Filed by Dynegy Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Dynegy Inc.
Commission File No.: 001-15659
Subject Company: Enron Corp.
Commission File No.: 001-13159
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although Dynegy and Enron believe these
statements are accurate, their businesses are dependent on various regulatory
issues, general economic conditions and future trends. The completion of the
transaction is conditioned upon the fulfillment of a number of conditions, and
the success of the combination of the two companies will be dependent on a wide
range of issues. These factors can cause actual results to differ materially
from the forward-looking statements that have been made. In particular:
The benefits that are expected to result from the combination are predicated
upon the belief that combining the complementary expertise and resources of
Dynegy and Enron will result in increased opportunities and decreased expenses.
Because of the complexity of the environments in which the two companies
operate, there can be no certainty that these benefits will be achieved to the
extent expected.
The estimate of the accretiveness of the transaction reflects the companies'
current best estimates based upon available information and numerous assumptions
and, accordingly, may or may not be achieved if business conditions change or
the assumptions that have been made do not prove to be accurate.
Significant regulatory approvals are necessary to complete the transaction,
including approvals under the HSR Act, the FERC, the SEC and certain state and
foreign authorities. There can be no assurances that the exemption and approvals
will be obtained on a timely basis and on acceptable terms. In addition, Dynegy
and Enron operate in regulated environments. Any significant changes in these
regulatory environments could negatively impact the transaction and the combined
entity.
ADDITIONAL INFORMATION
In connection with the proposed transactions, Dynegy and Enron will file a joint
proxy statement/prospectus with the Securities and Exchange Commission.
INVESTORS AND SECURITY HOLDERS ARE URGED TO CAREFULLY READ THE JOINT PROXY
STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTIONS WHEN IT BECOMES
AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Investors and security
holders may obtain a free copy of the joint proxy statement/prospectus (when it
is available) and other documents containing information about
Dynegy and Enron, without charge, at the SEC's web site at www.sec.gov. Copies
of the joint proxy statement/prospectus and the SEC filings that will be
incorporated by reference in the joint proxy statement/prospectus may also be
obtained for free by directing a request to either: Investor Relations, Dynegy
Inc., 1000 Louisiana, Suite 5800, Houston, Texas 77002, Phone: (713) 507-6466,
Fax: (713) 767-6652; or Investor Relations, Enron Corp., Enron Building, 1400
Smith Street, Houston, Texas 77002, Phone: (713) 853-3956, Fax: (713) 646-3302.
In addition, the identity of the persons who, under SEC rules, may be considered
"participants in the solicitation" of Dynegy and Enron shareholders in
connection with the proposed transactions, and any description of their direct
or indirect interests, by security holdings or otherwise, are available in an
SEC filing under Schedule 14A made by each of Dynegy and Enron on November 13,
2001.
MERGER AGREEMENT
On November 9, 2001, Dynegy Inc., an Illinois corporation ("Dynegy"),
Stanford, Inc., a Delaware corporation and wholly owned subsidiary of Dynegy
("Newco"), Sorin, Inc., an Oregon corporation and wholly owned subsidiary of
Newco ("Enron Merger Sub"), Badin, Inc., an Illinois corporation and wholly
owned subsidiary of Newco ("Dynegy Merger Sub"), and Enron Corp., an Oregon
corporation ("Enron"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"), whereby, subject to the conditions stated therein, (i) Enron Merger
Sub will merge with and into Enron, with Enron surviving as a wholly owned
subsidiary of Newco (the "Enron Merger"), and (ii) Dynegy Merger Sub will merge
with and into Dynegy, with Dynegy surviving as a wholly owned subsidiary of
Newco (collectively with the Enron Merger, the "Mergers"). At the effective time
of the Mergers, (1) each issued and outstanding share of common stock, no par
value, of Enron will be converted into 0.2685 shares (the "Enron Merger Ratio")
of Class A common stock, par value $0.01 per share, of Newco ("Newco Class A
Common Stock"), and (2) each issued and outstanding share of Class A common
stock, no par value, of Dynegy and each outstanding share of Class B common
stock, no par value, of Dynegy will be converted into one share of Newco Class A
Common Stock and one share of Class B common stock, par value $0.01 per share,
of Newco, respectively.
