-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hvhg11Ud9KgrbPIz+5Lwrwhi/hKkaaPvSqDi2TbtxzZan6XAt0Obe+QdAC7FJlK9 riJ/565HepDCfF6F9TAZzw== 0000950129-01-504015.txt : 20020410 0000950129-01-504015.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950129-01-504015 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20011109 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENRON CORP/OR/ CENTRAL INDEX KEY: 0001024401 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 470255140 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13159 FILM NUMBER: 1785864 BUSINESS ADDRESS: STREET 1: 1400 SMITH ST CITY: HOUSTON STATE: TX ZIP: 77002-7369 BUSINESS PHONE: 7138536161 MAIL ADDRESS: STREET 1: 1400 SMITH ST CITY: HOUSTON STATE: TX ZIP: 77002-7369 FORMER COMPANY: FORMER CONFORMED NAME: ENRON OREGON CORP DATE OF NAME CHANGE: 19961008 8-K 1 h92082e8-k.txt ENRON CORP. - NOVEMBER 9, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: November 9, 2001 Commission File Number 1-13159 ENRON CORP. (Exact name of registrant as specified in its charter) Oregon 47-0255140 - ------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) Enron Building 1400 Smith Street Houston, Texas 77002 - ------------------------------- ------------------------------- (Address of principal executive (Zip Code) Offices) (713) 853-6161 ---------------------------------------------------- (Registrant's telephone number, including area code) ENRON CORP. Item 5. Other Events. On November 9, 2001, Enron Corp. and Dynergy Inc. issued a press release announcing the proposed merger of the two companies and related financing transactions. That press release is filed as Exhibit 99.1 hereto. Also filed as exhibits to this report are the material agreements relating to these transactions to which Enron or its subsidiaries are party. Item 7. Exhibits. (c) Exhibits. 99.1 Press Release issued on November 9, 2001 99.2 Agreement and Plan of Merger among Dynegy Inc., Stanford, Inc., Sorin, Inc., Badin, Inc. and Enron Corp. dated as of November 9, 2001 99.3 Agreement among Dynegy Inc., Enron Corp. and ChevronTexaco Corporation dated as of November 9, 2001 99.4 Shareholder Agreement dated as of November 9, 2001 by and among Dynegy Inc., Enron Corp. and Chevron U.S.A. Inc. 99.5 Shareholder Agreement dated as of November 9, 2001 by and between Enron Corp. and Charles L. Watson 99.6 Stockholder Agreement dated as of November 9, 2001 by and among Stanford, Inc., Dynegy Inc., Enron Corp. and Chevron U.S.A. Inc. 99.7 Subscription Agreement dated as of November 9, 2001 by and among Enron Corp., Northern Natural Gas Company and Dynegy Inc. 99.8 Certificate of Designations of Series A Preferred Stock of Northern Natural Gas Company 99.9 Certificate of Correction of Certificate of Designations of Series A Preferred Stock of Northern Natural Gas Company 99.10 Exchange Agreement dated as of November 9, 2001 by and between Dynegy Inc. and Enron Corp. 99.11 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. 99.12 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. 99.13 Registration Rights Agreement dated as of November 9, 2001 by and between Enron Corp. and Dynegy Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. ENRON CORP. Date: November 14, 2001 By: /s/ RICHARD A. CAUSEY -------------------------------------- Richard A. Causey Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) INDEX TO EXHIBITS NO. DESCRIPTION - ---- ----------- 99.1 Press Release issued on November 9, 2001 99.2 Agreement and Plan of Merger among Dynegy Inc., Stanford, Inc., Sorin, Inc., Badin, Inc. and Enron Corp. dated as of November 9, 2001 99.3 Agreement among Dynegy Inc., Enron Corp. and ChevronTexaco Corporation dated as of November 9, 2001 99.4 Shareholder Agreement dated as of November 9, 2001 by and among Dynegy Inc., Enron Corp. and Chevron U.S.A. Inc. 99.5 Shareholder Agreement dated as of November 9, 2001 by and between Enron Corp. and Charles L. Watson 99.6 Stockholder Agreement dated as of November 9, 2001 by and among Stanford, Inc., Dynegy Inc., Enron Corp. and Chevron U.S.A. Inc. 99.7 Subscription Agreement dated as of November 9, 2001 by and among Enron Corp., Northern Natural Gas Company and Dynegy Inc. 99.8 Certificate of Designations of Series A Preferred Stock of Northern Natural Gas Company 99.9 Certificate of Correction of Certificate of Designations of Series A Preferred Stock of Northern Natural Gas Company 99.10 Exchange Agreement dated as of November 9, 2001 by and between Dynegy Inc. and Enron Corp. 99.11 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. 99.12 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. 99.13 Registration Rights Agreement dated as of November 9, 2001 by and between Enron Corp. and Dynegy Inc. EX-99.1 3 h92082ex99-1.txt PRESS RELEASE DATED NOVEMBER 9, 2001 EXHIBIT 99.1 FOR IMMEDIATE RELEASE NOVEMBER 9, 2001 DYNEGY AND ENRON ANNOUNCE MERGER AGREEMENT o Significant earnings accretion to Dynegy in the first year o Dynegy to provide immediate $1.5 billion asset-backed equity infusion to Enron o Watson to be chairman and chief executive officer upon merger completion o All stock merger at fixed ratio of 0.2685 Dynegy shares per Enron share o ChevronTexaco to invest $2.5 billion in new equity into Dynegy o Unleashes value of Enron's core energy businesses Houston (Nov. 9, 2001)-Dynegy Inc. (NYSE:DYN) and Enron Corp. (NYSE:ENE) today announced the execution of a definitive agreement for a merger of the two companies. The combined company, to be called Dynegy Inc., will be headquartered in Houston, Texas. The new company will focus on the core businesses of North American and European wholesale energy markets and commercial and industrial energy users, and will capitalize on the opportunities generated by the combined company's diversified asset-backed network supported by the strongest intellectual capital in the industry. Under the terms of the merger agreement, Enron shareholders will receive 0.2685 Dynegy shares per share of Enron common stock. Dynegy's current stockholders (including ChevronTexaco Corp.) will own approximately 64 percent and Enron's stockholders will own approximately 36 percent of the combined company's stock at closing. The combination is expected to be strongly accretive to Dynegy's earnings in the first year and thereafter. The boards of both companies have unanimously approved the transaction, and ChevronTexaco, which owns approximately 26 percent of Dynegy's outstanding common stock, has agreed to invest a total of $2.5 billion into Dynegy. Chuck Watson, chairman and chief executive officer of Dynegy Inc., Steve Bergstrom, president of Dynegy Inc., and Rob Doty, chief financial officer of Dynegy Inc., will retain those positions in the combined company. Greg Whalley, the current president and chief operating officer of Enron Corp., will become an executive vice president of the new Dynegy. These executives will comprise the Office of the Chairman upon merger completion. The board of directors of the combined company will be comprised of 14 members. Dynegy's 11 designees will include three from ChevronTexaco. Enron will have the right to designate a minimum of three board members. Chuck Watson, chairman and chief executive officer of Dynegy Inc., said, "This strategic combination strengthens the value of our existing core business franchises by uniting the two companies' diversified global energy delivery networks, complementary wholesale strategies and strong marketing, trading and risk management capabilities. In addition, the combination fuses our intellectual capital and technology infrastructure, advancing the new Dynegy's status as a global energy merchant, with superior physical