<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
DYNEGY INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[Dynegy Logo]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 12, 2000
To The Shareholders:
The 2000 Annual Meeting of Shareholders of Dynegy Inc., an Illinois
corporation, will be held on Friday, May 12, 2000 at 10:00 a.m., local time,
at the Doubletree Hotel at Allen Center, LaSalle Ballroom, 400 Dallas Street,
Houston, Texas 77002, for the following purposes:
1. To elect ten Class A common stock directors and three Class B common
stock directors to serve until the 2001 annual meeting of Shareholders;
2. To ratify the Board of Directors' appointment of Arthur Andersen LLP as
Dynegy's independent auditors for the fiscal year ending December 31,
2000; and
3. To transact such other business as may properly come before such meeting
or any adjournment(s) or postponement(s) thereof.
The close of business on March 29, 2000, has been fixed as the record date
for the determination of shareholders entitled to receive notice of and to
vote at the annual meeting or any adjournment(s) or postponement(s) thereof.
You are cordially invited to attend the annual meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POST-PAID ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ Kenneth E. Randolph
------------------------------------
Kenneth E. Randolph
General Counsel and Secretary
March 31, 2000
<PAGE>
DYNEGY INC.
1000 Louisiana, Suite 5800
Houston, Texas 77002
(713) 507-6400
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Dynegy for use at the annual meeting to be held on Friday, May 12, 2000 at
10:00 a.m., local time, at the Doubletree Hotel at Allen Center, LaSalle
Ballroom, 400 Dallas Street, Houston, Texas 77002, or at any adjournment(s) or
postponement(s) thereof. This Proxy Statement, the Notice of Annual Meeting,
the proxy card, and Dynegy's Annual Report to Shareholders for the year ended
December 31, 1999, including financial statements, will be first sent or given
to Dynegy's shareholders on or about April 6, 2000. The Annual Report does not
constitute a part of the proxy soliciting material.
Dynegy and Illinova Corporation entered into an Agreement and Plan of
Merger dated as of June 14, 1999 with certain other parties named therein,
providing for the merger of Dynegy Holdings Inc., a Delaware corporation
formerly know as Dynegy Inc., and Illinova with subsidiaries of Dynegy. The
merger was consummated on February 1, 2000. Each share of Dynegy Holdings
common stock outstanding prior to the merger for which a cash election was not
made, was converted into .69 shares of Dynegy Class A common stock upon the
closing of the merger. Each share of Illinova common stock was converted into
one share of Dynegy Class A common stock. Instead of receiving shares of Class
A common stock in the merger, affiliates of BG plc and NOVA Corporation
received shares of Dynegy Series A preferred stock. Furthermore, in lieu of
shares of Dynegy Class A common stock, Chevron USA Inc. received shares of
Dynegy Class B common stock. Prior to the merger, BG, NOVA and Chevron were
the largest shareholders of Dynegy Holdings.
Quorum and Vote Required
The presence of the votes of a majority of the shares of Dynegy's Class A
common stock, no par value per share, Class B common stock, no par value per
share, and Dynegy's Series A preferred stock, no par value per share, counted
together, represented in person or by proxy at the annual meeting and entitled
to vote on a matter, will constitute a quorum for consideration of that matter
at the meeting. Under Illinois law, abstentions are counted in determining the
number of shares present at the meeting. Thus, shares represented by proxies
that are marked "abstain" will be counted as shares present for purposes of
determining the presence of a quorum on all matters. Also, proxies relating to
"street name" shares that are voted by brokers on only one or some of the
proposals will only be treated as shares present for purposes of determining
the presence of a quorum only on those matters voted upon. A "broker non-vote"
occurs if a broker or other nominee does not have discretionary authority and
has not received instructions with respect to a particular item. Broker non-
votes do not count toward the determination of a quorum.
Election of Directors. In accordance with Dynegy's Articles of
Incorporation, the holders of Class B common stock are entitled to elect three
directors, and the holders of Class A common stock and Series A preferred
stock, voting together as a single class, are entitled to elect the remaining
ten directors. The affirmative vote of a majority of the votes of shares of
Class A common stock and Series A preferred stock (as calculated for the
Preferred Voting Right defined below) represented in person or by proxy is
required to elect a director. Under Illinois law and Dynegy's Articles of
Incorporation and Bylaws, abstentions would have the effect of votes against
the election of directors but broker non-votes would have no effect on the
election. Under Illinois law and Dynegy's Articles of Incorporation, holders
of Class A common stock and Series A preferred stock (as calculated) are
entitled to cumulate their votes in the election of the Class A directors.
<PAGE>
All holders of Class A common stock will be entitled to 10 votes (the
number of Class A common stock directors to be elected) for each of their
shares for candidates nominated to serve as directors. Holders of Series A
preferred stock will be entitled to 10 votes (the number of Class A common
stock directors to be elected) for each Preferred Voting Right (defined
herein). Holders of Class A common stock and Series A preferred stock may cast
their votes equally for all candidates or may cast all of their votes for any
one candidate whose name has been placed in nomination prior to the voting, or
distribute their votes among two or more candidates in such proportion as they
desire.
BG and NOVA are each holders of 3,345,888 shares of Series A preferred
stock. When voting with holders of Class A common stock for the election of
directors, the shares of Series A preferred stock are entitled to the number
of votes equal to 1.22 times the number of whole shares of Class A common
stock into which shares of Series A preferred stock could be converted on the
record date for the determination of shareholders entitled to vote at the
annual meeting. On March 29, 2000, the annual meeting record date, each of BG
and NOVA could convert its shares of Series A preferred stock into 3,227,532
shares of Class A common stock. Accordingly, BG and NOVA are each entitled to
3,937,589 votes on the matters to be voted upon at the annual meeting
(currently approximately 1.1768 votes per share of Series A preferred stock, a
"Preferred Voting Right").
Ratification of Auditors. A majority of the votes of the shares of the
Class A common stock, Class B common stock and Series A preferred stock
represented in person or by proxy is required to ratify the selection of
auditors. Under Illinois law, an abstention would have the same legal effect
as a vote against this proposal, but a broker non-vote would not be counted
for purposes of determining whether a majority had been achieved.
Under Dynegy's Articles of Incorporation, the holders of Class A common
stock, Series A preferred stock and Class B common stock are entitled to vote
together as a single class on the ratification of auditors. The holders of
Class A and Class B common stock are entitled to one vote for each share,
while the holders of Series A preferred stock will be entitled to one vote for
each Preferred Voting Right.
No Appraisal Rights
Under applicable Illinois law, none of the holders of Class A common stock,
Series A preferred stock or Class B common stock have appraisal rights in
connection with any proposal to be acted upon at the annual meeting.
Record Date and Outstanding Shares
The Board of Directors has fixed the close of business on March 29, 2000,
as the record date for determining holders of outstanding shares of Class A
common stock entitled to notice of and to vote at the annual meeting or any
adjournment(s) or postponement(s) thereof. As of the record date, there were
outstanding 99,889,378 shares of Class A common stock, and 40,521,250 shares
of Class B common stock, respectively. As of the record date, there were
outstanding 6,697,776 shares of Series A preferred stock, which are entitled
to an aggregate of 7,875,178 votes on the matters to be voted upon at the
annual meeting. Class A common stock, Series A preferred stock and Class B
common stock are the only classes of outstanding securities of Dynegy entitled
to notice of and to vote at the annual meeting.
Solicitation of Proxies
The cost of soliciting proxies will be borne by Dynegy. Proxies may be
solicited by mail, telecopy, telegraph or telex, or by directors, officers or
regular employees of Dynegy, in person or by telephone. Dynegy has retained
ChaseMellon Shareholder Services, L.L.C. to assist in the solicitation of
proxies for a fee of $8,500. Dynegy will reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses for forwarding solicitation material to the beneficial owners of
common stock.
2
<PAGE>
Questions concerning the proposals to be acted upon at the annual meeting
should be directed to Dynegy's Secretary at (713) 507-6400. Additional copies
of this Proxy Statement or the proxy card may be obtained from Dynegy's
Secretary at Dynegy's principal office. The mailing address of Dynegy's
principal executive office is 1000 Louisiana, Suite 5800, Houston, Texas
77002.
Revocation of Proxies
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy by (i) the execution and submission
of a revised proxy, (ii) by written notice to the Secretary of Dynegy, or
(iii) by voting in person at the annual meeting. In the absence of such
revocation, shares represented by proxies will be voted at the annual meeting.
Voting of Proxies
The persons named as proxies on the proxy card accompanying this Proxy
Statement were designated by the Board of Directors. Any proxy given pursuant
to such solicitation and received prior to the annual meeting will be voted as
specified in such proxy. Unless otherwise instructed or unless authority to
vote is withheld, proxies will be voted FOR the election of the nominees to
the Board of Directors, FOR ratification of the appointment of Arthur Andersen
LLP, and in accordance with the judgment of the persons named in the proxy on
such other matters as may properly come before such meeting or any
adjournment(s) or postponement(s) thereof.
Form 10-K
Shareholders may obtain, without charge, a copy of Dynegy's 1999 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission. For
copies, please contact the Investor Relations Department at Dynegy's principal
executive office address: Dynegy Inc., 1000 Louisiana, Suite 5800, Houston,
Texas 77002. The Form 10-K is also available to the public at the Commission's
website at www.sec.gov.
DATED: March 31, 2000
3
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the capital stock of Dynegy as of March 29, 2000, by (i) each
person who is known by Dynegy to own beneficially 5% or more of Dynegy's
capital stock, (ii) each director or nominee for director of Dynegy, (iii)
each executive officer of Dynegy named in the Summary Compensation Table, and
(iv) all directors and executive officers of Dynegy as a group. Share amounts
and percentages shown for each individual or group in the table are adjusted
to give effect to the exercise of all options and warrants exercisable by such
individual or group within 60 days of March 29, 2000. Assuming the conversion
of shares of Series A preferred stock into Class A common stock, no holder of
Series A preferred stock would beneficially own 5% or more of the Class A
common stock.
<TABLE>
<CAPTION>
Number of Shares(1)
------------------------- Percent of
Class A Class B Class A
Common Stock Common Stock Common Stock(2)
------------ ------------ ---------------
<S> <C> <C> <C>
Chevron Corporation(3)............... -- 40,521,250 28.9(3)
Chevron USA Inc.
