board of
directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the corporation's notice of
meeting (1) by or at the direction of the board of directors or (2) by
any shareholder of the corporation who is a shareholder of record at
the time of giving of notice provided for in this Section 15, who shall
be entitled to vote at the meeting and who complies with the notice
procedures set forth in this
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Section 15. In the event the corporation calls a special meeting of
shareholders for the purpose of electing one or more directors to the
board of directors, any such shareholder may nominate a person or
persons (as the case may be), for election to such position(s) as
specified in the corporation's notice of meeting, if the shareholder's
notice required by paragraph (A)(2) of this Section 15 shall be
delivered to the secretary of the corporation at the principal
executive office of the corporation not earlier than the close of
business on the 120th day prior to such special meeting and not later
than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of
the nominees proposed by the board of directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of
a special meeting commence a new time period for the giving of a
shareholder's notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 15 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 15. Except as otherwise provided by law, the articles of
incorporation of the corporation or these by-laws, the chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made, or proposed, as the case may
be, in accordance with the procedures set forth in this Section 15 and, if any
proposed nomination or business is not in compliance with this Section 15, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 15, "PUBLIC ANNOUNCEMENT" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section 15, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder, if any, with respect to the
matters set forth in this Section 15. Nothing in this Section 15 shall be
deemed to affect any rights of (i) shareholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (ii) the holders of any series of preferred shares of the
corporation to elect directors under specified circumstances.
(4) No provision of this Section 15 shall apply to the election of any
Class B Director (as defined in the Articles of Incorporation).
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ARTICLE III
DIRECTORS
Section 1. Powers. The business and affairs of the corporation shall be
managed by or under the direction of its board of directors.
Section 2. Tenure and Qualifications. Each director shall hold office
until the next annual meeting of shareholders following his or her election and
until his or her successor shall have been duly elected and qualified or until
his or her earlier death, resignation or removal. A director need not be a
resident of the State of Illinois or a shareholder of the corporation. A
director may resign at any time by giving written notice to the board of
directors, or to the chairman of the board, chief executive officer, president
or secretary of the corporation. A resignation shall be effective when the
notice is given, unless the notice specifies a future date.
Section 3. Place of Meetings. The board of directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Illinois.
Section 4. Regular Meetings. A regular meeting of the board of directors
shall be held without other notice than this by-law, immediately after, and at
the same place as, the annual meeting of shareholders. Other regular meetings
of the board of directors may be held without notice at such time and at such
place as shall from time to time be determined by the board.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by the chairman of the board and shall be called by the chairman
of the board or secretary on the written request of three directors or the sole
director, as the case may be.
Section 6. Notice. Notice of any special meeting shall be given: (i) at
least five days prior thereto if the notice is given personally or by an
electronic transmission, (ii) at least five business days prior thereto if the
notice is given by having it delivered by a third party entity that provides
delivery services in the ordinary course of business and guarantees delivery of
the notice to the director no later than the following business day, and (iii)
at least seven business days prior thereto if the notice is given by mail.
Notice of any meeting where any actions described in Section 7.(B) will be
considered shall be given to Class B directors at least 30 days before the vote
on any such action and shall set forth the material terms thereof. For this
purpose, the term "ELECTRONIC TRANSMISSION" may include, but shall not be
limited to, a facsimile, email or other electronic means. Notice shall be
delivered to the director's business address and/or telephone number and shall
be deemed given upon electronic transmission, upon delivery to the third party
delivery service, or upon being deposited in the United States mail with postage
thereon prepaid. Any director may waive notice of any meeting by signing a
written waiver of notice either before or after the meeting. Attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except when a director attends a meeting for the express purpose of objecting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
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Section 7. Quorum; Vote Required, Actions Requiring Approval.
(A) Except as provided in Section 7.(B), a majority of the directors then
in office, but not less than a majority of the minimum number of directors
specified by the articles of incorporation for the variable range of the number
of directors, shall constitute a quorum for the transaction of business at any
meeting of the board of directors, and the act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors. If less than a majority of such number of directors are present
at the meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
(B) Notwithstanding anything to the contrary herein, so long as any shares
of Class B Common Stock of the corporation are issued and outstanding and the
holders of Class B Common Stock have not terminated their rights to block such
actions granted to them under Section 4.1 of the Shareholder Agreement between
the corporation and Chevron U.S.A., Inc., dated June 13, 1999, the corporation
shall not take (or permit to be taken in its capacity as a shareholder or
partner or otherwise permit any subsidiary of the corporation to take) any of
the following actions if all of the Class B directors present at the meeting
where such action is considered vote against such action:
(1) amendment of Article II, Section 15(C)(4), Article III, Sections 6, 7.(B),
7.(C), or 12, Article IV, Section 1, Article V, Section 1, or Article IX of
these Bylaws, or amendment of Article IV, Section 2A. of the articles of
incorporation of the corporation;
(2) adoption of any provision of these Bylaws or amendment to the articles of
incorporation which would substantially and adversely affect the rights of
the holders of the Class B Common Stock.
(3) authorization of new shares of any stock of the corporation where the
aggregate consideration to be received by the corporation therefor exceeds
the greater of (a) $1 billion or (b) one-quarter of the Corporation's
Market Capitalization;
(4) any disposition of all or substantially all of the corporation's Liquids
Business (defined below) or Gas Marketing Business (as defined below), so
long as there shall be in effect any substantial agreements between Chevron
U.S.A. Inc. and Dynegy relating to such businesses, except for a
contribution of such Liquids Business to a joint venture, limited liability
company or other form of partnership in which the corporation has a
majority direct or indirect interest;
(5) any merger or consolidation of the corporation or any subsidiary (other
than a merger or consolidation by a subsidiary with the corporation or
another subsidiary), any joint venture, any liquidation or dissolution of
the corporation, any voluntary initiation of a proceeding in bankruptcy or
acquiescence to an involuntary initiation of a proceeding in bankruptcy,
any acquisition of stock or assets by the corporation or its subsidiaries,
or any issuance of common or preferred stock by the corporation, any of
which would result in the payment or receipt of consideration (including
the incurrence or assumption of indebtedness and
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liabilities) having a fair market value exceeding the greater of (a) $1
billion or (b) one-quarter of the Corporation's Market Capitalization (as
defined below); or
(6) any other material transaction (or series of related transactions) which
would result in the payment or receipt of consideration (including the
incurrence or assumption of indebtedness and liabilities) having a fair
market value exceeding the greater of (a) $1 billion or (b) one-quarter of
the Corporation's Market Capitalization, and is out of the ordinary course
of business for the corporation.