delivery capabilities and unparalleled experience navigating competitive markets for customers. "The merger also validates Enron's core franchise and underscores Dynegy's ongoing strategy to pursue transactions that accelerate our growth, while enabling our shareholders, partners and customers to realize immediate and long-term benefits," said Watson. "With its market-making capabilities, earnings power and proven strategic approach to wholesale markets, Enron is the ideal strategic partner for Dynegy. As a combined company, we will focus on leveraging our core skill sets and, as always, we will keep a strong balance sheet and straightforward financial structure as key priorities." Kenneth L. Lay, chairman and chief executive officer of Enron Corp., said, "The merger protects Enron's core franchise and enables the stockholders of both companies to participate in the tremendous upside of the combined enterprise. The company we are creating will have a strong balance sheet, a world-class merchant energy operation and ample liquidity. It will build upon the strength of our core wholesale gas and power franchise, and commercial and industrial energy business. It also will solidify Houston's position as the energy capital of the world and join two companies with deep roots in the Houston community and the energy industry. I am personally committed to working with Chuck Watson, Steve Bergstrom and their colleagues in the months ahead to accomplish the merger and to build a solid foundation for future value creation." Watson continued: "Dynegy and Enron's longstanding relationship as customers, counter-parties and leading proponents of open, competitive wholesale markets provides a common platform from which to integrate our two companies. Both companies have talented, dedicated people and share a commitment to the safe operation of our facilities and to the environment. Therefore, I expect a smooth transition throughout and following the merger process. "Dynegy and Enron have strong histories of community involvement and economic development, and the combined company will be committed to building on those traditions in the communities where we live and work," he continued. Steve Bergstrom, president of Dynegy Inc., said, "Our relationship with Enron puts us in a unique position to recognize the significant value in and potential of its core wholesale marketing and trading capabilities. The combination will continue to pursue an asset-backed trading strategy and look for opportunities to continually expand our energy network. "Dynegy is aware of Enron's announcements with regard to related party transactions and accounting restatements. We believe Enron has begun to address these issues in a responsible manner and that they will not detract from the value of Enron's core business," Bergstrom added. Enron President and Chief Operating Officer Greg Whalley said, "Few of the options we considered for our core businesses going forward provided us with the earnings potential and immediate synergies that a merger with Dynegy could deliver. Our leadership team believes that the new Dynegy offers the brightest future for our shareholders, our employees and our customers. Together with Enron's recently announced bank commitments, this cash infusion gives Enron immediate liquidity, which we believe will enable the company to maintain its investment grade credit rating and grow its energy marketing and trading franchise and other core businesses." The New Dynegy Upon completion of the merger, the new Dynegy is expected to have revenues exceeding $200 billion and $90 billion in assets. Together, the companies have gas sales of approximately 40 billion cubic feet per day through the third quarter of 2001 and power sales exceeding 500 million megawatt hours through the third quarter of 2001. In addition, the new Dynegy's delivery network will include more than 22,000 megawatts of generating capacity and 25,000 miles of pipelines. Equity Infusion ChevronTexaco has committed to invest $2.5 billion of new equity in the combined company, of which $1.5 billion will be invested in Dynegy immediately in order to finance Dynegy's equity infusion into Enron. The balance of ChevronTexaco's equity purchase will be made at closing. The pro forma combined balance sheet of the new company will be strong and provide adequate credit strength to execute its strategic plans. Dynegy will use the initial $1.5 billion to acquire preferred stock and other rights in an Enron subsidiary that owns the Northern Natural Gas pipeline. The funds will provide Enron with additional cash liquidity to support its operations. In the event that the merger is not completed, Dynegy will have the right to acquire 100 percent of the equity in the Northern Natural Gas subsidiary, thus providing Dynegy with the full value of its investment. ChevronTexaco will be granted rights to purchase an additional $1.5 billion in Dynegy common stock over a period of up to three years from merger completion. Accounting The business combination will be accounted for as a purchase of Enron by Dynegy. At closing, Dynegy will adjust the historical book value of Enron's assets and liabilities to their respective fair values. Earnings Accretion The merger is expected to be strongly accretive to Dynegy earnings in the first year and thereafter. With this transaction, Dynegy management establishes its conservative initial guidance for 2002 for the combined companies on a full-year pro forma 2002 basis of $3.40 to $3.50 recurring diluted earnings per share. This represents accretion of 35 percent or $0.90 to $0.95 per share to current Dynegy shareholders before taking into account expected merger synergies and cost savings. While Dynegy continues to evaluate areas for potential synergies, management estimates that the combined company will realize $400 to $500 million in recurring annual pre-tax savings as a result of the merger from the continued disposition or winding down of non-core businesses in the Enron portfolio, elimination of duplicate activities, improved operating efficiencies and lower capital costs. Dividend Policy/Capitalization It is anticipated that the combined company will adopt an initial annual dividend of $0.30 per share, subject to financial conditions, results of operations and capital requirements. It is expected that the board will review the dividend on an annual basis. The new dividend is also consistent with the company's strategic goals and would preserve capital to fund the combined company's significant growth opportunities. Given the significant growth opportunities available to the combined company, maintenance of a strong balance sheet and a solid investment grade credit rating is a top priority. Other Terms and Conditions The merger is conditioned, among other things, on the approval of Dynegy's and Enron's stockholders. The merger is also conditioned on approvals of the Federal Energy Regulatory Commission and the Securities and Exchange Commission, as well as expiration or termination of the Hart-Scott-Rodino waiting period. The merger is expected to close by the end of the third quarter of 2002. Lehman Brothers Inc. is acting as financial advisor and Baker Botts and Akin, Gump, Strauss, Hauer & Feld are acting as counsel for Dynegy Inc. JPMorgan & Co. and Salomon Smith Barney are acting as financial advisors and Vinson & Elkins and Weil Gotshal & Manges LLP are acting as counsel for Enron Corp. Pillsbury Winthrop is acting as counsel to ChevronTexaco Corp. Conference Call Simulcast Dynegy and Enron will simulcast a merger conference call live via the Internet on Monday, November 12, 2001, at 8:00 a.m. CT, 9:00 a.m. ET. The webcast can be accessed via dynegy.com (click on "Investor Relations "). The login number is 4365632 and the password is "Dynegy." About Dynegy Inc. Dynegy Inc. is one of the world's premier energy merchants. Through its global energy delivery network and marketing, trading and risk management capabilities, Dynegy provides innovative solutions to customers in North America, the United Kingdom and Continental Europe. About Enron Corp. Enron Corp. is one of the world's leading energy, commodities, and services companies. The company markets electricity and natural gas, delivers energy and other physical commodities, and provides financial and risk management services to customers around the world. Enron's Internet address is www.enron.com. Forward-looking Statements Certain statements contained in this press release are forward-looking. 