575 Market Street
San Francisco, CA 94104
Fidelity Management & Research
Company(4).......................... 9,026,450 -- 9.0
82 Devonshire
Boston, MA 02109
C.L. Watson(5)....................... 6,544,128 -- 6.4
Stephen W. Bergstrom(6).............. 1,668,542 -- 1.7
John U. Clarke(7).................... 154,824 -- *
Matthew K. Schatzman(8).............. 278,380 -- *
Kenneth E. Randolph(9)............... 905,961 -- *
J. Joe Adorjan(10)................... 2,600 -- *
Charles E. Bayless(11)............... 221,150 -- *
Daniel D. Dienstbier................. 9,137 -- *
C. Steven McMillan(10)............... 2,600 -- *
Robert M. Powers(10)................. 9,850 -- *
Sheli Z. Rosenberg(10)............... 1,000 -- *
Joe J. Stewart(10)................... 2,500 -- *
J. Otis Winters...................... 11,202 -- *
Darald W. Callahan................... -- -- *
Richard H. Matzke.................... -- -- *
Patricia A. Woertz................... -- -- *
Executive Officers and Directors of
Dynegy as a Group
(16 persons)(5)(6)(7)(8)(9)(10)(11).. 9,811,874 -- 9.6
</TABLE>
- --------
* Less than 1%.
(1) Unless otherwise noted, each of the persons has sole voting and
investment power with respect to the shares reported.
(2) Based upon 99,889,378 shares of Class A common stock and 40,521,250
shares of Class B common stock outstanding at March 29, 2000.
(3) The shares are held of record by Chevron USA Inc. Chevron Corporation
beneficially owns 100% of the capital stock of Chevron USA. Consequently,
Chevron Corporation may be deemed to beneficially own all of the shares
of Class B common stock owned of record by Chevron USA. Percent of Class
A common stock beneficially owned assumes conversion of Class B common
stock for purposes of computing Chevron's beneficial ownership only.
4
<PAGE>
(4) According to its Form 13G for the year ended December 31, 1999. Advisor
subsidiaries of Fidelity Management & Research Company have sole voting
power for 770,590 shares and sole power to dispose or direct the
disposition of 9,026,450 shares.
(5) Includes 4,791,036 shares held of record by one or more partnerships, of
which Mr. Watson and his wife are the sole shareholders of the corporate
general partner and of which Mr. Watson (individually), his wife and
certain trusts (the "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 (the "Family Limited
Partnership"). Mr. Watson may be deemed to beneficially own all of the
shares of Class A common stock held by the Family Limited Partnership.
The number of shares also includes 58,874 shares of Class A common stock
that are owned by certain trusts established by Mr. Watson for the
benefit of his wife, his three minor children and himself. Mr. Watson is
the sole trustee of these trusts. Mr. Watson may be deemed to
beneficially own all of the shares of Class A common stock held by such
trusts. Also includes 1,694,218 shares of Class A common stock issuable
upon the exercise of employee stock options held by Mr. Watson that are
exercisable within 60 days of March 29, 2000. The number of shares does
not include approximately 2,943 shares of Class A common stock held by
the Trustee of the Dynegy Inc. Profit Sharing/401(k) Savings Plan (the
"401(k) Plan") as of February 29, 2000 for the account of Mr. Watson.
Participants in the 401(k) Plan have no voting or investment power with
respect to such shares until their distribution to such participants upon
termination of their employment. In addition, Mr. Watson may elect to
take cash in lieu of shares of Class A common stock held in his 401(k)
Plan account upon termination of his employment.
(6) Includes 400,588 shares of Class A 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 Class A common
stock held by such trusts. Also includes 315,984 shares of Class A common
stock issuable upon the exercise of employee stock options held by Mr.
Bergstrom that are exercisable within 60 days of March 29, 2000. The
number of shares does not include approximately 2,934 shares of Class A
common stock held by the Trustee of Dynegy's 401(k) Plan as of February
29, 2000 for the account of Mr. Bergstrom. Participants in the 401(k)
Plan have no voting or investment power with respect to such shares until
their distribution to such participants upon termination of their
employment. In addition, Mr. Bergstrom may elect to take cash in lieu of
shares of Class A common stock held in his 401(k) Plan account upon
termination of his employment.
(7) Includes 152,754 shares of Class A common stock issuable upon the
exercise of employee stock options that are exercisable within 60 days of
March 29, 2000. The number of shares does not include approximately 1,613
shares of Class A common stock held by the Trustee of the 401(k) Plan as
of February 29, 2000 for the account of Mr. Clarke. Participants in the
401(k) Plan have no voting or investment power with respect to such
shares until their distribution to such participants upon termination of
their employment. In addition, Mr. Clarke may elect to take cash in lieu
of shares of Class A common stock held in his 401(k) Plan account upon
termination of his employment.
(8) Includes 278,380 shares of Class A common stock issuable upon the
exercise of employee stock options held by Mr. Schatzman that are
exercisable within 60 days of March 29, 2000. The number of shares does
not include approximately 2,834 shares of Class A common stock held by
the Trustee of Dynegy's 401(k) Plan as of February 29, 2000 for the
account of Mr. Schatzman. Participants in the 401(k) Plan have no voting
or investment power with respect to such shares until their distribution
to such participants upon termination of their employment. In addition,
Mr. Schatzman may elect to take cash in lieu of shares of Class A common
stock held in his 401(k) Plan account upon termination of his employment.
(9) Includes 107,475 shares of Class A common stock issuable upon the
exercise of employee stock options held by Mr. Randolph that are
exercisable within 60 days of March 29, 2000. The number of shares does
not include approximately 2,848 shares of Class A common stock held by
the Trustee of Dynegy's 401(k) Plan as of February 29, 2000 for the
account of Mr. Randolph. Participants in the 401(k) Plan have no voting
or investment power with respect to such shares until their distribution
to such participants upon termination of their employment. In addition,
Mr. Randolph may elect to take cash in lieu of shares of Class A common
stock held in his 401(k) Plan account upon termination of his employment.
(10) Does not include approximately 441 stock units held by Mr. Adorjan, 1,035
stock units held by Mr. McMillan, 5,354 stock units held by Mr. Powers,
4,605 stock units held by Ms. Rosenberg or 1,761 stock units held by Mr.
Stewart, respectively, through the Dynegy Deferred Compensation Plan for
Certain Directors. Participants in the Director Deferred Compensation
Plan receive cash equal to the number of stock units in their account
times the last sales price of the Class A common stock on the last
business day of the month preceding the termination of their service as a
Director of Dynegy.
(11) Includes 214,700 shares of Class A common stock issuable upon the
exercise of employee stock options held by Mr. Bayless that are
exercisable within 60 days of March 29, 2000. The number of shares does
not include shares of common stock held by the Trustee of Illinova's
401(k) Plan for the account of Mr. Bayless. Participants in the 401(k)
Plan have no voting or investment power with respect to such shares until
their distribution to such participants upon termination of their
employment. In addition, Mr. Bayless may elect to take cash in lieu of
shares of Class A common stock held in his 401(k) Plan account upon
termination of his employment.
5
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Ten Class A common stock directors are to be elected at the annual meeting
by the holders of Class A common stock and the holders of Series A preferred
stock voting together as a single class. The affirmative vote of a majority of
the votes of shares of Class A common stock and Series A preferred stock (as
calculated for the Preferred Voting Right) represented in person or by proxy
is required to elect a director. Under Illinois law and Dynegy's Articles of
Incorporation and Bylaws, abstentions would have the effect of votes against
the election of directors. Under Illinois law and Dynegy's Articles of
Incorporation, holders of Class A common stock and Series A preferred stock
(as calculated) are entitled to cumulate their votes in the election of the
Class A common stock directors.
All holders of Class A common stock will be entitled to 10 votes (the
number of Class A common stock directors to be elected) for each of their
shares for candidates nominated to serve as directors. Holders of Series A
preferred stock will be entitled to 10 votes (the number of Class A common
stock directors to be elected) for each Preferred Voting Right. Holders of
Class A common stock and Series A preferred stock may cast their votes equally
for all candidates or may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting, or distribute their
votes among two or more candidates in such proportion as they desire.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below
equally or cumulatively as proxies may determine. Although the Board of
Directors does not contemplate that any of the nominees will be unable to
serve, if such a situation arises prior to the annual meeting, the persons
appointed in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
Under Dynegy's Articles of Incorporation, Chevron, the sole holder of Class
B common stock, is entitled to nominate and vote as a single class for three
nominees to the Board of Directors.
Each of the ten nominees for Class A common stock director and each of the
three nominees for Class B common stock director is currently a director of
Dynegy. The following table sets forth information regarding the names, ages
and principal occupations of the current directors and/or nominees, other
directorships held by them in certain companies and, if applicable, the length
of their continuous service as a director of Dynegy.
6
<PAGE>
<TABLE>
<CAPTION>
Age as
Directors and/or of Director
Nominees Principal Occupation and Directorships 4/1/00 Since
---------------- ------------------------------------------- ------ --------
<S> <C> <C> <C>
Class A Common Stock
Directors
C.L. Watson............. Chairman of the Board and Chief Executive 50 1995
Officer of Dynegy; Director of Baker Hughes
Incorporated
Stephen W. Bergstrom.... President and Chief Operating Officer of 42 1995
Dynegy
John U. Clarke(1)....... Executive Vice President and Principal 47 1998
Financial Officer of Dynegy
J. Joe Adorjan.......... Chairman of Adven Capital Partners LLC, 61 2000
Partner, Stonington Partners, Inc.,
Director of The Earthgrains Company and
Hussman International Corporation.
Charles E. Bayless...... Retired Chairman and Chief Executive 57 2000
Officer of Illinova Corporation and
Illinois Power, Director of Trigen Energy
Corporation
Daniel L. Dienstbier.... Private Investments 59 1995
C. Steven McMillan...... President and Chief Executive Officer of 54 2000
Sara Lee Corporation
Robert M. Powers........ Retired President of A.E. Staley 68 2000
Manufacturing Company
Sheli Z. Rosenberg...... President and Chief Operating Officer of 58 2000
Equity Group Investments, Inc.; Director of
Anixter International, Inc.; Capital Trust,
CVS Corporation, Danka Business Systems
PLC, Equity Office Properties Trust, Equity
Residential Properties Trust and
Manufactured Home Communities, Inc.