For purposes of this Section, the "CORPORATION'S MARKET CAPITALIZATION"
means the sum of (a) the product of (x) the total number of shares outstanding
of Class A and Class B Common Stock of the corporation on the relevant date and
(y) the closing price of the Class A Common Stock on the New York Stock Exchange
("NYSE") at the end of the regular session represented by the consolidated tape,
Network A, (b) the product of (x) the total number of shares outstanding of all
of the corporation's NYSE traded preferred stock on the relevant date and (y)
the closing price of such preferred stock on the NYSE at the end of the regular
session represented by the consolidated tape, Network A and (c) the aggregate
value of the liquidation preference of any non-NYSE listed non-convertible stock
of the corporation and (d) the aggregate value of the greater of the liquidation
preference and the value of the underlying common stock (calculated in
accordance with (a) of this paragraph) issuable upon conversion of any non-NYSE
listed convertible preferred stock on the relevant date. The "LIQUIDS BUSINESS"
means the processing of natural gas to produce natural gas liquids, the
fractionation of natural gas liquids, and the purchase, sale and transportation
of such natural gas liquids. The "Gas Marketing Business" shall mean the
purchase, receipt, sale and delivery of natural gas, excluding the retail gas
distribution business conducted by Illinova Corporation ("ILLINOVA") and its
affiliates prior to the closing of the transactions contemplated by the
Agreement and Plan of Merger, dated as of June 13, 1999, by and among the
Corporation, Illinova, Dynegy, Inc., Energy Convergence Acquisition Corporation,
and Dynegy Acquisition Corporation.
(C) The executive officers of the Corporation shall advise the members of
the Board of Directors of the consideration of a proposal relating to any matter
of the type described in Section 7.(B) at such time as they determine to give
substantive attention to such proposal.
Section 8. Informal Action by Directors. Any action required to be taken
at a meeting of the board of directors, or any other action which may be taken
at a meeting of the board of directors or a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. The consent shall be evidenced by one or more written approvals, each of
which sets forth the action taken and bears the signature of one or more
directors. All the approvals evidencing the consent shall be delivered to the
secretary to be filed in the corporate records. The action taken shall be
effective when all the directors have approved the consent unless the consent
specifies a different effective date. Any such consent signed by all the
directors or all the members of a committee shall have the same effect as a
unanimous vote, and may be stated as such in any document filed with the
Secretary of State of Illinois under the Business Corporation Act.
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Section 9. Participation with Communications Equipment. Members of the
board of directors or of any committee of the board of directors may participate
in and act at any meeting of such board or committee through the use of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in such
meeting shall constitute attendance and presence in person at the meeting of the
person or persons so participating.
Section 10. Compensation of Directors. The board of directors shall have
the authority to fix the compensation of directors by the affirmative vote of a
majority of the directors then in office and irrespective of any personal
interest of any of its members. In addition, the directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors. No
such payment shall preclude any director from serving the corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be compensated additionally for so serving.
Section 11. Presumption of Assent. A director of the corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless the dissent of that director shall be entered in the minutes of the
meeting or unless that director shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered or certified mail to the secretary
of the corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 12. Agenda Items. No action may be taken at a meeting of the
board of directors with respect to any matter that was not previously set forth
on an agenda for such meeting delivered to the directors at least two business
days prior to such meeting if either a majority of the Class B Directors present
at such meeting or a majority of the other directors present at such meeting
oppose taking action at such meeting with respect to such matter.
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ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
Section 1. Establishment of Committees. A majority of the directors may
create one or more committees and appoint members of the board of directors to
serve on the committee or committees. Each committee shall have two or more
members, who serve at the pleasure of the board of directors. The board of
directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. Any vacancy in a committee may be filled by the board of
directors. Each committee shall keep regular minutes of its meetings and report
the same to the board of directors as required. Unless precluded by applicable
law or any applicable rule of the New York Stock Exchange, Inc., each committee
other than the Nomination Committee shall have at least one Class B Director
thereon.
Section 2. Manner of Acting. Unless the appointment by the board of
directors requires a greater number, a majority of any committee shall
constitute a quorum and a majority of a quorum shall be necessary for action by
any committee. A committee may act by unanimous consent in writing without a
meeting. Each committee, by majority vote of its members, shall determine the
time and place of meetings and the notice required therefor.
Section 3. Authority of Committees. To the extent specified by resolution of
the board of directors and these by-laws, each committee may exercise the
authority of the board of directors, provided, however, a committee may not:
a) authorize distributions, except for dividends to be paid with respect to
shares of any preferred or special classes or any series thereof;
b) approve or recommend to shareholders any act requiring the approval of
shareholders under applicable law;
c) fill vacancies on the board or any committee;
d) elect or remove officers or fix the compensation of any member of the
committee;
e) adopt, amend or repeal these by-laws;
f) approve a plan of merger not requiring shareholder approval;
g) authorize or approve reacquisition of shares, except according to a
general formula or method prescribed by the board of directors;
h) authorize or approve the issuance or sale, or contract for sale, of
shares, or determine the designation and relative rights, preferences, and
limitations of a series of shares, except the board may direct that a committee
may fix the specific terms of the issuance or sale or contract for sale, or the
number of shares to be allocated to particular employees under an employee
benefit plan; or
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i) amend, alter, repeal, or take action inconsistent with any resolution or
action of the board of directors when the resolution or action of the board of
directors provides by its terms that it shall not be amended, altered or
repealed by action of a committee.
Section 4. Executive Committee. The board of directors shall establish an
Executive Committee. The Executive Committee, during intervals between meetings
of the board of directors, shall have, and may exercise, subject to the
limitations contained in Section 3 of this Article, the powers of the board of
directors in the management of the business and affairs of the corporation.
Section 5. Compensation/Governance Committee. The board of directors
shall establish a Compensation/Governance Committee consisting of directors who
are not otherwise employed by the corporation. The Compensation/Governance
Committee shall (i) review, from time to time, the salaries, compensation and
employee benefits of the officers and employees of the corporation and make
recommendations to the board of directors concerning such matters and (ii)
consider other matters related to corporate governance.
Section 6. Nomination Committee. The board of directors shall establish a
Nomination Committee consisting of directors who are not otherwise employed by
the corporation. The Nomination Committee shall develop general criteria
regarding the selection and qualifications for members of the board of directors
other than Class B Directors and recommend candidates for election to the board
of directors other than as Class B Directors.