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, TX 77002, Phone: 713/507-6466, Fax: 713/767-6652; or Investor Relations, Enron Corp., Enron Building, 1400 Smith Street, Houston, TX 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. - ---------- Contacts for Dynegy Contacts for Enron Media: Media: John Sousa Mark Palmer Jennifer Rosser 713/853-4738 713/767-5800 Karen Denne 713/853-9757 Analysts/Investors: Margaret Nollen Analysts/Investors: Arthur Shannon Investor Relations Department Katie Pipkin 713/853-3956 713/507-6466 EX-99.2 4 h92082ex99-2.txt AGREEMENT AND PLAN OF MERGER EXHIBIT 99.2 ================================================================================ AGREEMENT AND PLAN OF MERGER among DYNEGY INC., STANFORD, INC., SORIN, INC., BADIN, INC. and ENRON CORP. Dated as of November 9, 2001 ================================================================================ TABLE OF CONTENTS
Page ARTICLE 1 THE MERGERS.............................................................................................2 Section 1.1 The Mergers............................................................................2 Section 1.2 The Closing............................................................................2 Section 1.3 Effective Time.........................................................................2 ARTICLE 2 CERTIFICATE OF INCORPORATION AND BYLAWS OF NEWCO; ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING ENTITIES........................................................................................3 Section 2.1 Certificate of Incorporation and Bylaws of Newco.......................................3 Section 2.2 Articles of Incorporation of the Enron Surviving Entity................................3 Section 2.3 Bylaws of the Enron Surviving Entity...................................................3 Section 2.4 Articles of Incorporation of the Dynegy Surviving Entity...............................3 Section 2.5 Bylaws of the Dynegy Surviving Entity..................................................3 ARTICLE 3 DIRECTORS AND OFFICERS OF NEWCO AND OF THE SURVIVING ENTITIES...........................................3 Section 3.1 Board of Directors of Newco............................................................3 Section 3.2 Certain Officers of Newco..............................................................4 Section 3.3 Board of Directors of Enron Surviving Entity...........................................4 Section 3.4 Officers of Enron Surviving Entity.....................................................4 Section 3.5 Board of Directors of Dynegy Surviving Entity..........................................4 Section 3.6 Officers of Dynegy Surviving Entity....................................................4 ARTICLE 4 CONVERSION OF COMMON STOCK..............................................................................4 Section 4.1 Enron Merger Ratio.....................................................................4 Section 4.2 Conversion of Capital Stock of Enron and Enron Merger Sub..............................5 Section 4.3 Conversion of Capital Stock of Newco, Dynegy and Dynegy Merger Sub.....................6 Section 4.4 Exchange of Certificates...............................................................7 Section 4.5 Options...............................................................................10 Section 4.6 Dynegy Dissenting Shares..............................................................12 Section 4.7 Adjustment of Enron Merger Ratio......................................................12 Section 4.8 Rule 16b-3 Approval...................................................................12 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ENRON................................................................12 Section 5.1 Existence; Good Standing; Corporate Authority.........................................12 Section 5.2 Authorization, Validity and Effect of Agreements......................................13 Section 5.3 Capitalization........................................................................13 Section 5.4 Subsidiaries..........................................................................13 Section 5.5 Compliance with Laws; Permits.........................................................14 Section 5.6 No Conflict...........................................................................15 Section 5.7 SEC Documents.........................................................................15 Section 5.8 Litigation............................................................................17
i Section 5.9 Absence of Certain Changes............................................................17 Section 5.10 Taxes.................................................................................17 Section 5.11 Employee Benefit Plans................................................................18 Section 5.12 Labor Matters.........................................................................19 Section 5.13 Environmental Matters.................................................................20 Section 5.14 Intellectual Property.................................................................21 Section 5.15 Decrees, Etc..........................................................................21 Section 5.16 Insurance.............................................................................21 Section 5.17 No Brokers............................................................................22 Section 5.18 Opinions of Financial Advisors........................................................22 Section 5.19 Dynegy Stock Ownership................................................................22 Section 5.20 Vote Required.........................................................................22 Section 5.21 Regulation as a Utility...............................................................22 Section 5.22 Capital Expenditure Program...........................................................23 Section 5.23 Improper Payments.....................................................................23 ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF DYNEGY, NEWCO, DYNEGY MERGER SUB AND ENRON MERGER SUB................23 Section 6.1 Existence; Good Standing; Corporate Authority.........................................23 Section 6.2 Authorization, Validity and Effect of Agreements......................................23 Section 6.3 Capitalization........................................................................24 Section 6.4 Subsidiaries..........................................................................24 Section 6.5 Compliance with Laws; Permits.........................................................25 Section 6.6 No Conflict...........................................................................25 Section 