Joe J. Stewart.......... Retired President of BWX Technologies, Inc. 62 2000
and Retired Executive Vice President of
McDermott International, Inc.
J. Otis Winters......... Chairman, The PWS Group, Inc. (consulting 67 1993
firm); Director of AMFM Inc., Panja
Corporation and Triton Energy Corporation
Class B Common Stock
Directors
Darald W. Callahan...... President of Chevron Chemical Co. LLC 57 1996
Richard H. Matzke....... Vice Chairman of the Board of Chevron 63 2000
Corporation
Patricia A. Woertz...... Vice President of Chevron Corporation and 47 1998
President of Chevron Products Company
</TABLE>
- --------
(1) Mr. Clarke is an Advisory Director. Dynegy's Bylaws provide for an
Advisory Director who is entitled to attend all meetings of the Board but
may not vote on any matters before the Board.
In addition to the principal occupations and directorships of the directors
described above, the named nominees were engaged or are engaged (as
applicable) in the past five years in the principal occupations set forth
below.
C.L. Watson serves as Chairman of the Board, Chief Executive Officer and a
Director of Dynegy. He also served as President of Dynegy from March 1995 to
December 1996. Mr. Watson served as Chairman and as a member of the Natural
Gas Clearinghouse Management Committee from May 1989 through March 1995, and
as Chief Executive Officer and President of Natural Gas Clearinghouse from
September 1985 through March 1995. Mr. Watson also serves as a member of the
Board of Directors of Baker Hughes Incorporated.
7
<PAGE>
Stephen W. Bergstrom was promoted to President and Chief Operating Officer
of Dynegy in August 1999. He has also served as a Director of Dynegy and as
President and Chief Operating Officer of Dynegy Marketing and Trade (f/k/a
Natural Gas Clearinghouse) since March 1995. He served as Executive Vice
President of Natural Gas Clearinghouse and a member of the Natural Gas
Clearinghouse Management Committee from May 1989 through March 1995. In
addition, Mr. Bergstrom served as Senior Vice President, Gas Marketing and
Supply, of Natural Gas Clearinghouse from May 1987 through May 1990, and as
Vice President, Gas Supply, of Natural Gas Clearinghouse from July 1986
through May 1987.
John U. Clarke has served as Executive Vice President of Dynegy since
October 1999. He joined Dynegy in April 1997 as Senior Vice President and
Chief Financial Officer and serves as Dynegy's principal financial officer.
Mr. Clarke is also an Advisory Director of Dynegy. Prior to joining Dynegy,
Mr. Clarke was a managing director and co-head of a specialty energy practice
group with Simmons & Company International, an investment-banking firm for
approximately one year. He previously had served as President of Concept
Capital Group, Inc., a financial advisory firm formed by Mr. Clarke in May
1995. Mr. Clarke was Executive Vice President and Chief Financial and
Administrative Officer with Cabot Oil & Gas Corporation from August 1993 to
February 1995, and worked for Transco Energy Company from April 1981 to May
1993, last serving as Senior Vice President and Chief Financial Officer. Mr.
Clarke began his career with Tenneco Inc. in January 1978.
J. Joe Adorjan has served as Chairman of ADVEN Capital Partners, LLC, a
private investment firm since November 1999. Mr. Adorjan has also been a
partner of Stonington Partners, Inc., a private investment firm, since
November 1999. He was Chairman and Chief Executive Officer of Borg-Warner
Security Corporation, Chicago, Illinois, from 1995 to October 1999 and
President of Emerson Electric Company from 1993 to 1995. Prior to that, Mr.
Adorjan was Chairman and Chief Executive Officer of ESCO Electronics
Corporation. Mr. Adorjan served as a Director of Illinova from 1994 until the
closing of the merger in February 2000. He is also a Director of The
Earthgrains Company, an international baking company, and Hussmann
International Corporation, a manufacturer of refrigeration products.
Charles E. Bayless served as Chairman of Illinova and Illinois Power, from
August 1998 until his retirement in December 1999. Mr. Bayless served as Chief
Executive Officer of Illinova since July 1998, and President of Illinois Power
from July 1998 until September 1999. He was Chairman, President and Chief
Executive Officer of Tucson Electric Power from 1992 to 1998, President and
Chief Executive Officer from 1990 to 1992, and Senior Vice President and Chief
Financial Officer from 1989 to 1990. Mr. Bayless served as a Director of
Illinova from 1998 until the closing of the merger in February 2000. He is a
Director of Trigen Energy Corporation, a heating and cooling company.
C. Steven McMillan serves as President, Chief Executive Officer and
Director of Sara Lee Corporation, Chicago, Illinois, a global packaged food
and consumer products company. He was promoted to this position in 1997. Prior
to that, Mr. McMillan was Executive Vice President from 1993 to 1997 and
Senior Vice President-Strategy Development from 1986 to 1993. Mr. McMillan
served as a Director of Illinova from 1996 until the closing of the merger in
February 2000. He is also a Director of Pharmacia and Upjohn, pharmaceutical
corporations.
Robert M. Powers served as President and Chief Executive Officer of A.E.
Staley Manufacturing Company in Decatur, Illinois, a processor of grain oil
seeds from 1980 until his retirement in December 1998. Mr. Powers served as a
Director of Illinova from 1984 until the closing of the merger in February
2000. He is also a Director of A.E. Staley Manufacturing Company.
Sheli Z. Rosenberg has served as Vice Chairman since 2000 and has served as
Chief Executive Officer since 1999, President and Chief Executive Officer
since 1994 and General Counsel 1980 to 1994 of Equity Group Investments, LLC,
Chicago, Illinois, a privately held business conglomerate holding controlling
interests in seven publicly traded corporations involved in basic
manufacturing, radio stations, retail, insurance, and real estate.
8
<PAGE>
Ms. Rosenberg served as a Director of Illinova from 1997 until the closing of
the merger in February 2000. She is also a Director of Anixter International,
Inc., Capital Trust, CVS Corporation, Danka Business Systems PLC, Equity
Office Properties Trust, Equity Residential Properties Trust and Manufactured
Home Communities, Inc.
Joe. J. Stewart served as President of BWX Technologies, Inc., Lynchburg,
Virginia, and Executive Vice President of McDermott International, Inc., New
Orleans, Louisiana, a diversified energy and environmental equipment and
services company from 1995 until his retirement in 1998. He was President and
Chief Operating Officer of The Babcock & Wilcox Company and Executive Vice
President of McDermott International, Inc., from 1993 to 1995 and Executive
Vice President of the Power Generation Group of The Babcock & Wilcox Company
from 1987 to 1993. Mr. Stewart served as a Director of Illinova from 1998
until the closing of the merger in February 2000.
Darald W. Callahan was named President of Chevron Chemical Co. LLC, a
subsidiary of Chevron, in February 1999. He served as Senior Vice President of
Chevron Chemical Co. LLC from October 1991 through January 1999, and served as
President of Warren Petroleum Company, an unincorporated division of Chevron,
from December 1987 through September 1991. Mr. Callahan has been employed by
Chevron Corporation and its affiliates since 1964.
Richard H. Matzke was elected as one of two Vice Chairmen of the Board of
Directors of Chevron Corporation in January 2000. He was elected a member of
Chevron's Board of Directors in March 1997. From November 1989 through
December 1999, Mr. Matzke served as President of Chevron Overseas Petroleum
Inc., where he was responsible for directing Chevron's oil exploration and
production activities outside of North America. Mr. Matzke has been employed
by Chevron Corporation and its predecessors and affiliates since 1961. He is
chairman of the board of directors of the United States-Kazakhstan Business
Association; a member of the United States-Russia Business Council, and the
Business Council for International Understanding and vice chairman of the
United States-Azerbaijan Chamber of Commerce. He serves on the board of
trustees of The Africa America Institute, and the Advisory Board of the Center
for Strategic and International Studies (CSIS). He is also a member of the
Council on Foreign Relations, the American Institute of Professional
Geologists, the American Association of Petroleum Geologists, the World
Affairs Council of Northern California and the Commonwealth Club of
California.
Patricia A. Woertz has served as President of Chevron Products Company, a
subsidiary of Chevron, and Vice President of Chevron since November 1998. She
served as President of Chevron International Oil Company and Vice President of
Logistics and Trading for Chevron Products Company from January 1996 to
November 1998. Ms. Woertz served as President of Chevron Canada Limited from
October 1993 through December 1995. Prior thereto, she served as Chevron
Corporation's Strategic Planning Manager from 1991 through September 1993. Ms.
Woertz has been employed by Chevron Corporation and its predecessors and
affiliates since 1977. She also serves on the Board of Directors of the
Western States Petroleum Association.
Daniel L. Dienstbier has over thirty years of experience in the oil and gas
industry. He served as President and Chief Operating Officer of American Oil &
Gas Corp. from October 1993 through July 1994, President and Chief Operating
Officer of Arkla, Inc. from July 1992 through October 1993, and President of
Jule, Inc., a private company involved in energy consulting and joint venture
investments in the pipeline, gathering and exploration and production
industries, from February 1991 through June 1992. Prior thereto, Mr.
Dienstbier served as President and Chief Executive Officer of Dyco Petroleum
Corp., and Executive Vice President of Diversified Energy from February 1989
through February 1991. In addition, he served as President of the Gas Pipeline
Group of Enron Corp. from July 1984 through July 1988. Presently, Mr.
Dienstbier is pursuing private investments. Mr. Dienstbier also serves as a
member of the Board of Directors of Lariat Petroleum Incorporated, a privately
held oil and gas exploration company based in Tulsa, Oklahoma. In the past,
Mr. Dienstbier has served as a member on the Board of Directors of several
public companies, including American Oil & Gas Corp., Arkla, Inc., Enron
Corp., and Midwest Resources.