Section 7. Audit and Finance Committee. The board of directors shall
establish an Audit and Finance Committee consisting of directors who are not
otherwise employed by the corporation. The Audit and Finance Committee shall
(i) review the selection and qualifications of the independent public
accountants employed by the corporation to audit the financial statements of the
corporation to audit the financial statements of the corporation and the scope
and adequacy of their audits and (ii) review major financial decisions of the
corporation and make recommendations to the board of directors concerning such
matters. The Audit and Finance Committee shall also consider recommendations
made by such independent public accountants, review the internal financial
audits of the corporation, and report any additions or changes it deems
advisable to the board of directors.
Section 8. Risk and Environmental Committee. The board of directors shall
establish a Risk and Environmental Committee consisting of directors who are not
otherwise employed by the corporation. The Risk and Environmental Committee
shall consider matters related to insurance and environmental issues and shall
make recommendations to the board of directors concerning such matters.
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ARTICLE V
OFFICERS
Section 1. Officers. The officers of the corporation shall consist of a
chief executive officer, chairman of the board, president, one or more vice
presidents (the number, seniority and any other designations thereof to be
determined by the board of directors), a secretary, a treasurer, a controller,
and such other officers as may be elected by the board of directors. Any two or
more offices may be held by the same person.
Section 2. Additional Officers and Agents. The board of directors may
appoint such other officers and agents as it shall deem necessary, who shall
exercise such powers and perform such duties as shall be determined from time to
time by the board.
Section 3. Compensation of Officers. The compensation of all officers and
agents of the corporation shall be fixed by or under the direction of the board
of directors. No officer shall be prevented from receiving such compensation by
reason of the fact that such officer is also a director of the corporation.
Section 4. Term of Office and Vacancy. Each elected officer shall hold
office until a successor is elected and qualified or until such officer's
earlier resignation or removal. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors for the unexpired portion
of the term. Each appointed officer shall serve at the pleasure of the board of
directors. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 5. Removal. Any officer or agent may be removed by the board of
directors whenever in its judgment the best interests of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
Section 6. Chief Executive Officer. The chairman of the board may, but
need not, be the chief executive officer of the corporation. The chief executive
officer shall (a) determine and administer the policies of the corporation,
subject to the instructions of the board of directors; (b) be authorized to
execute all documents in the name and on behalf of the corporation; and (c)
perform all duties incident to the office of chief executive officer and such
other duties as the board of directors or bylaws may from time to time
prescribe.
Section 7. Chairman of the Board. The chairman of the board, or in his or
her absence, the president, shall preside at all meetings of the shareholders
and the board of directors.
Section 8. President. The president shall (a) be the chief operating
officer of the corporation, and shall in general be in charge of the operations
of the corporation, subject to the control of the board of directors; (b) be
authorized to execute all documents in the name and on behalf of the
corporation; and (c) perform all duties incident to the office of president and
such other duties as the board of directors may from time to time prescribe.
Section 9. Vice Presidents. In the absence of the president or in the
event of the inability or refusal of the president to act, the vice president
(or in the event there is more than one vice president, the vice presidents in
the order of seniority of title, or in the event of equal seniority, then in the
order designated, or in the absence of any designation, then in the order
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named in the most recent resolution providing for the annual election of
officers) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. Any vice president shall perform such other duties and have such
other powers as the board of directors or the chief executive officer or
president may from time to time prescribe.
Section 10. Secretary. The secretary shall (a) attend meetings of the
board of directors and meetings of the shareholders and record minutes of the
proceedings of the meetings of the shareholders and of the board of directors,
and when required, shall perform like duties for the committees of the board;
(b) assure that all notices are duly given in accordance with the provisions of
these by-laws or as required by law; (c) maintain custody of the corporate
records of the corporation; (d) keep or cause to be kept a register of the post
office address of each shareholder as furnished to the secretary by such
shareholder; (e) sign with the chief executive officer, president or a vice
president certificates for shares of the corporation, the issuance of which
shall have been authorized by resolution of the board of directors; (f) have
charge of the stock transfer books of the corporation and authority over a stock
transfer agent, if any; (g) certify copies of the bylaws, resolutions of the
shareholders and board of directors and committees thereof and other documents
of the corporation as true and correct copies thereof; and (h) perform all
duties incident to the office of secretary and such other duties as the board of
directors or the chief executive officer or president may from time to time
prescribe.
Section 11. Assistant Secretaries. The assistant secretary, or if there
is more than one, the assistant secretaries, respectively, as authorized by the
board of directors, may sign with the president or a vice president certificates
for shares of the corporation, the issuance of which shall have been authorized
by resolution of the board of directors, and shall, in the absence of the
secretary or in the event of the inability or refusal of the secretary to act,
perform the duties and exercise the powers of the secretary, and shall perform
such other duties as the board of directors, chief executive officer, president
or secretary may from time to time prescribe.
Section 12. Treasurer. The treasurer shall (a) have custody of the funds
and securities of the corporation; (b) deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors; (c) maintain adequate accounts of
the corporation; (d) disburse the funds of the corporation as may be ordered by
the board of directors; (e) submit financial statements to the president and the
board of directors; and (f) perform all duties incident to the office of
treasurer and such other duties as the board of directors or the chief executive
officer or president may from time to time prescribe.
Section 13. Assistant Treasurers. The assistant treasurer, or if there is
more than one, the assistant treasurers, respectively, as authorized by the
board of directors, shall, in the absence of the treasurer or in the event of
the inability or refusal of the treasurer to act, perform the duties and
exercise the power of the treasurer and shall perform such other duties and have
such other power as the board of directors, the chief executive officer,
president or treasurer may from time to time prescribe.
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Section 14. Controller. The controller shall conduct the accounting
activities of the corporation, including the maintenance of the corporation's
general and supporting ledgers and books of account, operating budgets, and the
preparation and consolidation of financial statements.
Section 15. General Powers of Officers. The chairman of the board, chief
executive officer, president, any executive vice president, senior vice
president and any vice president, may sign without countersignature or
attestation any deeds, mortgages, bonds, contracts, reports to public agencies,
or other instruments whether or not the board of directors has expressly
authorized execution of such instruments, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these by-laws solely to some other officer or agent of the corporation, or shall
be required by law to be otherwise signed or executed. Any other officer of
this corporation may sign contracts, reports to public agencies, or other
instruments which are in the regular course of business and within the scope of
his or her authority, except where the signing and execution thereof shall be
expressly delegated by the board of directors or by these by-laws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The board of directors may authorize any officer or
officers, or agent or agents, to enter into any contract and execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Checks, Drafts, Notes. All checks, drafts or other orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the corporation, shall be signed by such officer or officers, or agent
or agents, of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
Section 3. Deposits. All funds of the corporation other than petty cash
shall be deposited to the credit of the corporation in such banks, trust
companies or other depositories as the board of directors may select.