6.7 SEC Documents.........................................................................26 Section 6.8 Litigation............................................................................27 Section 6.9 Absence of Certain Changes............................................................27 Section 6.10 Taxes.................................................................................28 Section 6.11 Employee Benefit Plans................................................................29 Section 6.12 Labor Matters.........................................................................30 Section 6.13 Environmental Matters.................................................................30 Section 6.14 Intellectual Property.................................................................31 Section 6.15 Decrees, Etc..........................................................................31 Section 6.16 Insurance.............................................................................31 Section 6.17 No Brokers............................................................................32 Section 6.18 Opinion of Financial Advisor..........................................................32 Section 6.19 Enron Stock Ownership.................................................................32 Section 6.20 Vote Required.........................................................................32 Section 6.21 Regulation as a Utility...............................................................32 Section 6.22 Improper Payments.....................................................................33 ARTICLE 7 COVENANTS..............................................................................................33 Section 7.1 Conduct of Business...................................................................33 Section 7.2 No Solicitation by Enron..............................................................37 Section 7.3 No Solicitation by Dynegy.............................................................39 Section 7.4 Meetings of Shareholders..............................................................40 Section 7.5 Filings; Commercially Reasonable Best Efforts, Etc....................................41
ii Section 7.6 Inspection............................................................................42 Section 7.7 Publicity.............................................................................43 Section 7.8 Registration Statement on Form S-4....................................................43 Section 7.9 Listing Application...................................................................44 Section 7.10 Letters of Accountants................................................................44 Section 7.11 Agreements of Rule 145 Affiliates.....................................................44 Section 7.12 Expenses..............................................................................45 Section 7.13 Indemnification and Insurance.........................................................45 Section 7.14 Agreements Regarding Enron Supplemental Indentures....................................46 Section 7.15 No Hire...............................................................................46 Section 7.16 Employee Matters......................................................................47 Section 7.17 Alternative Structure.................................................................47 ARTICLE 8 CONDITIONS.............................................................................................48 Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers...........................48 Section 8.2 Conditions to Obligation of Enron to Effect the Mergers...............................49 Section 8.3 Conditions to Obligation of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub to Effect the Mergers....................................................................50 ARTICLE 9 TERMINATION............................................................................................51 Section 9.1 Termination by Mutual Consent.........................................................51 Section 9.2 Termination by Dynegy or Enron........................................................51 Section 9.3 Termination by Enron..................................................................52 Section 9.4 Termination by Dynegy.................................................................53 Section 9.5 Effect of Termination.................................................................53 Section 9.6 Extension; Waiver.....................................................................55 ARTICLE 10 GENERAL PROVISIONS....................................................................................55 Section 10.1 Nonsurvival of Representations, Warranties and Agreements.............................55 Section 10.2 Notices...............................................................................55 Section 10.3 Assignment; Binding Effect; Benefit...................................................56 Section 10.4 Entire Agreement......................................................................57 Section 10.5 Amendments............................................................................57 Section 10.6 Governing Law.........................................................................57 Section 10.7 Counterparts..........................................................................57 Section 10.8 Headings..............................................................................57 Section 10.9 Interpretation........................................................................58 Section 10.10 Waivers...............................................................................58 Section 10.11 Incorporation of Disclosure Letters and Exhibits......................................59 Section 10.12 Severability..........................................................................59 Section 10.13 Enforcement of Agreement..............................................................59 Section 10.14 No Special Damages....................................................................59
iii GLOSSARY OF DEFINED TERMS
Defined Terms Where Defined - ------------- ------------- 1935 Act .......................................................................................... Section 5.6(b) 9.142% Preferred Stock ............................................................................ Section 5.3 Action ............................................................................................ Section 7.13(a) Agreement ......................................................................................... Preamble Applicable Laws ................................................................................... Section 5.5(a) Articles of Merger ................................................................................ Section 1.3 Assumed Plans ..................................................................................... Section 4.5(a) Certificates ...................................................................................... Section 4.4(c) Chevron ........................................................................................... Section 6.3 ChevronTexaco ..................................................................................... Recitals Closing ........................................................................................... Section 1.2 Closing Date ...................................................................................... Section 1.2 Code .............................................................................................. Recitals Confidentiality Agreement ......................................................................... Section 7.6 Contingent Obligation ............................................................................. Section 7.1(n) Cutoff Date ....................................................................................... Section 7.2(d), Section 7.3(d) Debt .............................................................................................. Section 7.1(n) Draft Third Quarter Report ........................................................................ Section 5.7 Dynegy ............................................................................................ Preamble Dynegy Acquisition Proposal ....................................................................... Section 7.3(a) Dynegy Benefit Plans .............................................................................. Section 6.11(a) Dynegy Certificates ............................................................................... Section 4.4(a) Dynegy Class A Common Stock ....................................................................... Recitals Dynegy Class B Common Stock ....................................................................... Recitals Dynegy Common Stock ............................................................................... Recitals Dynegy Consideration .............................................................................. Section 4.3(b) Dynegy Disclosure Letter .......................................................................... Article 6 Preface Dynegy Dissenting Share ........................................................................... Section 4.6 Dynegy Material Adverse Effect .................................................................... Section 10.9(c) Dynegy Merger ..................................................................................... Recitals Dynegy Merger Ratio ............................................................................... Section 4.3(b) Dynegy Merger Sub ................................................................................. Preamble Dynegy Option ..................................................................................... Section 4.5(a) Dynegy Permits .................................................................................... Section 6.5(b) Dynegy Preferred Stock ............................................................................ Section 6.3 Dynegy Real Property .............................................................................. Section 6.5(c) Dynegy Regulatory Approvals ....................................................................... Section 6.6(b) Dynegy Reports .................................................................................... Section 6.7 Dynegy Series B Preferred Stock ................................................................... Recitals Dynegy Shareholder Agreement ...................................................................... Section 6.3 Dynegy Stock Plans ................................................................................ Section 4.5(a) Dynegy Subscription Agreement ..................................................................... Recitals Dynegy Superior Proposal .......................................................................... Section 7.3(a)
iv Dynegy Surviving Entity ........................................................................... Section 1.1(b) Effective Time .................................................................................... Section 1.3 Enron ............................................................................................. Preamble Enron Acquisition Proposal ........................................................................ Section 7.2(a) Enron Additional Securities ....................................................................... Section 4.1(a) Enron Benefit Plans ............................................................................... Section 5.11(a) Enron Capital Budget .............................................................................. Section 5.22 Enron Certificates ................................................................................ Section 4.2(b) Enron Common Stock ................................................................................ Recitals Enron Convertible Securities ...................................................................... Section 4.1(b) Enron Disclosure Letter ........................................................................... Article 5 Preface Enron Filed Reports ............................................................................... Section 5.8 Enron Material Adverse Effect ..................................................................... Section 10.9(c) Enron Merger ...................................................................................... Recitals Enron Merger Ratio. ............................................................................... Section 4.1(a) Enron Merger Sub .................................................................................. Preamble Enron Option ...................................................................................... Section 4.5(a) Enron Parity Price ................................................................................ Section 4.1(c) Enron Permits ..................................................................................... Section 5.5(b) Enron Preferred Stock ............................................................................. Section 5.3 Enron Real Property ............................................................................... Section 5.5(c) Enron Regulatory Approvals ........................................................................ Section 5.6(b) Enron Reports ..................................................................................... Section 5.7 Enron Stock Plans ................................................................................. Section 4.5(a) Enron Superior Proposal ........................................................................... Section 7.2(a) Enron Surviving Entity ............................................................................ Section 1.1(a) Enron Utility ..................................................................................... Section 5.21(a) Environmental Laws ................................................................................ Section 5.13(a) ERISA ............................................................................................. Section 5.11(a) ERISA Affiliate ................................................................................... Section 5.11(b) Exchange Act ...................................................................................... Section 4.8 Exchange Agent .................................................................................... Section 4.4(b) Exchange Fund ..................................................................................... Section 4.4(b) Excluded Convertible Securities ................................................................... Section 4.1(e) Excluded Person ................................................................................... Section 7.13(a) FERC .............................................................................................. Section 5.6(b) Form S-4 .......................................................................................... Section 7.8(a) Former Enron Directors ............................................................................ Section 3.1(a) Former Dynegy Directors ........................................................................... Section 3.1(a) Hazardous Materials ............................................................................... Section 5.13(b) HSR Act ........................................................................................... Section 5.6(b) IBCA .............................................................................................. Section 1.1(b) Illinois Power .................................................................................... Section 6.21(a) Illinova .......................................................................................... Section 6.21(a) Indemnified Parties ............................................................................... Section 7.13(a) Letter of Transmittal ............................................................................. Section 4.4(c)