Under the Merger Agreement, Enron is entitled to issue up to $2 billion
of additional equity securities prior to consummation of the Mergers. However,
the Enron Merger Ratio is subject to downward adjustment if Enron issues equity
securities at an equivalent Enron common stock price that is less than the
product of (1) the existing Enron Merger Ratio and (2) the last reported price
of Dynegy Class A common stock as reported on the New York Stock Exchange on the
day that a price is determined pursuant to a binding agreement for such
issuance.
The Merger Agreement provides that the parties will cooperate with each
other in analyzing and determining a structure that results in a single
corporation with substantially all the senior debt (other than that of regulated
utility subsidiaries) of Dynegy, Dynegy Holdings Inc., a subsidiary of Dynegy,
and Enron, and will promptly execute an appropriate amendment to the Merger
Agreement to reflect such structure.
The closing of the Mergers will occur on the first business day
immediately following the day on which all of the conditions to the Mergers
contained in the Merger Agreement have been fulfilled or waived or on such other
date as Dynegy and Enron may agree, but in no event prior to the expiration of a
period of six months after the initial purchase of shares of Dynegy Series B
Preferred Stock by ChevronTexaco Corporation as described below. The closing of
the Mergers is conditioned upon the approval of the shareholders of both Dynegy
and Enron, the receipt of applicable regulatory approvals, including the
expiration or termination of the waiting period prescribed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other
customary conditions, including the absence of any events or series of events
that has had or is reasonably likely to have a material adverse effect on Enron
or Dynegy, excluding the effects of general economic and industry conditions,
all as further described in the Merger Agreement. Under the Merger Agreement, if
Enron's liabilities and expenses from and after November 9, 2001 associated with
all pending or threatened litigation matters, in the reasonable judgment of
Dynegy exercised in good faith after consultation with outside counsel
experienced in such types of litigation, exceed, or are reasonably likely to
exceed, $2 billion in the aggregate (net of
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proceeds of insurance and litigation reserves reflected in Enron's financial
statements), the amount of such excess over $2 billion will be taken into
account in determining whether a material adverse effect on Enron has occurred,
and, in any event, if the amount of such excess exceeds, or is reasonably likely
to exceed, $1.5 billion, a material adverse effect on Enron will be deemed to
have occurred. The Merger Agreement provides that Dynegy or Enron may be
required to pay a termination fee of $350 million to the other party under
certain circumstances relating to competing transactions or a change in the
recommendation of the party's board to its shareholders.
In connection with the execution and delivery of the Merger Agreement,
each of Chevron U.S.A. Inc., the holder of approximately 27% of the outstanding
Dynegy common stock, and Charles L. Watson, the Chairman of the Board and Chief
Executive Officer of Dynegy, have entered into a Shareholder Agreement with
Enron, pursuant to which each has agreed to vote its or his shares of Dynegy
common stock in favor of the transactions contemplated by the Merger Agreement
and to refrain from soliciting a competing transaction to the Mergers.
The Merger Agreement and the two Shareholder Agreements are
incorporated herein by reference as provided below. The text of a joint press
release issued by Dynegy and Enron is incorporated herein by reference as
provide below. The foregoing description of the Merger Agreement and the
Shareholder Agreements, and the transactions contemplated in such documents, is
qualified in its entirety by reference to such documents.
EQUITY INVESTMENT
Preferred Stock Purchase. In connection with the Merger Agreement,
Dynegy entered into a Subscription Agreement (the "Subscription Agreement") with
Enron and Northern Natural Gas Company, a Delaware corporation and indirect
subsidiary of Enron ("Northern Natural"), pursuant to which Dynegy purchased
1,000 shares of Northern Natural's Series A Preferred Stock, par value $.01 per
share ("Series A Preferred"), for $1.5 billion on November 13, 2001.
The Series A Preferred ranks senior to all common stock of Northern
Natural and is entitled to dividends when, as and if declared by the board of
directors of Northern Natural at a rate of 6%, payable annually beginning on
January 31, 2003, or, at Northern Natural's option, quarterly. In the event of
any liquidation or winding up of Northern Natural, the holders of Series A
Preferred will be entitled to receive in preference to the holders of the common
stock, an amount equal to $1,500,000 per share plus accrued and unpaid
dividends, if any.