ARTICLE VII
SHARES
Section 1. Issued Shares. The issued shares of the corporation may be
represented by certificates, or may be uncertificated shares, in either case in
whole or in part, as determined and authorized by the board of directors.
Section 2. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as may be determined by the board of
directors. Such certificates shall be
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signed by the chairman of the board, chief executive officer or president and by
the secretary or an assistant secretary. If a certificate is countersigned by a
transfer agent or registrar, other than the corporation itself or its employee,
any other signatures or countersignature on the certificate may be facsimiles.
If any officer of the corporation, or any officer or employee of the transfer
agent or registrar, who has signed or whose facsimile signature has been placed
upon such certificate ceases to be an officer of the corporation, or an officer
or employee of the transfer agent or registrar, before such certificate is
issued, the certificate may be issued by the corporation with the same effect as
if the officer of the corporation, or the officer or employee of the transfer
agent or registrar, had not ceased to be such at the date of its issue.
Certificates for shares shall be individually numbered or otherwise individually
identified. Each certificate for shares shall state the name of the registered
owner of the shares in the stock ledger, the number and the class and series, if
any, of such shares, and the date of issuance of the certificate. If the
corporation is authorized to issue more than one class of stock, a full summary
or statement of all of the designations, preferences, qualifications,
limitations, restrictions, and special or relative rights of each class
authorized to be issued, and, if the corporation is authorized to issue any
preferred or special class in series, the variations in the relative rights and
preferences among such series, shall be set forth upon the face or back of the
certificate. Such statement may be omitted if it shall be set forth upon the
face or back of the certificate that such statement, in full, will be furnished
by the corporation to any shareholder upon request and without charge.
Section 3. Uncertificated Shares. The board of directors may provide by
resolution that some or all of any or all classes and series of its shares shall
be uncertificated shares, and may provide an election by individual shareholders
to receive certificates or uncertificated shares and the conditions of such
election, provided that such resolution shall not apply to shares represented by
a certificate until such certificate is surrendered to the corporation. Within
a reasonable time after the registration of issuance or transfer of
uncertificated shares, the corporation shall send to the registered owner
thereof a written notice containing the information required to be set forth or
stated on certificates pursuant to the Business Corporation Act or these by-
laws. Except as otherwise expressly provided by law, the rights and obligations
of the holders of uncertificated shares and rights and obligations of the
holders of certificates representing shares of the same class and series shall
be identical.
Section 4. Registration of Transfers of Shares. Transfers of shares shall
be registered in the records of the corporation upon request by the registered
owner thereof in person or by a duly authorized attorney, upon presentation to
the corporation or to its transfer agent (if any) of a duly executed assignment
and other evidence of authority to transfer, or proper evidence of succession,
and, if the shares are represented by a certificate, a duly endorsed certificate
or certificates for shares surrendered for cancellation, and with such proof of
the authenticity of the signatures as the corporation or its transfer agent may
reasonably require. The person in whose name shares are registered in the stock
ledger of the corporation shall be deemed the owner thereof for all purposes as
regards to the corporation.
Section 5. Lost Certificates. The corporation may issue a new share,
certificate in the place of any certificate theretofore issued by it, alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact, by the person claiming the share certificate to be lost,
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stolen or destroyed. When authorizing such issuance of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or the owner's legal representative, to
advertise the same in such manner as it shall require or to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate or certificates
alleged to have been lost, stolen or destroyed.
ARTICLE VIII
OTHER PROVISIONS
Section 1. Distributions. The board of directors may authorize, and the
corporation may make, distributions to its shareholders, subject to any
restriction in the articles of incorporation and subject to any limitations
provided by law.
Section 2. Fiscal Year. The fiscal year of the corporation shall be
fixed, and shall be subject to change, by the board of directors.
Section 3. Seal. The board of directors may, but shall not be required
to, provide by resolution for a corporate seal, which may be used by causing it,
or a facsimile thereof, to be impressed or affixed or in any other manner
reproduced.
ARTICLE IX
EMERGENCY BY-LAWS
Section 1. Emergency Board of Directors. In the event a quorum of the
board of directors cannot readily be convened for action due to (a) an attack or
imminent attack on the United States or any of its possessions, (b) any nuclear
or atomic disaster, or (c) any other catastrophe or emergency condition, the
vacant director positions shall be filled by the following persons (provided in
each case such person is not already a director and is willing and able to
serve) in the following order: the president, the vice presidents in order of
seniority, the treasurer, the secretary, any other officers in order of
seniority and any other persons in such order as named by the board of directors
on any list as it may compile from time to time for purposes of appointing such
successor directors; provided, however, that to the extent possible, the holders
of Class B Common Stock shall be entitled to nominate a number of directors to
such board of directors proportionate to the representation on the board of
directors immediately prior to such emergency condition to which the holders of
Class B Common Stock were entitled. Such new board of directors shall be
referred to as the emergency board of directors of the corporation. The initial
Chairman of the Board of the emergency board of directors ("CHAIRMAN") shall be
the regularly-elected director, if any, who has served on the board of directors
for the longest period of time and, if all directors on the emergency board of
directors are successor directors appointed pursuant to this Section, the
Chairman shall be determined according to the same order of priority as such
successor directors are appointed pursuant to this Section. The directors
appointed pursuant to this Section shall serve until the next annual or special
meeting of
17
<PAGE>
shareholders at which directors are to be elected or until the emergency
condition shall have terminated.
Section 2. Powers. The emergency board of directors shall have all of the
rights, powers and duties of the board of directors except such emergency board
of directors may not amend the Articles of Incorporation of the corporation nor
approve a merger, sale of all or substantially all of the assets of the
corporation, liquidation or dissolution.
Section 3. Notice of Meetings. Notice of any meeting of the emergency
board of directors held during any emergency described in Section l of this
Article IX may be given only to such directors or successor directors as it may
be feasible to reach at the time and by such means as may be feasible at the
time, including, without limitation, publication or radio.