v Liens ............................................................................................. Section 5.4 Material Adverse Effect ........................................................................... Section 10.9(c) Mergers ........................................................................................... Recitals Newco ............................................................................................. Preamble Newco Class A Common Stock ........................................................................ Recitals Newco Class B Common Stock ........................................................................ Recitals Newco Common Stock ................................................................................ Recitals Newco Group ....................................................................................... Section 7.16 Newco Share Price ................................................................................. Section 4.4(f) Non-U.S. Antitrust Laws ........................................................................... Section 7.5(a)(ii) Northern .......................................................................................... Recitals Northern Series A Preferred Stock ................................................................. Recitals NYSE .............................................................................................. Section 4.1(c) OBCA .............................................................................................. Section 1.1(a) Original Outstanding Enron Shares ................................................................. Section 4.1(a) Other Non-U.S. Jurisdictions ...................................................................... Section 8.1(c) Proxy Statement/Prospectus ........................................................................ Section 7.8(a) Returns ........................................................................................... Section 5.10(a) Rule 145 Affiliates ............................................................................... Section 7.11 Rule 16b-3 ........................................................................................ Section 4.8 Sales Consideration ............................................................................... Section 4.1(d) SEC ............................................................................................... Section 4.5(b) Second Preferred Stock ............................................................................ Section 5.3 Securities Act .................................................................................... Section 4.4(e) September 30, 2001 Balance Sheet .................................................................. Section 5.7 Series B Preferred Stock .......................................................................... Section 5.3 Series C Preferred Stock .......................................................................... Section 5.3 Significant Subsidiary ............................................................................ Section 5.4 Specified Jurisdictions ........................................................................... Section 8.1(c) Subsidiary ........................................................................................ Section 10.9(d) Tax qualified plans ............................................................................... Section 7.16 Taxes ............................................................................................. Section 5.10(d) Termination Date .................................................................................. Section 9.2(a) Third-Party Provisions ............................................................................ Section 10.3 Zeros ............................................................................................. Section 5.3
vi AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of November 9, 2001, is by and among 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"). RECITALS A. The Enron Merger. At the Effective Time, the parties intend to effect a merger of Enron Merger Sub with and into Enron, with Enron being the surviving entity (the "Enron Merger"), pursuant to which each share of common stock, no par value, of Enron ("Enron Common Stock") will be converted into 0.2685 shares of Class A common stock, par value $.01 per share, of Newco ("Newco Class A Common Stock"), subject to adjustment. B. The Dynegy Merger. Concurrently with the Enron Merger, the parties intend to effect a merger of Dynegy Merger Sub with and into Dynegy, with Dynegy being the surviving entity (the "Dynegy Merger" and, together with the Enron Merger, the "Mergers"), pursuant to which (i) each share of Class A common stock, no par value, of Dynegy ("Dynegy Class A Common Stock") will be converted into one share of Newco Class A Common Stock and (ii) each share of Class B common stock, no par value, of Dynegy ("Dynegy Class B Common Stock" and, together with the Dynegy Class A Common Stock, the "Dynegy Common Stock") will be converted into one share of Class B common stock, par value $.01 per share, of Newco ("Newco Class B Common Stock" and, together with the Newco Class A Common Stock, the "Newco Common Stock"). C. Intended U.S. Tax Consequences. The parties to this Agreement intend that, for federal income tax purposes, the Mergers shall qualify as transfers of Enron Common Stock and Dynegy Common Stock to Newco in a transaction qualifying under Section 351 of the Internal Revenue Code of 1986, as amended (the "Code"). D. Intended U.S. Accounting Treatment. The parties to this Agreement intend that the Mergers be treated as the purchase of Enron by Dynegy for accounting purposes. E. Preferred Stock Subscription Agreements. Concurrently with the execution and delivery of this Agreement, (i) Dynegy is entering into a Subscription Agreement with Northern Natural Gas Company ("Northern") and Enron pursuant to which Dynegy is agreeing to purchase from Northern 1,000 shares of its Series A Preferred Stock (the "Northern Series A Preferred Stock"); and (ii) ChevronTexaco Corporation ("ChevronTexaco") is entering into a Subscription Agreement with Dynegy (the "Dynegy Subscription Agreement") pursuant to which ChevronTexaco is agreeing to purchase from Dynegy 150,000 shares of its Series B Mandatorily Convertible Redeemable Preferred Stock, no par value (the "Dynegy Series B Preferred Stock"). NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE 1 THE MERGERS Section 1.1 The Mergers. (a) Upon the terms and subject to conditions of this Agreement, at the Effective Time, Enron Merger Sub shall be merged with and