The Series A Preferred is redeemable in whole, but not in part, at the
option of Northern Natural:
o for a period of six months from the date the Merger Agreement
has been terminated by (a) the mutual written consent of
Dynegy and Enron ("Mutual Consent"); (b) either Dynegy or
Enron if, subject to certain extensions, the Mergers have not
been consummated by November 30, 2002 ("Time Expiration
Event"); or (c) either Dynegy or Enron if a court or
governmental agency has issued a final, nonappealable order
permanently prohibiting the transactions contemplated in the
Merger Agreement ("Court Order Event");
o for a period of six months from the third anniversary of the
termination of the Merger Agreement by (a) Dynegy or Enron if
the shareholders of Enron do not approve the Mergers at the
meeting held for that purpose ("Enron Shareholder No
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Vote"); (b) Enron prior to receiving shareholder approval of
the Mergers if Enron has received an Enron Superior Proposal
(as defined in the Merger Agreement) and entered into a
binding definitive written agreement providing for the
implementation of the Enron Superior Proposal ("Enron Superior
Proposal Event"); (c) Dynegy if Enron has breached its
representation, warranties or covenants in the Merger
Agreement ("Enron Breach"); or (d) Dynegy if the board of
directors of Enron has withdrawn or materially modified (in a
manner adverse to Dynegy) its approval or recommendation of
the Merger Agreement or recommends to its shareholders another
proposal to acquire Enron ("Enron Board Action");
o for a period of one year from the date the Merger Agreement
has been terminated by (a) Enron or Dynegy if the shareholders
of Dynegy do not approve the Mergers at the meeting held for
that purpose ("Dynegy Shareholder No Vote"); (b) Dynegy prior
to receiving shareholder approval of the Mergers if Dynegy has
received a Dynegy Superior Proposal (as defined in the Merger
Agreement) and entered into a binding definitive written
agreement providing for the implementation of the Dynegy
Superior Proposal ("Dynegy Superior Proposal Event"); or (c)
Enron if the board of directors of Dynegy has withdrawn or
materially modified (in a manner adverse to Enron) its
approval or recommendation of the Merger Agreement or
recommends to its shareholders another proposal to acquire
Dynegy ("Dynegy Board Action"); and
o for a period of one year from the date that Enron notifies
Dynegy that it is terminating the Merger Agreement based on
any Dynegy breach of its representations, warranties or
covenants in the Merger Agreement ("Dynegy Breach");
in each case, at a redemption price equal to the liquidation preference amount;
provided, that on the date of the redemption the board of directors of Northern
Natural declares and pays all accrued and unpaid dividends on the Series A
Preferred.
Without the approval of the holders of at least a majority of the
Series A Preferred, Northern Natural will not, among other things, issue any
capital stock, sell any assets above a specified threshold, make a voluntary
bankruptcy filing or incur certain indebtedness.
Option Agreement. In connection with the Subscription Agreement, Dynegy
entered into an Option Agreement (the "Option Agreement") with CGNN Holding
Company, Inc., a Delaware corporation and indirect subsidiary of Enron ("CGNN"),
MCTJ Holding Co. LLC, a Delaware limited liability company and a subsidiary of
CGNN ("MCTJ"), Enron and Dynegy Holdings Inc., a Delaware corporation and a
subsidiary of Dynegy ("Dynegy Holdings"), for consideration of $1 million.
Pursuant to the Option Agreement, Dynegy Holdings has the option to purchase all
of the membership interests of MCTJ in certain circumstances. MCTJ indirectly
owns all of the common stock of Northern Natural.