Section 4. Liability. No officer, director or employee of the corporation
acting in accordance with this Article IX shall be liable to the corporation,
except for willful misconduct.
Section 5. By-laws. To the extent not inconsistent with this Article IX,
the by-laws of the corporation shall remain in effect during any emergency
described in Section l of this Article IX.
Section 6. Interpretation. If, by operation of law or otherwise, any of
the provisions of this Article IX are deemed to be invalid or not controlling,
such provisions shall be construed by any court or agency having competent
jurisdiction as a determinative factor evidencing the intent of the corporation.
ARTICLE X
AMENDMENTS
Subject to the provisions of the Articles of Incorporation, these by-laws
may be altered, amended or repealed, and new by-laws may be adopted, by the
board of directors; provided that no amendment or repeal of Article II, Section
15(c)(4), Article III, Sections 6, 7.(B), 7.(C) or 12, Article IV, Section 1,
Article V, Section 1, or Article IX, Section 1, nor the adoption of any
provision of these Bylaws which would substantially and adversely affect the
rights of the holders of Class B Common Stock shall be effective except upon the
approval of the affirmative vote of the majority of the Class B directors and a
majority of the entire number of directors then in office. Subject to the
provisions of the articles of incorporation, these by-laws may also be altered,
amended or repealed by the shareholders of the corporation.
ARTICLE XI
INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may indemnify any agent or employee of the corporation who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding (including, but not limited to any such
proceeding by or in the right of the
18
<PAGE>
corporation) whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was serving the corporation at its request and in the
course and scope of his duties and acting in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, against expenses (including reasonable attorney's fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action, suit or proceeding.
19
<PAGE>
[TROUTMAN SANDERS LLP LETTERHEAD APPEARS HERE]
September 7, 1999
Energy Convergence Holding Company
1000 Louisiana Street, Suite 5800
Houston, Texas 77002
Ladies and Gentlemen:
We have acted as your special counsel in connection with the filing of a
Registration Statement (the "Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended (the "Act"), relating to the registration of
108,430,576 shares of Class A Common Stock, no par value, and 9,307,187 shares
of Series A Convertible Preferred Stock, no par value (collectively, the
"Shares"), to be issued in connection with the transactions contemplated by that
certain Agreement and Plan of Merger, dated June 14, 1999, as amended (the
"Merger Agreement"), by and among Illinova Corporation, Dynegy Inc., Energy
Convergence Acquisition Corporation, Dynegy Acquisition Corporation and you.
This opinion is being provided at your request for use in the Registration
Statement.
In connection with this opinion, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such instruments,
certificates, records and documents, and have reviewed such questions of law, as
we have deemed necessary or appropriate for purposes of this opinion. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals, the conformity to the original
documents of all documents submitted as copies and the authenticity of the
originals of such latter documents. As to any facts material to our opinion, we
have relied upon the aforesaid instruments, certificates, records and documents
and inquiries of your representatives.
Based upon the foregoing examination, we are of the opinion that the
Shares have been duly authorized and, when issued by you in the manner
contemplated by the Registration Statement (including the declaration and
maintenance of the effectiveness of the Registration Statement and the obtaining
and maintenance of all requisite regulatory and other approvals), will be
validly issued, fully paid and nonassessable.
We are, in this opinion, opining only on the Business Corporation Act of
the State of Illinois. We are not opining on "blue sky" or other state
securities laws.
<PAGE>
[TROUTMAN SANDERS LLP LETTERHEAD APPEARS HERE]
September 7, 1999
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" therein and in the related prospectus, and in any supplements thereto
or amendments thereof. Our consent to such reference does not constitute a
consent under Section 7 of the Act, and in consenting to such reference we have
not certified any part of the Registration Statement and do not otherwise come
within the categories of persons whose consent is required under Section 7 or
under the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Troutman Sanders LLP
----------------------------------
TROUTMAN SANDERS LLP
<PAGE>
<TABLE>
<S> <C>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
ATTORNEYS AT LAW
AUSTIN A REGISTERED LIMITED LIABILITY PARTNERSHIP
BRUSSELS INCLUDING PROFESSIONAL CORPORATIONS
DALLAS 1700 PACIFIC AVENUE
HOUSTON SUITE 4100
LONDON DALLAS, TEXAS 75201
LOS ANGELES (214) 969-2800
MOSCOW FAX (214) 969-4343
NEW YORK www.akingump.com
PHILADELPHIA
SAN ANTONIO
WASHINGTON, D.C.
</TABLE>
September 7, 1999
Board of Directors
Dynegy Inc.
1000 Louisiana, Ste. 5800
Houston, Texas 77002
Ladies and Gentlemen:
You have requested our opinion pursuant to Section 9.3(d) of the Agreement and
Plan of Merger dated June 14, 1999 (the "Agreement"), entered into by and among
Dynegy Inc. ("Dynegy"), Illinova Corporation ("Illinova"), Energy Convergence
Holding Company ("Energy Convergence")/1/, Energy Convergence Acquisition
Corporation, a wholly-owned subsidiary of Energy Convergence ("EC Acquisition
Sub"), and Dynegy Acquisition Corporation ("Dynegy Acquisition Sub"), a wholly-
owned subsidiary of Energy Convergence, with regard to certain United States
federal income tax consequences of the merger of EC Acquisition Sub with and
into Illinova (the "Illinova Merger") with Illinova shareholders receiving
solely Energy Convergence Class A voting common stock and cash in lieu of
fractional shares, if any, followed by the merger of Dynegy Acquisition Sub with
and into Dynegy (the "Dynegy Merger") with Dynegy shareholders receiving cash,
Energy Convergence Series A preferred stock, Class A common stock or Class B
common stock and cash in lieu of fractional shares, as the case may be (Illinova
Merger and Dynegy Merger are collectively referred to herein as the "Mergers").
All capitalized terms used and not otherwise defined herein shall have the
meaning ascribed thereto in the Agreement and/or the Form S-4 filed with the SEC
on August 11, 1999 (the "Form S-4").
In arriving at the opinions expressed below, we have examined and relied
upon originals, or copies certified or otherwise identified to our satisfaction,
of:
(i) the Agreement and Form S-4;
(ii) certificates and representations of officers and representatives of
Dynegy, Illinova, Energy Convergence, Chevron U.S.A. Inc. ("Chevron")
and such other persons as we have deemed appropriate.
- ---------
/1/ After the transaction is complete, Energy Convergence Holding Company will
be renamed Dynegy Inc.