into Enron in accordance with this Agreement, and the separate corporate existence of Enron Merger Sub shall thereupon cease. Enron shall be the surviving entity in the Enron Merger (sometimes hereinafter referred to as the "Enron Surviving Entity"). The Enron Merger shall have the effects specified herein and in the Business Corporation Act of the State of Oregon (the "OBCA"). (b) Upon the terms and subject to conditions of this Agreement, at the Effective Time, Dynegy Merger Sub shall be merged with and into Dynegy in accordance with this Agreement, and the separate corporate existence of Dynegy Merger Sub shall thereupon cease. Dynegy shall be the surviving entity in the Dynegy Merger (sometimes hereinafter referred to as the "Dynegy Surviving Entity"). The Dynegy Merger shall have the effects specified herein and in the Business Corporation Act of the State of Illinois (the "IBCA"). Section 1.2 The Closing. Upon the terms and subject to the conditions of this Agreement, the closing of the Mergers (the "Closing") shall take place (a) at the offices of Baker Botts L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas 77002, at 9:00 a.m., local time, on the first business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Section 8.1, or, if on such day any condition set forth in Section 8.2 or Section 8.3 has not been fulfilled or waived, as soon as practicable after all the conditions set forth in Article 8 (other than the conditions that by their terms are only capable of being satisfied on the Closing Date) have been fulfilled or waived in accordance herewith or (b) at such other time, date or place 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 pursuant to the Dynegy Subscription Agreement. The date on which the Closing occurs is hereinafter referred to as the "Closing Date." Section 1.3 Effective Time. On the Closing Date, (i) Dynegy, Enron and Enron Merger Sub shall cause articles of merger meeting the requirements of Section 60.494 of the OBCA to be properly executed and filed in accordance with the OBCA and (ii) Dynegy, Enron and Dynegy Merger Sub shall cause articles of merger meeting the requirements of Section 11.25 of the IBCA to be properly executed and filed in accordance with the IBCA (collectively, the "Articles of Merger"). The Mergers shall become effective at the time that Dynegy and Enron shall have agreed upon and designated in the respective Articles of Merger as the effective time thereof (the "Effective Time"). 2 ARTICLE 2 CERTIFICATE OF INCORPORATION AND BYLAWS OF NEWCO; ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING ENTITIES Section 2.1 Certificate of Incorporation and Bylaws of Newco. At or prior to the Effective Time, Dynegy and Newco shall take all action as may be necessary to cause Newco's certificate of incorporation and bylaws to be amended and restated as of the Effective Time as set forth in Exhibits 2.1(a) (subject to any adjustments necessary to permit Newco to fulfill its obligations under Section 7.14) and 2.1(b) hereto, respectively, and to reflect that Newco shall be named "Dynegy Inc." Section 2.2 Articles of Incorporation of the Enron Surviving Entity. As of the Effective Time, the articles of incorporation of Enron in effect immediately prior to the Effective Time shall be the articles of incorporation of the Enron Surviving Entity, until duly amended in accordance with applicable law. Section 2.3 Bylaws of the Enron Surviving Entity. As of the Effective Time, the bylaws of Enron in effect immediately prior to the Effective Time shall be the bylaws of the Enron Surviving Entity, until duly amended in accordance with applicable law; provided that the number of directors of the Enron Surviving Entity shall be changed to equal the number of directors of Enron Merger Sub immediately prior to the Effective Time. Section 2.4 Articles of Incorporation of the Dynegy Surviving Entity. As of the Effective Time, the articles of incorporation of Dynegy in effect immediately prior to the Effective Time shall be the articles of incorporation of the Dynegy Surviving Entity, until duly amended in accordance with applicable law. Section 2.5 Bylaws of the Dynegy Surviving Entity. As of the Effective Time, the bylaws of Dynegy Merger Sub in effect immediately prior to the Effective Time shall be the bylaws of the Dynegy Surviving Entity, until duly amended in accordance with applicable law; provided that the number of directors of the Dynegy Surviving Entity shall be changed to equal the number of directors of Dynegy Merger Sub immediately prior to the Effective Time. ARTICLE 3 DIRECTORS AND OFFICERS OF NEWCO AND OF THE SURVIVING ENTITIES Section 3.1 Board of Directors of Newco. (a) At the Effective Time, the Board of Directors of Newco shall consist of not more than 15 members, at least three of which shall be designated by Enron, after consultation with Dynegy, before the Effective Time ("Former Enron Directors"). Prior to the Effective Time, Dynegy shall, after consultation with Enron, determine the total number of directors on the Board of Directors of Newco effective as of the Effective Time and the number of Former Enron Directors (in each case subject to the preceding sentence) and designate the current members of the Dynegy Board of Directors that will serve on the Newco Board of 3 Directors as of the Effective Time ("Former Dynegy Directors"). Charles L. Watson shall be the Chairman of the Board of Newco. From and after the Effective Time, each person so designated shall serve as a director of Newco until such person's successor shall be elected and qualified or such person's earlier death, resignation or removal in accordance with the certificate of incorporation and bylaws of Newco. (b) Prior to the Effective Time, Dynegy shall cause Newco to take such action as may be necessary to cause the Dynegy designees and the Enron designees to be elected to the Board of Directors of Newco as of the Effective Time. Section 3.2 Certain Officers of Newco. From and after the Effective Time, Charles L. Watson shall be the Chief Executive Officer of Newco and Stephen W. Bergstrom shall be the President and Chief Operating Officer of Newco. Section 3.3 Board of Directors of Enron Surviving Entity. The directors of Enron Merger Sub immediately prior to the Effective Time shall be the directors of the Enron Surviving Entity as of the Effective Time, until their successors shall be elected and qualified or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Enron Surviving Entity. Section 3.4 Officers of Enron Surviving Entity. The officers of Enron immediately prior to the Effective Time shall be the officers of the Enron Surviving Entity as of the Effective Time, until their successors shall be appointed or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Enron Surviving Entity. Section 3.5 Board of Directors of Dynegy Surviving Entity. The directors of Dynegy Merger Sub immediately prior to the Effective Time shall be the directors of the Dynegy Surviving Entity as of the Effective Time, until their successors shall be elected and qualified or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Dynegy Surviving Entity. Section 3.6 Officers of Dynegy Surviving Entity. The officers of Dynegy immediately prior to the Effective Time shall be the officers of the Dynegy Surviving Entity as of the Effective Time, until their successors shall be appointed or their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the Dynegy Surviving Entity. ARTICLE 4 CONVERSION OF COMMON STOCK Section 4.1 Enron Merger Ratio. For purposes of this Agreement: (a) The "Enron Merger Ratio" shall equal 0.2685, subject to adjustment as provided in this Section 4.1. If, on or after