9
<PAGE>
J. Otis Winters is a co-founder and Chairman of The PWS Group, Inc.
(formerly known as Pate, Winters & Stone, Inc.), a consulting firm, and has
served in such position since 1990. Mr. Winters was formerly Executive Vice
President and Director of the Williams Companies, and Executive Vice President
and Director of the First National Bank of Tulsa. Mr. Winters also serves as a
Director of AMFM Inc., an operator of radio stations, Panja Corporation, a
manufacturer of control devices, and Triton Energy Corporation, an
international oil and gas exploration company.
The Board of Directors recommends that shareholders vote "FOR" the election
of the nominees to the Board of Directors.
Directors' Meetings and Committees of the Board of Directors
During 1999, the Board of Directors of Dynegy Holdings held four meetings.
Each director attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors (held during the period for which he has
been a director) and the total number of meetings held by all committees of
the Board on which he served (during the periods that he served). During 1999,
the Board of Directors of Dynegy Holdings had the following committees:
Executive Committee. During 1999, the Executive Committee was comprised of
Messrs. Watson, Stephen J. Brandon (BG designee), Jeffrey M. Lipton (NOVA
designee) and Peter R. Robertson (Chevron designee). The committee met four
times during 1999. The Executive Committee has been delegated the authority to
approve any actions that the Board of Directors could approve, except to the
extent restricted by law, Dynegy's Articles of Incorporation or Dynegy's
Bylaws. This committee is also responsible for maintaining an effective
working relationship between the Board of Directors and management of Dynegy.
Prior to the merger, the Executive Committee was also responsible for
recommending to the Board of Directors nominees for election or appointment to
the Board of Directors of Dynegy.
Nominations Committee. Dynegy did not have a standing nominations committee
during 1999. Effective with the consummation of the merger, a Nominations
Committee of the Board of Directors was established. The Nominations
Committee, which is currently comprised of Messrs. Bayless, McMillan and
Winters, was responsible for nominating the Class A common stock directors.
Audit Committee. During 1999, the Audit Committee, which was comprised of
Messrs. Dienstbier and Winters, met five times. The Audit Committee is
responsible for meeting with the auditors, internal auditors and senior
executives of Dynegy to review and inquire into matters affecting the
financial reporting of Dynegy and recommending to the Board of Directors the
auditors to be recommended for appointment at the annual shareholders meeting.
Finance Committee. During 1999, the Finance Committee, was comprised of
Messrs. Bergstrom, Clarke, Terence A. Poole (NOVA designee), Winters, P.
Nicholas Woollacott (BG designee) and Ms. Woertz. The Finance Committee, which
met four times during 1999, is responsible for meeting with management of
Dynegy to review the financing plans and objectives of Dynegy, Dynegy's annual
Securities and Exchange Act filings and all prospectuses and other offering
memoranda of Dynegy.
Compensation and Human Resources Committee. During 1999, the Compensation
and Human Resources Committee (the "Compensation Committee"), was comprised of
Messrs. Dienstbier, Callahan, Jack S. Mustoe (NOVA designee), Stanley I.
Rubenfeld (BG designee) and Bergstrom. The committee met five times during
1999. The Compensation Committee reviews recommendations for the appointment
of persons to senior executive positions; reviews and approves corporation
compensation and benefits strategy; determines terms of employment and
compensation for senior executives; and is responsible for the proper and
orderly administration of Dynegy's retirement and savings plan (other than
matters relating to the funding and investment of the plan's trust funds).
This committee is also responsible for setting the compensation of the Board
of Directors.
Options Committee. During 1999, the Options Committee, which was comprised
of Messrs. Dienstbier and Winters, met one time. The Options Committee is
responsible for approving awards under all of Dynegy's stock option and long-
term incentive plans.
10
<PAGE>
Risk and Environment Committee. During 1999, the Risk and Environment
Committee, which was comprised of Messrs. Dienstbier, Callahan, Rubenfeld and
Mustoe, met two times. The Risk and Environment Committee is responsible for
overseeing Dynegy's environmental and occupational health and safety
practices.
Following the merger, Dynegy currently has the following standing
Committees of the Board of Directors: Executive Committee, Finance Committee,
Compensation Committee, Audit Committee; Risk and Environment Committee,
Nominations Committee and Options Committee.
Compensation of Directors
During 1999, each non-employee director of Dynegy was paid an annual
retainer of $22,000 plus $1,250 per board or committee meeting attended.
Effective with the merger, each non-employee director of Dynegy will be paid
an annual retainer of $25,000 per year plus $1,500 per board or committee
meeting attended. In addition, each non-employee director is entitled to
reimbursement for his or her reasonable out-of-pocket expenses incurred in
connection with travel to and from, and attendance at, meetings of the Dynegy
Board of Directors or committees thereof. During 1999, each non-employee
director also had the option to receive shares of common stock, in lieu of
cash, in payment of their annual retainer and meeting fees pursuant to the
terms of the Dynegy Inc. Non-Employee Director Compensation Plan. Each
director of Dynegy, other than Messrs. Watson, Bergstrom and Clarke, is a non-
employee director for purposes of such plan. During 1999, the annual retainer
and meeting fees payable to the BG and Chevron employee representatives on the
Dynegy Board of Directors were paid directly to BG and Chevron, respectively.
Effective with the merger, each non-employee director will also have the
option to defer any cash they receive in payment of their annual retainer and
meeting fees pursuant to the terms of the Dynegy Deferred Compensation Plan
for Certain Directors.
During 1999, in addition to the annual retainer and board or committee fees
described above, the Chairman of the Audit Committee and the Chairman of the
Compensation Committee were each paid an annual retainer of $16,000, as well
as a committee meeting fee of $3,000 for each meeting of the Audit Committee
and Compensation Committee that they chaired. Messrs. Winters and Dienstbier
were the respective chairmen of the Audit Committee and Compensation Committee
during 1999. Effective with the merger, all Committee Chairmen will be paid a
retainer of $5,000 per year and committee meeting fees of $1,500 for each
Committee meeting they chair.
Effective with their election at the annual meeting, all non-employee
directors of Dynegy will receive options to purchase 3,000 shares of Class A
common stock with an exercise price equal to the market value of such stock on
the day of the annual meeting. Dynegy intends to make annual option grants a
part of its non-employee director compensation package.
During 1999, certain Dynegy Directors received special bonuses for their
work on the process committee of the Dynegy Board of Directors prior to and
after the signing of the Illinova merger agreement. J. Otis Winters and Daniel
Dienstbier were the only independent members of the process committee. The
process committee spearheaded Dynegy's efforts in the negotiation of the
Illinova merger agreement as well as Dynegy's dealings with its investment
bankers and other advisors. In recognition of their efforts, Dynegy paid Mr.
Winters, the chairman of the process committee, a special bonus of $43,200 in
July 1999, and Dynegy paid Mr. Dienstbier a special bonus of $30,000 in August
1999.
Certain Transactions and Other Matters
For a description of certain transactions with management and others,
certain business relationships, indebtedness of management and compliance with
Section 16(a) of the Securities Exchange Act of Securities Exchange Act of
1934, see "Executive Compensation--Employment Agreements," "Certain
Relationships and Related Transactions," "Indebtedness of Management" and
"Section 16(a) Beneficial Ownership Reporting Compliance."
11
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned by the individual who serves as Dynegy's Chief Executive
Officer and the four most highly compensated executive officers of Dynegy at
the end of 1999 (the "Named Executive Officers") in combined salary and bonus
earned in 1999, as well as amounts earned by or awarded to such individuals
for services rendered in all capacities to Dynegy during 1998 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------------------------- ----------------
Shares
Fiscal Other Annual Underlying All Other
Name and Position Year Salary Cash Bonus Compensation(1) Stock Options(2) Compensation(3)
----------------- ------ ---------- ---------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Watson...... 1999 $1,029,501 $4,300,000(4) -- 1,151,617 $ 18,000
Chairman of the Board 1998 $ 999,000 $ 604,000(4) -- 147,030 $ 20,000
and Chief
Executive Officer of 1997 $ 856,359 $ 500,000(4) -- 128,893 $ 22,463
Dynegy Inc.
Stephen W. Bergstrom... 1999 $ 652,080 $1,770,000(4) -- 713,253 $ 18,000
President and Chief 1998 $ 600,000 $ 600,000(4) -- 204,462 $ 20,000
Operating
Officer of Dynegy Inc. 1997 $ 409,992 $ 350,000(4) -- 67,737 $ 16,000
John U. Clarke......... 1999 $ 326,040 $ 695,000(4) -- 237,977 $ 23,000
Executive Vice 1998 $ 300,000 $ 255,000(4) -- 166,231 $ 25,000
President and
Principal Financial 1997 $ 183,178 $ 100,000(4) -- 55,152 $264,834
Officer of Dynegy Inc.
Matthew K. Schatzman... 1999 $ 297,630 $ 490,000(4) -- 169,639 $ 18,000
Senior Vice President 1998 $ 237,495 $ 331,500 -- 178,495 $ 10,000
of Dynegy
Inc. and President, 1997 $ 169,964 $ 65,000 -- 18,813 $ 8,498
Energy Trading of
Dynegy Marketing and
Trade
Kenneth E. Randolph.... 1999 $ 271,630 $ 420,000(4) -- 148,024 $ 22,284
General Counsel and 1998 $ 263,758 $ 175,000(4) -- 73,824 $ 25,000
Secretary of Dynegy 1997 $ 250,008 $ 135,000(4) -- 28,227 $ 21,000
Inc.
</TABLE>
- --------
(1) Includes "Perquisites and Other Personal Benefits" if value is greater
than the lesser of $50,000 or 10% of reported salary and bonus. No Named
Executive Officer received perquisites that exceeded the threshold amount.
(2) Number of shares underlying options does not reflect .69 merger conversion
ratio. Includes awards of options that were granted 11/19/99 contingent on
the closing of the merger and execution of new employment agreements. See
"--Employment Agreements."
(3) During 1999, 1998, and 1997, respectively, Messrs. Watson, Bergstrom,
Clarke, Schatzman and Randolph received Company contributions to their
respective savings plan accounts of $18,000, $18,000, $18,000, $18,000 and
$18,000, respectively; $20,000, $20,000, $20,000, $10,000 and $20,000,
respectively; and $16,000, $16,000, $14,834, $8,498 and $13,819,
respectively. In 1999, life insurance premiums of $5,000 and $4,284 were
paid on behalf of Messrs. Clarke and Randolph, respectively. In 1998, life
insurance premiums of $5,000 and $5,000 were paid on behalf of Messrs.