The exercise price for the option is $23 million, plus the amount by
which Northern Natural's indebtedness under its bank credit facility and senior
notes is less than $950 million (or minus the amount by which such indebtedness
exceeds $950 million), subject to adjustment for the amount of working capital
at the time of the exercise. Dynegy Holdings may exercise the option:
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o at any time after (collectively, the "Purchase Option Events")
o the Merger Agreement has been terminated pursuant to
an Enron Shareholder No Vote, an Enron Superior
Proposal Event or an Enron Board Action; or
o Dynegy has notified Enron that it is terminating the
Merger Agreement pursuant to an Enron Breach;
o at any time beginning six months plus one day after the Merger
Agreement has been terminated pursuant to Mutual Consent, a
Time Expiration Event or a Court Order Event; and
o at any time beginning one year after
o the Merger Agreement has been terminated pursuant to
a Dynegy Shareholder No Vote, a Dynegy Superior
Proposal or a Dynegy Board Action; or
o Enron has notified Dynegy that it is terminating the
Merger Agreement pursuant to a Dynegy Breach.
The option will terminate if (i) the Mergers are consummated, (ii) the
Series A Preferred is exchanged for Enron common stock pursuant to the Exchange
Agreement described below or (iii) the Series A Preferred is redeemed in
accordance with its terms.
Purchase Option Agreement. In connection with the Subscription
Agreement, Dynegy also entered into a Purchase Option Agreement (the "Purchase
Option Agreement") with CGNN, MCTJ, Northern Natural, Enron and Dynegy Holdings.
Pursuant to the Purchase Option Agreement, if Dynegy Holdings has purchased all
of the membership interests of MCTJ pursuant to the Option Agreement after any
of the Purchase Option Events, CGNN will have the option for 90 days after such
purchase (up to 180 days in some circumstances) to purchase
o all of the membership interests of MCTJ for $24 million, plus
the amount by which Northern Natural's indebtedness under its
bank credit facility and senior notes is less than $950
million (or minus the amount by which such indebtedness
exceeds $950 million), plus accrued and unpaid dividends on
the Series A Preferred through the date of the purchase by
Dynegy Holdings of the membership interests of MCTJ pursuant
to the Option Agreement, subject to adjustment for changes in
working capital and other long-term debt since the purchase by
Dynegy Holdings of the membership interests of MCTJ pursuant
to the Option Agreement; and
o the Series A Preferred for $1.5 billion.
Exchange Agreement. In connection with the purchase of the Series A
Preferred, Dynegy entered into an Exchange Agreement (the "Exchange Agreement")
with Enron. Pursuant to the Exchange Agreement, each share of Series A Preferred
is exchangeable for a number of shares of common stock of Enron determined by
dividing the liquidation preference amount, plus all accrued and unpaid
dividends, by $8.86, subject to adjustment based on changes to the Enron Merger
Ratio (as defined in the Merger Agreement) pursuant to the Merger Agreement:
o at the option of Dynegy during the 90-day period beginning on
the date the Merger Agreement is terminated pursuant to an
Enron Shareholder No Vote (after the public announcement of a
proposal by a third party to acquire Enron), an Enron Superior
Proposal Event or an Enron Board Action; and
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o at the option of Enron during the 15-day period beginning on
the date the Merger Agreement is terminated pursuant to a
Dynegy Shareholder No Vote (after the public announcement of a
proposal by a third party to acquire Dynegy), a Dynegy
Superior Proposal Event or a Dynegy Board Action.
The Exchange Agreement will terminate if (i) the Mergers are
consummated, (ii) the option under the Option Agreement is exercised or (iii)
the Series A Preferred is redeemed in accordance with its terms.
In the event that Dynegy is prevented from receiving Enron common stock
because the conditions for the issuance have not been satisfied, Dynegy will
have the right to assign its rights under the Exchange Agreement to any third
party or Enron will issue to Dynegy shares of a new class of Enron preferred
stock convertible into an equivalent number of shares of Enron common stock. In
the event that the conditions for Dynegy to receive Enron common stock are not
satisfied after twelve months, Dynegy may instead elect to withdraw its exercise
of the exchange right and exercise its rights under the Option Agreement, or
receive equivalent consideration from Enron.
Registration Rights Agreement. Dynegy and Enron also have entered into
a Registration Rights Agreement (the "Registration Rights Agreement") that
provides for customary registration rights for the sale by Dynegy of any shares
of Enron common stock received upon exchange of Series A Preferred.