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
September 7, 1999
Page 2
Without limiting the generality of the foregoing, in arriving at the
opinions expressed below, we have examined and relied, without independent
verification of the statements contained therein, on representations and
warranties made by Dynegy, Illinova, Energy Convergence, and Chevron and we have
assumed the accuracy and continuing accuracy of such representations and
statements. Further, where any factual representation is qualified to the best
knowledge of a person, we have assumed that the representation is correct
without regard to such qualification. We have not attempted to verify the
accuracy of the assumptions or the representations.
In arriving at the opinions expressed below, we have assumed, without
making any independent investigation, that all such documents as furnished to us
are complete and authentic, that the signatures on all documents are genuine,
and that all such documents have been, or in the case of drafts, will be, duly
authorized, executed and delivered. We have further assumed that the
transactions will be consummated and the parties will act in accordance with
these documents.
Our opinion represents our best legal judgment as to the likely outcome of
the issues discussed if properly presented to a court of law. Our opinion is
not binding on the Internal Revenue Service (the "IRS") or a court. Thus, no
assurance can be given that the IRS or a court would agree with our opinion.
Our opinion is based solely upon the current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations
currently promulgated thereunder, and current judicial and administrative
authority (including published revenue rulings and revenue procedures) with
respect thereto, all of which is subject to change, which change may be of
retroactive effect, and upon matters of fact existing as of the date hereof. We
undertake no obligation to advise you of any such change that may occur in the
future. We do not express any opinion, either implicitly or otherwise,
concerning any law, other than the federal income tax law of the United States,
or any other issue or subject not specifically addressed herein.
Based on and subject to the foregoing, it is our opinion that, for federal
income tax purposes:
(a) The Mergers will constitute a contribution of assets within the
meaning of Section 351 of the Code or as a reorganization within the
meaning of Section 368(a) of the Code;
(b) No gain or loss will be recognized by Dynegy because of the Dynegy
Merger;
(c) No gain or loss will be recognized by a shareholder of Dynegy as a
result of the Dynegy Merger with respect to shares of Energy Convergence
common stock received in exchange for such shareholder's Dynegy stock,
except to the extent of any cash received, or consideration other than
Energy Convergence common stock.
2
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
September 7, 1999
Page 3
(d) The aggregate tax basis of Energy Convergence Class A stock received
by a Dynegy shareholder as a result of the Dynegy merger will be the same
as the shareholder's aggregate tax basis in the Dynegy common stock
surrendered in the exchange, increased by any gain recognized on the
exchange and reduced by any tax basis allocable to shares for which such
Dynegy shareholder receives cash, including fractional shares.
(e) The holding period of the Energy Convergence Class A common stock
received by Dynegy shareholders as a result of the exchange will include
the period during which the shareholder held the Dynegy common stock
exchanged.
(f) A holder of Dynegy common stock who receives cash in lieu of a
fractional share interest in Energy Convergence Class A Common Stock will
be treated as having received the fractional shares in the Dynegy merger
and then as having exchanged such fractional shares for cash in a
redemption by Energy Convergence. The cash payment will be treated as a
distribution in payment for the fractional interest redeemed under Section
302 of the Code, with the result that the holder should generally recognize
gain or loss for federal income tax purposes on the deemed redemption in an
amount equal to the difference between the amount of cash received and the
portion of the tax basis of the share of Dynegy common stock allocable to
the fractional share interest. This gain or loss generally will be capital
gain or loss and will be long-term capital gain or loss if the share of
Dynegy common stock exchanged has been held for more than one year at the
closing of the merger.
(g) A holder of Dynegy common stock who exchanges all or a portion of
his Dynegy common stock for cash will recognize gain realized on the
exchange but only to the extent of the cash received. The amount of gain
realized will be the difference between the fair market value of the Energy
Convergence Class A common stock and cash received compared to the holder's
tax basis in his Dynegy common stock. Only those holders of Dynegy stock
receiving solely cash in exchange for their Dynegy common stock will be
able to recognize a loss for federal income tax purposes. The gain or loss
generally will be capital gain or loss and will be long term capital gain
or loss if the shares of the Dynegy stock exchanged have been held for more
than one year at the closing of the merger.
3
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
September 7, 1999
Page 4
This opinion is rendered for the sole benefit of the addressee hereof, and
no other person or entity is entitled to rely hereon. Copies of this letter may
not be furnished to any other person or entity, and no portion of this letter
may be quoted, circulated or referred to in any other document, without our
prior written consent. However, we hereby consent to the use of this letter as
an exhibit to the Joint Proxy Statement of Dynegy and Illinova included in the
Registration Statement on Form S-4 of Energy Convergence, and the references
therein to this letter and our firm.
We express no opinion herein other than as to the federal income tax laws
of the United States.
Very truly yours,
/s/ Akin, Gump, Strauss, Hauer & Feld L.L.P.
---------------------------------------------
AKIN, GUMP, STRAUSS, HAUER & FELD L.L.P.
4
<PAGE>
[LETTERHEAD OF TROUTMAN SANDERS LLP APPEARS HERE]
ATTORNEYS AT LAW
A LIMITED LIABILITY PARTNERSHIP
NATIONSBANK PLAZA
600 PEACHTREE STREET, N.E. - SUITE 5200
ATLANTA, GEORGIA 30308-2216
www.troutmansanders.com
TELEPHONE: 404-885-3000
FACSIMILE: 404-885-3900
September 7, 1999
Illinova Corporation
500 South 27th Street
Decatur, Illinois 62525
Re: Federal Income Tax Consequences of Merger of Energy Convergence
Acquisition Sub, a Wholly-Owned Subsidiary of Energy Convergence
Holding Company, with and into Illinova Corporation
Ladies and Gentlemen:
We have acted as counsel to Illinova Corporation ("Illinova"), in
connection with the proposed merger of Energy Convergence Acquisition
Corporation ("EC Acquisition Sub") a wholly-owned subsidiary of Energy
Convergence Holding Company ("Energy Convergence"), with and into Illinova (the
"Illinova Merger"). The Illinova Merger will be effected pursuant to the
Agreement and Plan of Merger by and among Energy Convergence, EC Acquisition
Sub, Illinova, Dynegy, Inc. ("Dynegy"), and Dynegy Acquisition Corporation
("Dynegy Acquisition Sub"), a wholly-owned subsidiary of Energy Convergence,
dated as of June 14, 1999 (the "Merger Agreement"), and in connection with the
merger of Dynegy Acquisition Sub with and into Dynegy (the "Dynegy Merger")
(together, the "Transaction"). You have requested our opinion, in our capacity
as counsel to Illinova, regarding certain federal income tax consequences of the
Illinova Merger.