Clarke and Randolph, respectively. In 1997, life insurance premiums of
$6,463 and $5,000 were paid on behalf of Messrs. Watson and Randolph,
respectively. Amount shown for Mr. Clarke in 1997 includes a $250,000 sign
on bonus.
(4) During 1999, each of the Named Executive Officers, except Mr. Schatzman,
was party to an employment agreement with Dynegy. Bonus awards for 1999,
1998 and 1997, which were paid in 2000, 1999 and 1998, respectively, were
determined under the terms of Dynegy's Incentive Compensation Plan,
subject to the minimum guaranteed bonus provisions of such employment
agreements. See "--Employment Agreements." The bonus shown for 1999 for
Mr. Watson includes Mr. Watson's 1999 bonus award of $2,300,000 and
$2,000,000 of an additional $2,500,000 discretionary bonus awarded in
recognition of Mr. Watson's efforts in connection with the merger. Of the
$2,500,000 discretionary bonus award, $2,000,000 was paid in February 2000
as an additional bonus award for 1999 and the remaining $500,000 is
payable in February 2001. The bonus amounts shown for 1997 for Messrs.
Schatzman and Randolph also include a bonus amount of $15,000 and $35,000,
respectively, that related to bonuses that were approved by the Board of
Directors in 1996 to be paid in 1997 to certain employees who were
involved with the Chevron Combination, provided that such employees were
employed by Dynegy on July 1, 1997.
12
<PAGE>
Stock Option Grants
The following table sets forth certain information with respect to stock
option grants made to the Named Executive Officers during 1999 under the
Dynegy Inc. Employee Equity Option Plan, the Dynegy Inc. Amended and Restated
1991 Stock Option Plan, the Dynegy Inc. 1999 Long Term Incentive Plan and/or
the Dynegy Inc. 1998 U.K. Stock Option Plan. No stock appreciation rights were
granted during 1999.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rate of Stock Price
Individual Grants Appreciation for Option Term(2)
-------------------------------------------------- ----------------------------------
Number of % of Total
Securities Granted to Market
Underlying Employees Exercise Price on
Options in Fiscal Price Date Expiration
Name Granted 1999 $/Share of Grant Date 0% 5% 10%
---- ---------- ---------- -------- -------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles L. Watson....... 833,256 21.4% $22.94 $22.94 11/19/09 $ -- $12,021,218 $30,464,256
318,361 8.3% $ 5.664 $22.94 11/19/09 $5,500,004 $10,092,935 $17,139,422
Stephen W. Bergstrom.... 301,246 7.8% $22.94 $22.94 11/19/09 $ -- $ 4,346,016 $11,013,704
412,007 10.8% $ 5.95 $22.94 11/19/09 $6,999,999 $13,068,038 $21,838,431
John U. Clarke.......... 143,533 3.7% $22.94 $22.94 11/19/09 $ -- $ 2,070,722 $ 5,217,638
94,444 2.5% $ 2.028 $22.94 11/19/09 $1,975,013 $ 3,337,537 $ 5,427,933
Matthew K. Schatzman.... 88,601 2.3% $22.94 $22.94 11/19/09 $ -- $ 1,278,229 $ 3,329,297
81,038 2.1% $ 5.664 $22.94 11/19/09 $1,400,012 $ 2,569,169 $ 4,362,803
Kenneth E. Randolph..... 93,034 2.4% $22.94 $22.94 11/19/09 $ -- $ 1,342,183 $ 3,401,369
54,990 1.4% $ 5.664 $22.94 11/19/09 $ 950,007 $ 1,743,337 $ 2,960,469
</TABLE>
- --------
(1) Number of securities underlying options/exercise price does not reflect
the .69 merger conversion ratio. Includes awards of options that were
granted 11/19/99 contingent on the closing of the merger and the execution
of new employment agreements. See "--Employment Agreements." Each of the
Named Executive Officers is entitled to receive certain annual market
value stock option grants during the term of their respective employment
agreements. See "--Employment Agreements.".
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of common
stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore not intended to forecast
possible future appreciation, if any, of the price of common stock.
Option Exercises and Year-End Value Table
The following table sets forth for the Named Executive Officers,
information regarding options held by them at December 31, 1999.
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Shares Stock Options or Equity In-the-Money Stock
Acquired Options at 12/31/99(1) Options at 12/31/99(2)
on Exercise Value ------------------------- -------------------------
Name of Options Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles L. Watson....... -- -- 1,974,730 1,632,276 $40,357,832 $16,071,927
Stephen W. Bergstrom.... -- -- 139,592 1,031,609 $ 1,208,468 $13,928,506
John U. Clarke.......... -- -- 47,805 411,555 $ 405,807 $ 5,086,664
Matthew K. Schatzman.... -- -- 242,626 330,462 $ 4,425,201 $ 4,210,228
Kenneth E. Randolph..... -- -- 88,736 215,049 $ 837,336 $ 2,152,241
</TABLE>
- --------
(1) Number of shares underlying options does not reflect the .69 merger
conversion ratio. Certain unexercisable options held by each of the Named
Executive Officers became fully vested and exercisable effective upon the
closing of the merger on February 1, 2000. See "--Employment Agreements."
(2) Value based on the closing price of $24.3125 on the New York Stock
Exchange--Composite Tape for Dynegy common stock on December 31, 1999.
13
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires Dynegy's executive officers and directors, and persons who own more
than 10% of a registered class of Dynegy's equity securities, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Executive officers, directors and
greater than 10% shareholders are required by SEC regulations to furnish
Dynegy with copies of all Section 16(a) forms they file. Based solely upon
review of the copies of such forms furnished to Dynegy, or upon written
representations that no Form 5s were required, Dynegy believes that all
persons subject to these reporting requirements filed the required reports on
a timely basis.
Indebtedness of Management
No director, executive officer, nominee for election as a director or 5%
shareholder was indebted to Dynegy for an amount exceeding $60,000 during
1999.
Employment Agreements
C.L. Watson Employment Agreement. Mr. Watson's 1999 compensation was
determined under the terms of a five-year employment agreement that was
effective as of May 15, 1997, pursuant to which Dynegy agreed to employ Mr.
Watson as Chairman and Chief Executive Officer of Dynegy. Mr. Watson's
employment agreement entitled him to receive a base salary of $999,000,
subject to increase as determined by the Board of Directors. Mr. Watson's
employment agreement also entitled him to be a participant in the Dynegy Inc.
Incentive Compensation Plan, the Dynegy Inc. Deferred Compensation Plan, the
Employee Equity Option Plan and the Amended and Restated 1991 Stock Option
Plan. Under the terms of his employment agreement, Mr. Watson was entitled to
receive a guaranteed Incentive Compensation Plan bonus of at least $500,000
per year during the five-year term. Mr. Watson's employment agreement also
provided that each year during the term of his agreement, he was entitled to
receive market value stock option grants under the Amended and Restated 1991
Stock Option Plan with a five-year projected value of $1,500,000 (assuming a
15% annual growth rate in the price of Dynegy's common stock, which is now
Class A common stock). Mr. Watson received options to purchase 500,000 shares
of common stock with an exercise price of $22.94 per share and options to
purchase 318,361 shares of common stock with an exercise price of $5.664 per
share on November 19, 1999. For further information, see "--Stock Option
Grants."
Effective upon the closing of the merger on February 1, 2000, Dynegy
Marketing and Trade, a wholly-owned subsidiary of Dynegy entered into a new
three-year employment agreement with Mr. Watson, pursuant to which Mr. Watson
serves as Chairman and Chief Executive Officer of Dynegy. Mr. Watson's new
employment agreement entitles him to a base salary of $1,500,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon certain financial
or performance objectives, as a participant in the Incentive Compensation
Plan. Mr. Watson was awarded a grant of options to purchase 333,256 shares of
common stock with an exercise price of $22.94 per share on November 19, 1999,
subject to the closing of the merger and the execution of his new employment
agreement. Under the terms of the new employment agreement all options granted
to Mr. Watson prior to November 1, 1999 became fully vested as of February 1,
2000. The employment agreement also contains non-compete provisions in the
event of Mr. Watson's termination of employment.
Stephen W. Bergstrom Employment Agreement. Mr. Bergstrom's 1999
compensation was determined under the terms of a three-year employment
agreement with Stephen W. Bergstrom effective as of May 15, 1997, pursuant to
which Dynegy agreed to employ Mr. Bergstrom as Senior Vice President of Dynegy
and President and Chief Operating Officer of Dynegy Marketing and Trade. Mr.
Bergstrom's employment agreement entitled him to receive a base salary of
$600,000, subject to increase as determined by the Board of Directors. Mr.
Bergstrom's employment agreement also entitled him to be a participant in the
Incentive Compensation Plan, the Deferred Compensation Plan, the Employee
Equity Option Plan and the Amended and Restated 1991 Stock Option Plan. Under
the terms of his employment agreement, Mr. Bergstrom was entitled to receive a
guaranteed
14
<PAGE>
Incentive Compensation Plan bonus of at least $350,000 per year during the
three-year term. As a participant in the Incentive Compensation Plan, he also
had the annual opportunity to additional bonus amounts, dependent upon certain
corporate financial and individual performance objectives. Mr. Bergstrom's
employment agreement also provided that each year during the term of his
agreement, he was to receive market value stock option grants under the
Amended and Restated 1991 Stock Option Plan with a five-year projected value
of $900,000 (assuming a 15% annual growth rate in the price of Dynegy's common
stock, which is now Class A common stock). Mr. Bergstrom received options to
purchase 150,623 shares of common stock with an exercise price of $22.94 per
share and options to purchase 294,291 shares of common stock with an exercise
price of $5.95 per share on November 19, 1999. see "--Stock Option Grants."
Effective upon the closing of the merger on February 1, 2000, Dynegy
Marketing and Trade entered into a new four-year employment agreement with Mr.