The Subscription Agreement, the Certificate of Designations of the
Series A Preferred Stock of Northern Natural Gas Company, the Option Agreement,
the Purchase Option Agreement, the Exchange Agreement and the Registration
Rights Agreement are incorporated herein by reference as provided below. The
foregoing description of the Subscription Agreement, the Certificate of
Designations of the Series A Preferred Stock of Northern Natural Gas Company,
the Option Agreement, the Purchase Option Agreement, the Exchange Agreement and
the Registration Rights Agreement, and the transactions contemplated in such
documents, is qualified in its entirety by reference to such documents.
CHEVRON INVESTMENTS
In connection with the Mergers, ChevronTexaco Corporation
("ChevronTexaco"), the parent corporation of Chevron U.S.A. Inc. ("Chevron"), a
shareholder of Dynegy, has agreed to invest up to an aggregate of $4.0 billion
in Dynegy and Newco. ChevronTexaco purchased $1.5 billion of Series B
Mandatorily Convertible Redeemable preferred stock, no par value ("Series B
preferred stock"), of Dynegy on November 13, 2001, the proceeds of which were
used to finance Dynegy's investment in Northern Natural. At the closing of the
Mergers, ChevronTexaco will purchase an additional $1.0 billion of Newco Class B
Common Stock, unless ChevronTexaco determines that a material adverse effect
relating to Enron has occurred in certain circumstances and opts not to fund
such purchase (the "Chevron Out"). Also at the closing, if Chevron does not
exercise the Chevron Out, Chevron will receive warrants to purchase up to an
additional $1.0 billion of Newco Class B common stock, which can be increased to
$1.5 billion if Chevron commits, at the closing of the Mergers, to purchase at
least $500.0 million of Newco Class B common stock pursuant to such warrants.
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More specifically, the following is a description of the agreements
related to ChevronTexaco and Chevron in this transaction.
Agreements with Dynegy
Series B Preferred Stock Subscription Agreement. ChevronTexaco has
purchased 100,000 shares of Series B preferred stock for $1.5 billion. The terms
of the Series B preferred stock are governed by the Statement of Resolution
filed with the Secretary of State of the State of Illinois on November 13, 2001.
Among other things, the Statement of Resolution provides for the
conversion of the Series B preferred stock into shares of Dynegy Class B common
stock, no par value ("Dynegy Class B common stock"), upon certain circumstances.
The Series B preferred stock will automatically convert into Dynegy Class B
common stock immediately preceding the closing of the Mergers, unless Chevron
exercises the Chevron Out. If Chevron exercises the Chevron Out and the Mergers
close, Chevron can elect to convert the Series B preferred stock into Dynegy
Class B common stock immediately preceding the closing of the Mergers. In either
event, the Series B preferred stock will convert into a number of shares of
Dynegy Class B common stock determined by dividing $10,000 by the conversion
price. Initially, the conversion price will be equal to the lesser of (1)
$31.635 (a 5% discount to a specified sales price of Dynegy Class A common
stock, no par value ("Dynegy Class A common stock"), on November 7, 2001) and
(2) the average of the closing prices of Dynegy Class A common stock for the
five business days immediately preceding the business day prior to the closing
of the Mergers. If, however, the Merger Agreement is terminated, Chevron can
convert the Series B preferred stock, at a conversion price of $31.635, at any
time after the Merger Agreement is terminated until (1) two years from the
funding of its purchase of the Series B preferred stock if Chevron exercises the
Chevron Out or (2) November 9, 2003 if Chevron does not exercise the Chevron
Out.
Under certain circumstances, Dynegy is required to redeem any
outstanding shares of Series B preferred stock. If the Mergers occur, Chevron
exercises the Chevron Out and Chevron does not convert its shares, Dynegy may at
any time after, but must before the first anniversary of, the closing of the
Mergers redeem all outstanding Series B preferred stock at a redemption price of
$10,000, plus any accrued and unpaid dividends. If the Merger Agreement is
terminated, regardless of whether Chevron exercises the Chevron Out, Dynegy must
redeem all outstanding shares of Series B preferred stock at the redemption
price on the second anniversary of the issuance of the Series B preferred stock.