We understand that our opinion will be referred to in the Proxy
Statement/Prospectus that forms part of the Registration Statement on Form S-4
filed with the Securities and Exchange Commission in connection with the
Transaction.
INFORMATION RELIED ON
---------------------
In rendering this opinion, we have examined (i) the Internal Revenue Code
of 1986, as amended (the "Code"), and Treasury Regulations promulgated
thereunder, (ii) the legislative
<PAGE>
Illinova Corporation
September 7, 1999
Page 2
history of applicable sections of the Code, and (iii) appropriate Internal
Revenue Service (the "IRS") and judicial authorities. In addition, we have
relied upon certain information made known to us as more fully described below.
All capitalized terms used herein without definition shall have the respective
meanings specified in the Merger Agreement and/or the Form S-4 filed with the
SEC on September 3, 1999, and, unless otherwise specified, all section
references herein are to the Code.
In rendering the opinions expressed herein, we have examined such documents
as we have deemed appropriate, including:
(1) the Merger Agreement;
(2) the Registration Statement and Proxy Statement/Prospectus on Form S-4
filed with the Securities and Exchange Commission on August 11, 1999 regarding
the merger, as amended by Amendment No. 1 filed on September 7, 1999;
(3) certificates and representations of officers and representatives of
Energy Convergence, Illinova, EC Acquisition Sub, Dynegy, Dynegy Acquisition
Sub, and Chevron U.S.A., Inc.; and
(4) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, without making any
independent investigation and with your consent, that all documents submitted to
us as photocopies faithfully reproduce the originals thereof, that such
originals are authentic, that all such documents have been or will be duly
executed to the extent required and that all statements set forth in such
documents are accurate. We have further assumed that any representations or
statements made, or to be made, "to the best knowledge of" or similarly
qualified, are true and correct without such qualification. We have not and
will not attempt to verify the accuracy of the assumptions or the
representations.
Our opinion represents our best legal judgment as to the likely outcome of
the issues discussed if presented in a court of law. Our opinion is not binding
on the IRS or a court. Thus, no assurance can be given that the IRS or a court
would agree with our opinion.
Based solely on the information submitted and the representations and
assumptions received, we are of the opinion that:
(1) The Illinova Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and/or, taken
together with the Dynegy Merger, as a transfer of property to Energy Convergence
by holders of Illinova common stock described in Section 351 of the Code;
<PAGE>
Illinova Corporation
September 7, 1999
Page 3
(2) Illinova will not recognize any gain or loss for federal income tax
purposes in the Illinova Merger;
(3) Holders of Illinova common stock who exchange their Illinova common
stock solely for Energy Convergence Class A common stock in the Illinova Merger
will not recognize gain or loss for federal income tax purposes with respect to
the exchange;
(4) The aggregate tax basis of Energy Convergence Class A common stock
received by an Illinova shareholder as a result of the Illinova Merger will be
the same as the shareholder's aggregate tax basis in the Illinova common stock
surrendered in the Illinova Merger;
(5) The holding period of the Energy Convergence Class A common stock
received by an Illinova shareholder as a result of the Illinova Merger will
include the period during which the shareholder held the Illinova common stock
exchanged, provided that the Illinova common stock is held as a capital asset at
the Effective Time; and
(6) An Illinova shareholder who exercises dissenters' rights of appraisal
with respect to Illinova common stock and who receives payment for that stock in
cash should generally recognize capital gain or loss measured by the difference
between the amount of cash received and the shareholder's tax basis in such
stock.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect, and upon matters of fact existing as the date hereof. We
undertake no obligation to advise you of any such change that may occur in the
future. In addition, our opinions are based solely on the documents that we
have examined, the additional information that we have obtained, and the
customary and appropriate certificates containing representations received from
the parties which confirm certain material facts that we have assumed. Our
opinions cannot be relied upon if any of the facts contained in such documents,
or if such additional information, is or later becomes, inaccurate, or if any of
the material facts which we have assumed are or later become, inaccurate. Our
opinions do not address the tax consequences to Illinova shareholders who hold
their Illinova common stock other than as a capital asset, foreign shareholders,
tax exempt organizations and persons who acquired their Illinova common stock as
compensation. Finally, our opinions are limited to the federal income tax
matters specifically covered thereby, and we have not been asked to address, nor
have we addressed, the tax consequences of the Dynegy Merger or any other tax
consequences of the Illinova Merger, whether federal, state, local or foreign
including, but not limited to, tax consequences of a required change in
accounting method, if any, the termination of a bad debt reserve, if any, or the
termination of the consolidated group of Illinova.
<PAGE>
Illinova Corporation
September 7, 1999
Page 4
This opinion is being provided solely for the use of Illinova and the
shareholders of Illinova. No other person or party shall be entitled to rely on
this opinion. Copies of this letter may not be furnished to any other person or
entity, and no other portion of this letter may be quoted, circulated or
referred to in any other document, without our prior written consent.
Sincerely,
/s/ TROUTMAN SANDERS LLP
---------------------------------------
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 24, 1999
included in Dynegy's Form 10-K for the year ended December 31, 1998 and to all
references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
---------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
September 3, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Energy Convergence Holding Company of our report dated
February 26, 1999 relating to the financial statements, which appears in
Illinova Corporation's 1998 Annual Report to Shareholders, which is incorporated
by reference in its Annual Report on Form 10-K for the year ended December 31,
1998. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
- --------------------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
September 2, 1999
<PAGE>
EXHIBIT 99.1
ILLINOVA CORPORATION
Dear Shareholder:
It is a pleasure to invite you to the Special Meeting of Shareholders of
Illinova Corporation, which will be held on Monday, October 11, at 9:00 a.m., at
the offices of the Company, 500 South 27th Street, Decatur, Illinois.
The purpose of the Meeting is to approve and adopt the merger agreement between
Illinova Corporation and Dynergy Inc. and the Dynegy Inc. 2000 Long-Term
Incentive Plan. Your Board of Directors unanimously recommends that you vote FOR
both proposals.
Whether or not you plan to attend the Meeting, your vote is important. Please
sign, date and return the attached proxy card today in the envelope provided.
If you have any questions or need assistance in voting your shares, please call
our Shareholder Services Department at 1-800-800-8220.