Bergstrom, pursuant to which Mr. Bergstrom serves as President and Chief
Operating Officer of Dynegy. Mr. Bergstrom's new employment agreement entitles
him to a base salary of $850,000, subject to increase at the discretion of the
Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon certain financial or performance objectives, as a
participant in the Incentive Compensation Plan. On November 19, 1999, subject
to the closing of the merger and the execution of his new employment
agreement, Mr. Bergstrom was awarded grants of options to purchase 150,623
shares of common stock at an exercise price of $22.94 per share and, as a
signing bonus, a grant of options to purchase 117,716 shares of common stock
at an exercise price of $5.95 per share. Under the terms of the new employment
agreement, all options granted to Mr. Bergstrom prior to November 1, 1999
became fully vested as of February 1, 2000. The employment agreement also
contains non-compete provisions in the event of Mr. Bergstrom's termination of
employment.
John U. Clarke Employment Agreement. Mr. Clarke's 1999 compensation was
determined under the terms of a five-year employment agreement with John U.
Clarke effective April 22, 1997, as amended December 11, 1998, pursuant to
which Dynegy agreed to employ Mr. Clarke as Senior Vice President and Chief
Financial Officer. Mr. Clarke's employment agreement entitled him to receive a
base salary of $250,000, subject to increase as determined by the Board of
Directors. Mr. Clarke was also entitled to receive a guaranteed bonus of
$100,000 per annum during the term of his employment agreement. As a
participant in the Incentive Compensation Plan, Mr. Clarke also had the annual
opportunity to earn additional bonus amounts dependent upon certain corporate
financial and individual performance objectives. In addition, Mr. Clarke was
entitled to participate in the Deferred Compensation Plan, Alternative
Benefits for Senior Executives Plan, the Employee Equity Option Plan and the
Amended and Restated 1991 Stock Option Plan. In addition, Mr. Clarke's
employment agreement provided that he is to receive market value stock option
grants under the Amended and Restated 1991 Stock Option Plan during each year
of his employment agreement with a five-year projected value of $250,000
(assuming a 15% annual growth rate in the price of Dynegy's common stock,
which is now Class A common stock). Mr. Clarke received options to purchase
71,766 shares of common stock with an exercise price of $22.94 per share and
options to purchase 58,579 shares of common stock with an exercise price of
$2.028 per share on November 19, 1999. see "--Stock Option Grants."
Effective upon the closing of the merger on February 1, 2000, Dynegy
Marketing and Trade entered into a new four-year employment agreement,
pursuant to which Mr. Clarke serves as Executive Vice President of Dynegy. Mr.
Clarke's new employment agreement entitles him to a base salary of $450,000,
subject to increase at the discretion of the Board of Directors, and the
annual opportunity to earn additional bonus amounts, dependent upon certain
financial or performance objectives, as a participant in the Incentive
Compensation Plan. On November 19, 1999, subject to the closing of the merger
and his execution of the new employment agreement, Mr. Clarke was awarded
grants of options to purchase 71,767 and 35,865 shares of common stock with
exercise prices of $22.94 and $2.028 per share, respectively. Mr. Clarke also
received a cash signing bonus of $500,000 upon the closing of the merger.
Under the terms of the new employment agreement, all options granted to Mr.
Clarke prior to November 1, 1999 became fully vested as of February 1, 2000.
Mr. Clarke's new employment agreement also provides that Dynegy will take such
action as may be required to facilitate his election as a non-voting Advisory
Director of Dynegy as provided for in Dynegy's Bylaws. The employment
agreement contains non-compete provisions in the event of Mr. Clarke's
termination of employment.
15
<PAGE>
Kenneth E. Randolph Employment Agreement. Mr. Randolph's 1999 compensation
was determined under the terms of a three-year employment agreement with
Kenneth E. Randolph effective January 1, 1997, pursuant to which Dynegy agreed
to employ Mr. Randolph as Senior Vice President and General Counsel. Mr.
Randolph's employment agreement entitled him to receive a base salary of
$250,000, subject to increase as determined by the Board of Directors. Mr.
Randolph was also entitled to receive a guaranteed bonus of $100,000 per annum
during the term of his employment agreement. As a participant in the Incentive
Compensation Plan, Mr. Randolph also had the annual opportunity to earn
additional bonus amounts dependent upon certain corporate financial and
individual performance objectives. In addition, Mr. Randolph was entitled to
participate in the Deferred Compensation Plan, the Alternative Benefits for
Senior Executives Plan, the Employee Equity Option Plan and the Amended and
Restated 1991 Stock Option Plan. Mr. Randolph's employment agreement also
provided that he was to receive market value stock option grants under the
Amended and Restated 1991 Stock Option Plan during each year of his employment
agreement with a five-year projected value of $375,000 (assuming a 15% annual
growth rate in the price of Dynegy's common stock, which is now Class A common
stock). Mr. Randolph received options to purchase 46,516 shares of common
stock with an exercise price of $22.94 per share and options to purchase
40,519 shares of common stock with an exercise price of $5.664 per share on
November 19, 1999. See "--Stock Option Grants."
Effective upon the closing of the merger on February 1, 2000, Dynegy
Marketing and Trade entered into a new two-year employment agreement with Mr.
Randolph, pursuant to which Mr. Randolph serves as General Counsel of Dynegy.
Mr. Randolph's new employment agreement entitles him to a base salary of
$350,000, subject to increase at the discretion of the Board of Directors, and
the annual opportunity to earn additional bonus amounts, dependent upon
certain financial or performance objectives, as a participant in the Incentive
Compensation Plan. On November 19, 1999, subject to the closing of the merger
and his execution of the new employment agreement, Mr. Randolph was awarded
grants of options to purchase 46,518 and 14,471 shares of common stock with
exercise prices of $22.94 and $5.664 per share, respectively. Mr. Randolph
also received a cash signing bonus of $100,000 upon the closing of the merger.
Under the terms of the new employment agreement, all options granted to Mr.
Randolph prior to November 1, 1999 became fully vested as of February 1, 2000.
The employment agreement contains non-compete provisions in the event of Mr.
Randolph's termination of employment.
Matthew K. Schatzman Employment Agreement. Mr. Schatzman did not have an
employment agreement in effect during 1999. Mr. Schatzman was awarded grants
of options to purchase 53,160 and 52,096 shares of common stock with exercise
prices of $22.94 and $5.664 per share, respectively, on November 19, 1999.
Effective upon the closing of the merger on February 1, 2000, Dynegy Marketing
and Trade entered into a five-year employment agreement with Mr. Schatzman,
pursuant to which Mr. Schatzman serves as Division President, Energy Trading
of Dynegy Marketing and Trade. Mr. Schatzman's employment agreement entitles
him to a base salary of $400,000, subject to increase at the discretion of the
Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon certain financial or performance objectives, as a
participant in the Incentive Compensation Plan. On November 19, 1999, subject
to the closing of the merger and his execution of an employment agreement, Mr.
Schatzman was awarded grants of options to purchase 35,441 and 28,942 shares
of common stock with exercise prices of $22.94 and $5.664 per share,
respectively. Under the terms of the employment agreement, all options granted
to Mr. Schatzman prior to November 1, 1999 became fully vested as of February
1, 2000. The employment agreement contains non-compete provisions in the event
of Mr. Schatzman's termination of employment.
Certain Relationships and Related Transactions
Compensation Committee/Options Committee Interlocks and Insider
Participation. The Compensation Committee and the Options Committee of the
Dynegy Board of Directors made decisions regarding compensation for executive
officers in 1999. The base compensation, bonus amounts and certain stock
option grants for 1999 for each of Messrs. Watson, Bergstrom, Clarke and
Randolph were established pursuant to the terms of their respective employment
agreements that were in effect during 1999. For further information, see "--
Employment Agreements."
16
<PAGE>
During 1999, the Dynegy Compensation Committee was comprised of the
following directors: Messrs. Bergstrom, Callahan, Dienstbier, Mustoe and
Rubenfeld. During 1999, the Options Committee was comprised of Messrs.
Dienstbier and Winters. Messrs. Callahan, Dienstbier, Mustoe and Rubenfeld
have never been officers or employees of Dynegy. Mr. Callahan serves as
President of Chevron Chemical Co. LLC. Affiliates of each of NOVA, BG and
Chevron were the three largest shareholders of Dynegy prior to the merger.
Dynegy has engaged in various transactions with NOVA, BG and Chevron, and
their respective affiliates, as described below.
Business Relationships with NOVA. On January 26, 1998, NOVA Corporation and
TransCanada Pipeline Limited announced an agreement to merge the companies.
The merger was completed in July 1998. Immediately following the TransCanada
merger, NOVA Corporation's petrochemical subsidiary NOVA, was spun off as a
separate public company. The Dynegy common stock formerly owned by NOVA
Corporation had been, and following the split continued to be, held by an
indirect wholly owned subsidiary of NOVA. NOVA purchases large amounts of
petroleum products, natural gas and NGLs as fuel or feedstock for its
petrochemical operations. Further, NOVA engages in NGL extraction,
transportation, storage, and marketing and related activities. In August 1998,
Dynegy announced that NOVA had given notice of its intent to divest its
approximate 26 percent ownership interest in Dynegy.
Pursuant to the terms of the merger, NOVA reduced its ownership interest in
Dynegy to below five percent.
Business Relationships with BG plc and Centrica plc; Other BG plc and
Centrica plc Gas Services Businesses. In February 1997, British Gas plc
completed a demerger transaction, which created two separate publicly traded
companies: BG plc ("BG plc") and Centrica plc ("Centrica"). BG plc is the
parent corporation of BG Holding, which was the record-holder of Dynegy common
stock prior to the merger. Centrica owns British Gas plc's former interests in
the Accord Energy Limited joint venture with Dynegy. Various business
relationships between BG, Centrica and Dynegy, together with BG's and
Centrica's operations as major natural gas service companies, may present
conflicts of interest as BG, Centrica and Dynegy each separately pursues
business opportunities.