In this instance, Dynegy may not redeem the shares prior to the second
anniversary of the issuance of the Series B preferred stock.
The Series B preferred stock will not accrue any dividend unless the
Mergers close and Chevron exercises the Chevron Out. Then, Chevron will be
entitled to receive a special one-time dividend at 7% per annum for the period
starting on the date on which Dynegy issued the Series B preferred stock and
ending on the date on which Chevron exercised the Chevron Out. Dynegy will pay
this special dividend on the applicable redemption date. In addition, Chevron
will be entitled to receive a regular quarterly dividend equal to 7% per annum
for the period starting on the closing of the Mergers and ending on the
redemption date.
First Amendment to Registration Rights Agreement. In connection with
ChevronTexaco's
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purchase of the Series B preferred stock, Dynegy and Chevron have amended the
existing registration rights agreement to include the shares of Dynegy Class B
common stock into which the Series B preferred stock can convert.
Purchase Rights Agreement between Dynegy and ChevronTexaco.
ChevronTexaco is entitled to purchase shares of capital stock or other equity
securities of Newco to be issued upon consummation of the Mergers (after giving
effect to the cumulative changes to the Enron Merger Ratio) in exchange for any
additional shares of capital stock or other equity securities of Enron that
Enron issued between the date of the Merger Agreement and the date of the
closing of the Mergers pursuant to Section 7.1(f) of the Merger Agreement.
ChevronTexaco is entitled to purchase that number of shares to maintain its
proportionate ownership in Dynegy immediately prior to any issuance by Enron.
ChevronTexaco will purchase any such shares at a price equal to the product of
(1) the number of such additional shares purchased and (2) the closing price of
Dynegy Class A common stock on the date on which Enron issued the additional
securities.
The Series B Preferred Stock Subscription Agreement, the First
Amendment to the Registration Rights Agreement and the Purchase Rights Agreement
are incorporated herein by reference as provided below. The foregoing
description of the Series B Preferred Stock Subscription Agreement, the First
Amendment to the Registration Rights Agreement and the Purchase Rights
Agreement, and the transactions contemplated in such documents, is qualified in
its entirety by reference to such documents.
Agreements with Newco
Class B Common Stock Subscription Agreement. ChevronTexaco has agreed
to purchase from Newco, immediately following the consummation of the Mergers,
$1.0 billion of Newco Class B common stock. ChevronTexaco will purchase the
shares at a price equal to the quotient of $1.0 billion divided by the lesser of
(i) $32.83 (a 5% discount to the five-day average closing price of Dynegy Class
A common stock as of November 7, 2001) or (ii) the average of the closing prices
of Dynegy Class A common stock over the five consecutive trading days ending
immediately prior to one business day prior to the consummation of the Mergers.
A condition to funding is that Chevron has not exercised the Chevron Out. If
ChevronTexaco does not exercise the Chevron Out, it will also receive warrants
to purchase $1.0 billion of Newco Class B common stock, and if it commits at the
closing of the Mergers, an additional warrant obligating ChevronTexaco to
purchase an additional $500.0 million of Newco Class B common stock.
Series A Warrant to Purchase Newco Class B Common Stock. This warrant
entitles ChevronTexaco to purchase from Newco, at any time until two years
following the closing of the Mergers, up to $500.0 million of Newco Class B
common stock, at a purchase price of $34.55. This warrant will only be issued at
the closing of the Mergers if Chevron does not exercise the Chevron Out.
Series B Warrant to Purchase Newco Class B Common Stock. This warrant
entitles ChevronTexaco to purchase from Newco up to $500.0 million of Newco
Class B common stock at the lower of (1) the average of the closing prices of
Dynegy Class A common stock for the
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five days immediately preceding the date on which ChevronTexaco commits to
purchase shares and (2) the average closing price of Dynegy Class A common stock
for the five days immediately preceding the date on which ChevronTexaco notifies
Newco that it will settle such commitment. ChevronTexaco may commit to exercise
this warrant at any time until one year following the closing of the Mergers,
unless ChevronTexaco commits, at the closing of the Mergers, to purchase all of
the shares subject to the Series C warrant, in which case ChevronTexaco will
have two years following the closing of the Mergers to commit to exercise this
warrant. ChevronTexaco must give Newco notice that it will settle each
commitment within one year from date on which ChevronTexaco committed to
purchase shares pursuant to this warrant. This warrant will only be issued at
the closing of the Mergers if Chevron does not exercise the Chevron Out.