Thank you for your support,
THE BOARD OF DIRECTORS OF ILLINOVA CORPORATION
<TABLE>
<S> <C> <C>
Detach Address Change Form Here Detach Proxy Card Here
- ------------------------------------------------------------------------------------------------------------------------------------
| (continued from other side)
|
| UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS (1) AND (2).
|
| Dated ____________________________, 1999
| ________________________________________
ACCT ID: | ________________________________________
| Please sign exactly as name appears hereon.
If address change is necessary | (If joint account, EACH JOINT OWNER MUST
please complete: | SIGN. Executors, administrators, trustees,
| corporate officers, partners, custodians,
Street__________________Apt.______ | etc. should give full title).
City_______________State__________ |
Zip____________ | THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
|
Signature_________________________ |
|
</TABLE>
<PAGE>
ILLINOVA CORPORATION
PROXY: The undersigned hereby appoints CHARLES E. BAYLESS, and ROBERT M. POWERS,
or either of them, the attorneys and proxies of the undersigned, with power of
substitution, to represent and to vote all of the shares of stock of Illinova
Corporation standing in the name of the undersigned, or credited in the account
of the undersigned in Illinova's Investment Plus Plan, at the close of business
on September 7, 1999 at the Special Meeting of Shareholders of the Company on
Monday, October 11, 1999, and at all adjournments thereof, in accordance with
the Notice of Meeting and Joint Proxy Statement received upon the following
matters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS (1) AND (2).
(1) Approval of the adoption of the Agreement and Plan of Merger, dated as of
June 14, 1999, as amended, by and among Illinova Corporation, Dynegy Inc.,
Energy Convergence Holding Company, Energy Convergence Acquisition
Corporation and Dynegy Acquisition Corporation.
For [ ] Against [ ] Abstain [ ]
(2) Approval of the adoption of the Dynegy Inc. 2000 Long Term Incentive Plan.
For [ ] Against [ ] Abstain [ ]
(3) The transaction of such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
(Continued and to be signed on the other side)
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99.2
DYNEGY INC.
1000 Louisiana St.
Suite 5800
Houston, Texas 77002
__________ ___, ______
Dear Stockholder:
As you know, our stockholders approved the merger of Dynegy into a
subsidiary of Energy Convergence Holding Company - which will occur
simultaneously with the merger of Illinova Corporation into another subsidiary
of Energy Convergence Holding Company - on _______ ____, 1999. We expect this
merger to close on or about ___________ ___, _____. One of the provisions
related to the merger is that Dynegy stockholders have the right to elect either
cash or stock as their consideration in the merger.
We have enclosed the form by which you will elect whether you would like to
receive stock consideration or cash consideration in the merger. Please complete
this form, and mail it back to us in the enclosed envelope by no later than
___________ _____, ______. If you return this form prior to that date, you may
change your election up to that date or any later date which we publicly
announce. If you do not return this form, you will be deemed to have elected
stock consideration.
For each share of Dynegy common stock for which you elect to receive stock
consideration, you will receive .69 shares of Energy Convergence while Illinova
common shareholders receive one share of Energy Convergence common stock for
each share of Illinova common stock they own. The price paid per share of Dynegy
common stock for which you elect cash consideration will be $16.50 per share. On
_________ _____, _______, the closing price of the Dynegy common stock was
$_______ and the closing price of the Illinova common stock was $_______.
If you elect to receive cash consideration in the merger, you will be
subject to pro rationing. Energy Convergence will pay cash for only
approximately 40% of the outstanding shares of Dynegy, which will result in
conversion of a maximum of approximately 67.6 million shares of Dynegy common
stock into cash. Two major Dynegy stockholders holding approximately 50% of the
outstanding Dynegy common stock have elected to receive cash consideration.
Accordingly, the amount of cash available will be insufficient to satisfy cash
elections completely and the cash will be prorated to stockholders electing to
receive cash, as more fully described in the proxy/prospectus of Energy
Convergence dated ____________ _______, _______. Accordingly, for each 100
shares of Dynegy common stock for which you elect to receive cash, you will
receive cash consideration with respect to no less than 63 shares of Dynegy
common stock and no more than 84 shares of Dynegy common stock. The
consideration for the balance of your Dynegy common stock will be Energy
Convergence Class A common stock.
None of Dynegy, Energy Convergence, the Board of Directors of Dynegy or the
Board of Directors of Energy Convergence make any recommendation to you as to
whether you should select stock consideration or the cash consideration in the
merger.
For further information about the merger, Energy Convergence, Dynegy and
Illinova, please see the enclosed proxy/prospectus of Energy Convergence and the
information incorporated by reference into the proxy prospectus.
Sincerely yours,
C. L. Watson
Chairman and Chief Executive Officer
<PAGE>
FORM OF ELECTION
Capitalized terms not defined in this Form of Election shall have the
meanings set forth in the Agreement and Plan of Merger among Dynegy Inc.,
Illinova Corporation, Energy Convergence Holding Company, Energy Convergence
Acquisition Corporation and Dynegy Acquisition Corporation, dated June 14, 1999.
________________________________________________________________________
NAME AND ADDRESS OF HOLDER OF RECORD AS SHOWN ON RECORDS OF DYNEGY INC.
A. CASH ELECTION
LIST HERE NUMBER OF SHARES OF DYNEGY COMMON STOCK FOR WHICH CASH IS ELECTED
Number of Shares:________________________
B. STOCK ELECTION
LIST HERE NUMBER OF SHARES OF DYNEGY COMMON STOCK FOR WHICH SHARES OF ENERGY
CONVERGENCE CLASS A COMMON STOCK ARE ELECTED
Number of Shares:________________________
SIGN HERE
________________________________________________________________________________
________________________________________________________________________________
Signature(s) of Owner(s)
________________________________________________________________________________
Name(s)
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title)
________________________________________________________________________________
Address
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number
________________________________________________________________________________
Taxpayer Identification or Social Security Number
________________________________________________________________________________
(Must be signed by registered holder(s) exactly as name(s) appear on the
certificates. In the case of joint tenants, both should sign. If the
certificates for the Dynegy Common Stock are registered in different forms of
the name of any person signing this Form of Election (e.g., "John Smith" on one
certificate and "J. Smith" on another), it will be necessary for such person
either to sign this Form of Election in each way in which the certificates are
registered or to sign as many Forms of Election as there are different
registrations. When signing as agent, attorney, administrator, executor,
guardian, trustee, or in any other fiduciary or representative capacity, or as
an officer of a corporation on behalf of the corporation, please give full title
as such.)