Accord Joint Venture. Effective May 2, 1997, Centrica and Dynegy completed
the restructuring of Accord in which certain stock interests in Accord were
converted to participating preferred stock interests. Centrica and Dynegy
currently own 75% and 25%, respectively, of the participating preferred stock
of Accord. The participating preferred stock has (a) the right to receive
cumulative dividends on a priority to other corporate distributions by Accord,
and (b) limited voting rights. In addition, Centrica has the option to
purchase Dynegy's participating preferred stock at any time after July 1,
2000, at a formula based price. As part of the reorganization, Centrica
operates Accord while Dynegy obtained the right to market natural gas, gas
liquids and crude oil in the United Kingdom, which occurs through its wholly-
owned subsidiary Dynegy UK Limited.
Pursuant to the terms of the merger, BG reduced its ownership interest in
Dynegy to below five percent.
Business Relationships with Chevron; Chevron's Other Businesses. Various
business relationships between Chevron and Dynegy, together with Chevron's
operations as a major vertically integrated energy company, may present
conflicts of interest as Chevron and Dynegy each pursue business
opportunities.
Ancillary Agreements and Strategic Alliances Contemplated by the Chevron
Combination. In connection with the August 1996 Chevron Combination, Dynegy
and Chevron, or affiliates thereof, entered into certain supply, sales and
service agreements pursuant to which, among other things, Dynegy has (i) the
obligation to purchase and the right to market substantially all natural gas
and natural gas liquids produced or controlled by Chevron in the United States
(except Alaska) and to supply natural gas and natural gas liquids feedstock to
Chevron refineries and Chevron Chemical plants in the United States, (ii) the
right to participate in existing and future opportunities to provide
electricity to United States facilities of Chevron and Chevron Chemical, as
well as to purchase or market excess electricity generated by such facilities,
and (iii) 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. During 1999, Dynegy purchased $1.8 billion of
natural gas, natural gas liquids and crude
17
<PAGE>
oil produced or controlled by Chevron, and sold $974.5 million of natural gas,
natural gas liquids and crude oil to Chevron refineries and Chevron Chemical
plants in the United States.
In 1996, Dynegy and Chevron formed Venice Gas Processing Company, a Texas
limited partnership. Venice Gas was formed for the purpose of owning and
operating the Venice Complex, located in Plaquemines Parish, Louisiana. In
1997, Venice Gas reorganized as a limited liability company changing its name
to Venice Energy Services Company, L.L.C. In September 1997, Venice Energy
members agreed to expand ownership in Venice Energy to include an affiliate of
Shell Midstream Enterprises, a subsidiary of Shell Oil Company effective
September 1, 1997, in exchange for Shell's commitment of certain offshore
reserves to Venice Energy. In 1998, ownership in Venice Energy was again
expanded to include Koch Energy Services Company, in exchange for their
contribution of the cryogenic processing unit. At December 31, 1999, Dynegy's
interest in Venice Energy approximated 22.9 percent. Dynegy operates the
facility and has commercial responsibility for product distribution and sales.
Other Chevron Business. Chevron Corporation, the parent company of Chevron,
is a major vertically integrated oil and gas company, and is the sixth largest
oil and gas company (by revenues) in the world. Chevron Corporation, through
its subsidiaries, affiliates and joint ventures, is involved in exploration
and production of oil and gas, gas gathering, gas and NGL transportation and
storage, refining and distribution (wholesale and retail).
Accordingly, Chevron's Corporation's present operation and its pursuit of
additional gas services opportunities overlap with Dynegy's operations and
strategy. There are no contractual limits on Chevron Corporation's ability to
compete with Dynegy. Accordingly, conflicts of interest may arise between
Chevron Corporation, and its affiliates, and Dynegy as they each pursue
natural gas services business opportunities. These conflicts may be resolved
in favor of Chevron Corporation.
In connection with the merger, Dynegy and Chevron entered into a
shareholders agreement which allows the Chevron-designated Class B common
stock Directors to block certain corporate transactions. Chevron is Dynegy's
largest shareholder and currently owns approximately 28.9 percent of the
common stock of Dynegy.
Compensation Committee Report on Executive Compensation
The Compensation Committee/Options Committee. The Compensation Committee of
the Board of Directors is responsible for developing Dynegy's executive
compensation philosophy. It is the duty of the Compensation Committee to
administer the philosophy and its relationship with the compensation paid to
the Chief Executive Officer and each of the other executive officers. During
1999, the Options Committee of the Board of Directors was responsible for
approving awards under the Dynegy Employee Equity Option Plan, the Dynegy
Amended and Restated 1991 Stock Option Plan, the Dynegy U.K. Stock Option Plan
and the Dynegy 1999 Long-Term Incentive Plan. During 1999, the Compensation
Committee met five times. The 1999 Compensation Committee was chaired by
Daniel L. Dienstbier, an independent director, and was comprised of five
members, including the Chairman. During 1999, the Options Committee met one
time. During 1999, the Options Committee was comprised of Dynegy's two
independent directors--Daniel L. Dienstbier, Chairman, and J. Otis Winters.
The executive compensation philosophy at Dynegy is to reward the
executive's performance that creates long-term shareholder value. Dynegy's
executive compensation program was designed to help Dynegy attract, motivate
and retain the executive resources that Dynegy needs in order to maximize its
return to shareholders. Dynegy's goal is to provide its executives with a
total compensation package that--at expected levels of performance--is above
average compared with those provided to executives who hold comparable
positions or have similar qualifications in other similarly situated
organizations. Salary increases, annual incentive awards and long-term
incentive grants are reviewed annually to ensure consistency with Dynegy's
total compensation philosophy. Dynegy also seeks to encourage employee
participation in stock ownership, thereby aligning employees' interests with
those of stockholders and providing an incentive to increase shareholder
value. To
18
<PAGE>
achieve this goal, Dynegy makes extensive use of stock option awards to
executives, managers and key employees. Employee stock ownership is also
accomplished through Company stock contributions to the 401(k) Plan.
The Compensation Committee primarily compares Dynegy's executive
compensation program to other national energy merchants of comparable size.
The Compensation Committee also consults from time to time with outside
consultants experienced in executive compensation, and, Dynegy also has access
to and utilizes an extensive nationwide database that tracks pay trends for a
broad industry index in which Dynegy competes for executives and senior
management.
During 1999, Dynegy's executive compensation program consisted of three
main components: (1) base salary; (2) potential for an annual incentive award
based on overall Company performance as well as individual performance; and
(3) the opportunity to earn stock-based incentives, which are intended to
encourage the achievement of superior results over time and to align executive
officer and shareholder interests. The second and third elements constitute
the "at risk" portion of the compensation program.
Base Salary. All decisions regarding base salary are made based upon
individual performance as measured against pre-established individual
objectives and competitive practice as measured by periodic compensation
surveys. Base salaries are targeted at competitive levels when compared to an
industry group that includes peer group companies, including those reflected
in the performance graph, and general industry companies similar in size to
Dynegy.
Annual Incentive Awards. During 1999, Dynegy's mechanism for awarding
annual bonuses to its executive officers was the corporate Incentive
Compensation Plan. The Incentive Compensation Plan is used to provide
incentive payments to all non-union salaried employees of Dynegy. The basis
for the payment of annual bonuses under the Incentive Compensation Plan is a
combination of attaining certain corporate and/or business unit performance
goals recommended and approved by the Board of Directors (i.e., earnings per
share, net income, cash-flow, return on capital employed) and personal
performance.
In 1999, Dynegy's financial results exceeded certain performance
thresholds. An incentive fund was created which was consistent with Dynegy's
pay for performance philosophy.
Long-term Incentive Compensation. During 1999 Dynegy administered four
stock option plans, the Employee Equity Option Plan, the Amended and Restated
1991 Stock Option Plan, the U.K. Stock Option Plan and the 1999 Long-Term
Incentive Plan, for certain key employees, including executive officers.
Dynegy's long-term incentive compensation is primarily based upon the grants
of market value stock option awards pursuant to the Amended and Restated 1991
Stock Option Plan and the 1999 Long Term Incentive Plan. Such awards are
consistent with the stock option awards made by similarly situated companies
in Dynegy's industry who are aggressive in the use of stock option awards as a
means of long-term compensation. During 1999, Dynegy also made additional
restrictive grants of below-market value stock option awards pursuant to the
Employee Equity Option Plan. Such awards are made to attract and retain key
employees. Levels for stock option grants are established based on an
employee's position and performance and are targeted to provide a total
compensation package that, together with base salary and annual incentive
awards, is above average. During 1999, the Options Committee was responsible
for approving stock option awards. Stock option grants were awarded to all
executive officers of Dynegy during 1999. Effective with the merger with
Illinova on February 1, 2000, each of the four option plans described above
were terminated, and a new plan, the Dynegy Inc. 2000 Long Term Incentive
Plan, was adopted.
Compensation of Chief Executive Officer; Employment Agreement. Mr. Watson
entered into an employment agreement with Dynegy effective May 15, 1997, which
provided Mr. Watson an initial annual base salary of $999,000, subject to
increase. Under the terms of his employment agreement, Mr. Watson's base
salary is increased at such times and in such amounts, if any, as may be
determined by the Board of Directors. In addition to his base salary, Mr.
Watson's employment agreement also provides for incentive compensation
19
<PAGE>
payments through Mr. Watson's participation in Dynegy's Incentive Compensation
Plan, subject to a minimum guaranteed bonus of $500,000. Such payments are
based on individual performance and the profitability of Dynegy. During 1999,
Mr. Watson's base salary was increased to $1,060,000 from $999,000. Also
during 1999, Mr. Watson received stock option awards in conjunction with
Dynegy's option plan and discounted options in recognition of his leadership
in concluding the merger.
In determining Mr. Watson's base salary adjustment and annual incentive
award for 1999, the Compensation Committee considered Mr. Watson's efforts in
(1) executing Dynegy's long-term business strategy, (2) the financial
performance of Dynegy and (3) the merger.