Series C Warrant to Purchase Newco Class B Common Stock. If Chevron
elects to receive this warrant, this warrant will obligate ChevronTexaco to
purchase from Newco $500.0 million of Newco Class B common stock at the lower of
(1) the average of the closing prices of Dynegy Class A common stock for the
five days immediately preceding the date on which ChevronTexaco commits to
purchase shares and (2) the average closing price of Dynegy Class A common stock
for the five days immediately preceding the date on which ChevronTexaco notifies
Newco that it will settle such commitment. ChevronTexaco must commit to exercise
all of this warrant on or before the date that is one year following the closing
of the Mergers, or it will be deemed to have committed to purchase any remaining
shares. ChevronTexaco must give Newco notice that it will settle each commitment
within one year from date on which ChevronTexaco committed to purchase shares
pursuant to this warrant. If ChevronTexaco elects to receive this warrant, the
exercise term of the Series B warrant will be extended to two years, instead of
one, from the closing of the Mergers. This warrant will only be issued at the
closing of the Mergers if Chevron does not exercise the Chevron Out and if
Chevron commits to purchase the shares underlying this warrant as of the closing
of the Mergers.
Stockholder Agreement. Newco, Dynegy, Enron and Chevron have entered
into a stockholder agreement that will govern certain aspects of their
relationship before and after the Mergers. This agreement is similar to the
Shareholder Agreement, dated as of June 14, 1999, among Dynegy, Illinova
Corporation, Dynegy Holdings Inc. and Chevron. The key differences between the
Dynegy shareholder agreement and the Newco stockholder agreement are that under
the Newco stockholder agreement (1) Chevron is entitled to elect the greater of
three directors and 20% of Newco's board of directors, if Newco's board is
increased in size, and (2) Newco is not prohibited from owning an interest in a
nuclear facility.
This agreement will terminate upon the termination of the Merger
Agreement and Chevron's ceasing to own certain specified thresholds of Newco
common stock.
Newco Registration Rights Agreement. Newco has granted Chevron
registration rights, which are similar to those contained in the registration
rights agreement, dated as of June 14, 1999, between Dynegy and Chevron, for the
Newco Class A common stock underlying the Newco Class B common stock that
Chevron will own following the Mergers. This agreement will terminate upon the
first such instance when Chevron (including its affiliates) ceases to own at
least one percent (1%) of Newco's outstanding common stock (treating the Newco
Class B common stock as if it had been converted into Newco Class A common stock
in accordance with its terms).
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The Class B Common Stock Subscription Agreement (including the forms of
the Series A Warrant, the Series B Warrant and the Series C Warrant attached as
Exhibits A, B and C thereto), the Stockholder Agreement and the Newco
Registration Rights Agreement are incorporated herein by reference as provided
below. The foregoing description of the Class B Common Stock Subscription
Agreement, the Stockholder Amendment and the Newco Registration Rights Agreement
and the forms of the Series A Warrant, the Series B Warrant and the Series C
Warrant, and the transactions contemplated in such documents, is qualified in
its entirety by reference to such documents.
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The following documents relating to the proposed transaction were filed by
Dynegy under cover of a Current Report on Form 8-K (the "Form 8-K") today and
are incorporated by reference into this filing:
o Agreement and Plan of Merger among Dynegy Inc., Stanford, Inc., Sorin,
Inc., Badin, Inc. and Enron Corp. dated as of November 9, 2001 (including
as Exhibit 2.1(a) the Restated Certificate of Incorporation of Stanford,
Inc., as Exhibit 2.1(b) the Amended and Restated Bylaws of Stanford, Inc.,
as Exhibit 7.11 the Form of Rule 145 Affiliate Letter, as Exhibit 8.2(a)
the Enron Corp. Tax Certificate, as Exhibit 8.2(b) the Dynegy Inc. Tax
Certificate, as Exhibit 8.2(c) the Chevron U.S.A. Inc. Tax Certificate and
as Exhibit 8.2(d) the ChevronTexaco Corp. Tax Certificate). (Incorporated
by reference to Exhibit 2.1 of the Form 8-K)
o Agreement among Dynegy Inc., Enron Corp. and ChevronTexaco Corp. dated as
of November 9, 2001. (Incorporated by reference to Exhibit 2.2 of the Form
8-K)
o Statement of Resolution Establishing Series of Series B Mandatorily
Convertible Redeemable Preferred Stock of Dynegy Inc. (Incorporated by
reference to Exhibit 4.1 of the Form 8-K)
o Shareholder Agreement dated as of November 9, 2001 by and among Dynegy
Inc., Enron Corp. and Chevron U.S.A. Inc. (Incorporated by reference to
Exhibit 10.1 of the Form 8-K)
o Shareholder Agreement dated as of November 9, 2001 by and between Enron
Corp. and Charles L. Watson. (Incorporated by reference to Exhibit 10.2 of
the Form 8-K)
o Subscription Agreement dated as of November 9, 2001 by and among Enron
Corp., Northern Natural Gas Company and Dynegy Inc. (Incorporated by
reference to Exhibit 10.3 of the Form 8-K)
o Option Agreement dated as of November 9, 2001 by and among CGNN Holding
Company, Inc., MCTJ Holding Co. LLC, Enron Corp., Dynegy Holdings Inc.
and, solely for the provisions of Section 5.1 thereof, Dynegy Inc.
(Incorporated by reference to Exhibit 10.4 of the Form 8-K)
o Purchase Option Agreement dated as of November 9, 2001 by and among CGNN
Holding Company, Inc., MCTJ Holding Co. LLC, Northern Natural Gas Company,
Enron Corp., Dynegy Holdings Inc., and Dynegy Inc. (Incorporated by
reference to Exhibit 10.5 of the Form 8-K)
o Exchange Agreement dated as of November 9, 2001 by and between Dynegy Inc.
and Enron Corp. (Incorporated by reference to Exhibit 10.6 of the Form
8-K)
o Registration Rights Agreement dated as of November 9, 2001 by and between
Enron Corp. and Dynegy Inc. (Incorporated by reference to Exhibit 10.7 of
the Form 8-K)
o Series B Preferred Stock Subscription Agreement dated as of November 9,
2001 by and between ChevronTexaco Corp. and Dynegy Inc. (Incorporated by
reference to Exhibit 10.8 of the Form 8-K)
o First Amendment to Registration Rights Agreement dated as of November 9,
2001 by and between Dynegy Inc. and Chevron U.S.A. Inc. (Incorporated by
reference to Exhibit 10.9 of the Form 8-K)
o Purchase Rights Agreement dated as of November 9, 2001 by and between
Stanford, Inc., Dynegy Inc. and ChevronTexaco Corp. (Incorporated by
reference to Exhibit 10.10 of the Form 8-K)
o Stockholder Agreement dated as of November 9, 2001 by and among Stanford,
Inc., Dynegy Inc., Enron Corp. and Chevron U.S.A. Inc. (Incorporated by
reference to Exhibit 10.11 of the Form 8-K)
o Press Release issued on November 9, 2001. (Incorporated by reference to
Exhibit 99.1 of the Form 8-K)
o Certificate of Designations of Series A Preferred Stock of Northern
Natural Gas Company. (Incorporated by reference to Exhibit 99.2 of the
Form 8-K)
o Certificate of Correction of Certificate of Designations of Series A
Preferred Stock of Northern Natural Gas Company. (Incorporated by
reference to Exhibit 99.3 of the Form 8-K)
o Class B Common Stock Subscription Agreement dated as of November 9, 2001
by and between ChevronTexaco Corp. and Stanford, Inc. (Incorporated by
reference to Exhibit 99.4 of the Form 8-K)
o Registration Rights Agreement dated as of November 9, 2001 by and between
Stanford, Inc., and Chevron U.S.A. Inc. (Incorporated by reference to
Exhibit 99.5 of the Form 8-K)