After consideration of these criteria and 1999 corporate performance, the
Compensation Committee approved an annual incentive award of $4,800,000 for
Mr. Watson, $2,300,000 based on 1999 performance and a discretionary bonus of
$2,500,000 in recognition of Mr. Watson's efforts in connection with the
merger. Of the $2,500,000 discretionary bonus, $2,000,000 was paid in February
2000 as an additional bonus for 1999 and the remaining $500,000 is payable in
February 2001. Under the terms of his employment agreement, Mr. Watson is also
entitled to receive, at a minimum each year during the term of his agreement,
market value stock option grants under the Amended and Restated 1991 Stock
Option Plan with a five-year projected value of $1,500,000 (assuming a 15%
annual growth rate in the price of Dynegy's common stock, which is now Class A
common stock). In November 1999, Mr. Watson received a grant of 500,000
options under the Amended and Restated 1991 Stock Option Plan, with an
exercise price of $22.94 per share. In addition, Mr. Watson received a grant
of 318,361 options under the Employee Equity Option Plan, with an exercise
price of $5.664, equal to "in-the-money" value of $5,500,000. Of the 318,361
options awarded to Mr. Watson, 202,593 of the 318,361 vest 60% at the
completion of Mr. Watson's three-year employment agreement with the remaining
40% of the 202,593 vesting five years from the date of grant pursuant to the
terms of the Employee Equity Option Plan. The remaining 115,768 of the 318,361
options awarded to Mr. Watson also vest five years from the date of grant
pursuant to the terms of the Employee Equity Option Plan.
Effective with the February 1, 2000 closing of the merger, Mr. Watson
entered into a new employment agreement with Dynegy Marketing and Trade, a
wholly-owned subsidiary of Dynegy. See "--Employment Agreements."
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for certain compensation over $1,000,000 paid to Dynegy's
Chief Executive Officer and four other most highly compensated executive
officers, as reported in this Proxy Statement. Excluded from the limitation is
compensation that is "performance based." For compensation to be performance
based, it must meet certain criteria, including being based on predetermined
objective standards approved by shareholders. Dynegy does not believe that
Section 162(m) applies to its corporate structure. However, in general, Dynegy
believes that compensation relating to options granted under its market value
Stock Option Plan should be excluded from the $1,000,000 limitation.
Compensation relating to Dynegy's Incentive Compensation Plan does not
currently qualify for exclusion from limitation, given the discretion that is
provided to the Compensation Committee under such plans in determining the
actual amount of such awards. The Committee believes that maintaining the
discretion to evaluate the performance of Dynegy's management is an important
part of its responsibilities and inures to the benefit of Dynegy's
shareholders. The Committee, however, will continue to take into account the
potential application of Section 162(m) with respect to incentive compensation
awards and other compensation decisions made by it in the future.
All amounts paid or accrued during fiscal year 1999 under the above-
described plans and programs are included in the preceding tables. The
individuals who served as members of the Compensation Committee during 1999
are listed below. Except for Stephen W. Bergstrom, no member of the Dynegy
Compensation Committee was an officer or employee of Dynegy, or any of its
subsidiaries during 1999.
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Compensation and Human Resources Committee
Daniel L. Dienstbier, Chairman
Stanley I. Rubenfeld
Darald W. Callahan
Jack S. Mustoe
Stephen W. Bergstrom
Options Committee
Daniel L. Dienstbier, Chairman
J. Otis Winters
Shareholder Return Performance Presentation
The performance graph shown on the following page was prepared by Standard
& Poors Compustat, a division of McGraw-Hill, Inc., using data from the
Standard & Poors Compustat Database for use in this Proxy Statement. As
required by applicable rules of the SEC, the graph was prepared based upon the
following assumptions:
1. One hundred dollars ($100) was invested in Common stock, the S&P 500
and the Peer Group (as defined below) on December 31, 1994.
2. The returns of each component company in the Peer Group are weighed
based on the market capitalization of such company at the beginning of the
measurement period.
3. Dividends are reinvested on the ex-dividend dates.
Dynegy's Peer Group for fiscal year-ended December 31, 1999 is comprised of
a weighted index of seven energy services companies: AES Corporation, Calpine
Corporation, Duke Energy Corp., Enron Corp., Pacific Gas & Electric Company,
Reliant Energy Incorporated, and Southern Co.; seven utilities: Allegheny
Energy Inc., American Electric Power Corporation, Cinergy Corporation;
Commonwealth Edison Corp., Dayton Power & Light Company, FirstEnergy Corp. and
NiSource Inc.; and two midstream gas and natural gas liquids companies:
Mitchell Energy & Development Corporation and Western Gas Resources Inc. The
results were weighted 65% energy services group, 20% utilities group and 15%
midstream group to acknowledge Dynegy's evolution from a producer and a
marketer of natural gas and natural gas liquids to an energy services company
with an expanding presence in the BTU convergence market. Dynegy's previous
Peer Group was comprised of a weighted index of five midstream gas and natural
gas liquids companies: Aquila Gas Pipeline Corporation, KN Energy Inc.,
Mitchell Energy & Development Corporation, Western Gas Resources Inc. and
MarkWest Hydrocarbon Inc. and five energy services companies: Duke Energy
Corp., Enron Corp., Reliant Energy Incorporated, Pacific Gas & Electric
Company and Southern Co. For fiscal year ended December 31, 1998, the results
of the 1998 midstream group were weighted 85% and the results of the 1998
energy services group were weighted 15% to correspond with the historic
correlation (85%) that Dynegy's stock price had had with liquids prices, yet
acknowledge Dynegy's expanding presence in the BTU convergence market.
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<PAGE>
[CHART APPEARS HERE]
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
<TABLE>
<CAPTION>
ANNUAL RETURN PERCENTAGE
Years Ending
----------------------------------
Dec. Dec. Dec. Dec. Dec.
Company Name/Index 95 96 97 98 99
------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dynegy Inc................................... -15.02 162.80 -24.52 -37.27 122.88
S&P 500 Index................................ 37.58 22.96 33.36 28.58 21.04
New Peer Group............................... 26.20 5.68 27.67 4.59 12.86
Old Peer Group............................... 14.71 22.75 26.50 -37.68 17.13
</TABLE>
INDEXED RETURNS
<TABLE>
<CAPTION>
INDEXED RETURNS
Year Ending
----------------------------------
Base
Period Dec. Dec. Dec. Dec. Dec.
Company Name/Index Dec. 94 95 96 97 98 99
------------------ ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Dynegy Inc........................... 100 84.88 223.33 168.57 105.75 235.69
S&P 500 Index........................ 100 137.58 169.17 225.60 290.08 351.12
New Peer Group....................... 100 126.20 133.37 170.28 178.09 200.99
Old Peer Group....................... 100 114.71 140.80 178.12 111.00 130.01
</TABLE>
22
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Arthur Andersen LLP as
independent auditors of Dynegy for the fiscal year ending December 31, 2000,
and recommends ratification by the shareholders of such appointment. Such
ratification requires the affirmative vote of a majority of the shares of
Class A common stock, Series A preferred stock and Class B common stock,
voting together as a single class, present or represented by proxy and
entitled to vote at the annual meeting. Under Illinois law, an abstention
would have the same legal effect as a vote against this proposal, but a broker
non-vote would not be counted for purposes of determining whether a majority
has been achieved. The persons named in the accompanying proxy intend to vote
for ratification of such appointment unless instructed otherwise on the proxy.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of Arthur Andersen LLP as Dynegy's independent
auditors without the approval of the shareholders of Dynegy whenever the Board
of Directors deems such termination necessary or appropriate. A representative
of Arthur Andersen LLP is expected to attend the annual meeting and will have
the opportunity to make a statement, if such representative desires to do so,
and will be available to respond to appropriate questions.
The Board of Directors recommends that shareholders vote "FOR" ratification
of the appointment of Arthur Andersen LLP as independent auditors.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit a proposal for inclusion in the proxy
material and for presentation at Dynegy's 2001 annual meeting of Shareholders
must forward such proposal to the Secretary of Dynegy at the address indicated
on the first page of this Proxy Statement so that the Secretary receives it no
later than December 21, 2000.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the annual meeting. However, if any other matters
properly come before the annual meeting or any adjournment(s) or
postponement(s) thereof, it is intended that the enclosed proxy will be voted
in accordance with the judgment of the persons named in the proxy.
By Order of the Board of Directors,
/s/ Kenneth E. Randolph
-----------------------------------
Kenneth E. Randolph
General Counsel and Secretary
March 31, 2000
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<PAGE>
PROXY - CLASS A COMMON STOCK
DYNEGY INC.
1000 LOUISIANA, SUITE 5800
HOUSTON, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DYNEGY INC.
The undersigned hereby appoints C.L. Watson, Kenneth E. Randolph and John U.
Clarke, and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse side, all the shares of Class A Common Stock of Dynegy
Inc. held of record by the undersigned on March 29, 2000 at the Annual Meeting
of Shareholders to be held at the Doubletree Hotel at Allen Center, LaSalle
Ballroom, 400 Dallas Street, Houston, Texas, 77002 at 10:00 A.M. on Friday May
12, 2000, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2. THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO VOTE
IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED ON REVERSE SIDE)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
Please mark
your votes as [X]
indicated in
this example
1. Election of Directors
Insert your vote for nominees named below in the designated space provided.
Directors will be elected by cumulative voting. Vote the number of shares owned
or controlled by you multiplied by ten. This number of shares may be cast for
any one nominee or may be distributed between nominees as you wish. Shareholders
may withhold authority to vote for any nominee by entering zero in the space
following the nominee's name.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR all nominees WITHHOLD Nominees - Class A common stock Votes
listed to the right, cumulative AUTHORITY 1. C.L. Watson _____________________
votes to be divided equally for all ten nominees 2. Stephen W. Bergstrom _____________________
between the nominees listed to the left 3. J. Joe Adorjan _____________________
4. Charles E. Bayless _____________________
[_] [_] 5. Daniel L. Dienstbier _____________________
6. C. Steven McMillan _____________________
Note: The total number of votes you cast in the election of the 7. Robert M. Powers _____________________
directors should not exceed the number of shares shown 8. Sheli Z. Rosenberg _____________________
above times ten. 9. Joe J. Stewart _____________________
10. J. Otis Winters _____________________
</TABLE>
2. Proposal to ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for the fiscal year ending December 31, 2000.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment thereof.
CHECK IF YOU PLAN TO ATTEND THE ANNUAL MEETING [_]
Please sign exactly as your name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, trustee or guardian, please
give full title as such. If a corporation, please sign full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated:___________________________________________________, 2000
_____________________________________________________________
(SIGNATURE OF SHAREHOLDER)
_____________________________________________________________
(SIGNATURE OF SHAREHOLDER)
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