the date of this Agreement, Enron issues or sells any shares of Enron Common Stock or any Enron Convertible Securities, other than Excluded Convertible Securities and securities issued upon conversion, exercise or 4 exchange of Excluded Convertible Securities (collectively, the "Enron Additional Securities"), for Sales Consideration per share of Enron Common Stock less than the Enron Parity Price as of the date a price is determined pursuant to a binding agreement for such issuance or sale, then the Enron Merger Ratio shall be adjusted by multiplying the Enron Merger Ratio immediately prior to such adjustment by a fraction, (i) the numerator of which is the sum of (a) the number of fully diluted shares of Enron Common Stock outstanding (calculated using the treasury stock method) immediately prior to the adjustment (the "Original Outstanding Enron Shares") plus (b) the aggregate Sales Consideration for such Enron Additional Securities divided by the Enron Parity Price, and (ii) the denominator of which is the sum of the Original Outstanding Enron Shares plus the number of shares of Enron Common Stock represented by such Enron Additional Securities. (b) "Enron Convertible Securities" means any shares of capital stock or securities convertible into or exchangeable for Enron Common Stock, or any options, rights or warrants exercisable to purchase Enron Common Stock. (c) "Enron Parity Price" means, with respect to any date, the product of (i) the Enron Merger Ratio on such date multiplied by (ii) the per share last reported price of the Dynegy Class A Common Stock as reported on the consolidated transaction reporting system for securities traded on the New York Stock Exchange, Inc. ("NYSE") (as reported in the New York City edition of The Wall Street Journal or, if not reported thereby, another authoritative source) on such date. (d) "Sales Consideration" with respect to any issuance or sale of Enron Additional Securities means the aggregate of (i) the cash consideration, (ii) the trading value (based on the average last reported prices therefor for the five consecutive trading days ending on the first trading day prior to such date as quoted by an authoritative source agreed upon by Dynegy and Enron) for any listed or traded securities, and (iii) the fair market value (as determined by agreement of Dynegy and Enron) for any other consideration, in each case received therefor or to be received upon the exercise of any option or warrant. In the event of the issuance of any Enron Convertible Securities, the shares of Enron Common Stock issuable with respect to such Enron Convertible Securities shall be deemed to be issued in such transaction on an as converted basis. (e) "Excluded Convertible Securities" means (i) the Northern Series A Preferred Stock, (ii) any Enron Convertible Securities outstanding on the date of this Agreement and disclosed, or not required to be disclosed, pursuant to this Agreement, other than the first two items of Section 5.3 of the Enron Disclosure Letter, and (iii) employee stock options granted after the date hereof permitted by Section 7.1(f), provided that the exercise price thereof is not less than the fair market value on the date of grant (as provided in the applicable plan). Section 4.2 Conversion of Capital Stock of Enron and Enron Merger Sub. (a) At the Effective Time, each share of common stock, no par value, of Enron Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Enron Merger and without any action on the part of the holder thereof, be converted 5 into and become the number of fully paid and nonassessable shares of common stock, no par value, of the Enron Surviving Entity equal to the quotient of the number of fully diluted shares of Enron Common Stock outstanding immediately prior to the Effective Time divided by 1,000. (b) At the Effective Time, each share of Enron Common Stock issued and outstanding immediately prior to the Effective Time, including any shares subject to employment-related restrictions (other than shares of Enron Common Stock to be canceled without payment of any consideration therefor pursuant to Section 4.2(c)), shall, by virtue of the Enron Merger and without any action on the part of the holder thereof, be converted into a fraction of a share of Newco Class A Common Stock equal to the Enron Merger Ratio and thereupon shall cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of such shares of Enron Common Stock shall thereafter cease to have any rights with respect to such shares of Enron Common Stock, except the right to receive, without interest, certificates for shares of Newco Class A Common Stock in accordance with Section 4.4(c) and cash for fractional shares in accordance with Section 4.4(c) and Section 4.4(f) upon the surrender of the certificate or certificates that immediately prior to the Effective Time represented shares of Enron Common Stock ("Enron Certificates"). (c) Each share of Enron Common Stock held in Enron's treasury and each share of Enron Common Stock owned by Enron, Newco, Dynegy, Dynegy Merger Sub or Enron Merger Sub shall, at the Effective Time and by virtue of the Enron Merger, cease to be outstanding and shall be canceled and retired without payment of any consideration therefor, and no shares of capital stock of Newco or other consideration shall be delivered in exchange therefor. (d) At the Effective Time, each share of Enron Preferred Stock issued and outstanding immediately prior to the Effective Time shall remain outstanding and unaffected by the Enron Merger. Section 4.3 Conversion of Capital Stock of Newco, Dynegy and Dynegy Merger Sub. (a) At the Effective Time, each share of common stock, no par value, of Dynegy Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Dynegy Merger and without any action on the part of the holder thereof, be converted into and become one fully paid and nonassessable share of common stock, no par value, of the Dynegy Surviving Entity. (b) At the Effective Time, (i) each share of Dynegy Class A Common Stock issued and outstanding immediately prior to the Effective Time (other than Dynegy Dissenting Shares and shares of Dynegy Class A Common Stock to be canceled without payment of any consideration therefor pursuant to Section 4.3(c)) shall, by virtue of the Dynegy Merger and without any action on the part of the holder thereof, be converted into one share (the "Dynegy Merger Ratio") of Newco Class A Common Stock and (ii) each share of Dynegy Class B Common Stock issued and outstanding immediately prior to the Effective Time (other than Dynegy Dissenting Shares and shares of Dynegy Class B Common Stock to be canceled without payment of any consideration therefor pursuant to Section 4.3(c)) shall, by virtue of the Dynegy Merger and without any action on the part of the holder thereof, be converted into one share of 6 Newco Class B Common Stock (collectively, the "Dynegy Consideration"). At the Effective Time, each share of Dynegy Common Stock shall, by virtue of the Dynegy Merger and without any action on the part of the holder thereof, cease to be outstanding and shall be canceled and retired and shall cease to exist, and each holder of shares of Dynegy Common Stock (other than Dynegy Dissenting Shares and shares of Dynegy Common Stock to be canceled without payment of any consideration therefor pursuant to Section 4.3(c)) shall thereafter cease to have any rights with respect to such shares of Dynegy Common Stock. (c) Each share of Dynegy Common Stock issued and held in Dynegy's treasury and each share of Dynegy Common Stock owned by Enron shall, at the Effective Time and by virtue of the Dynegy Merger, cease to be outstanding and shall be canceled and retired without payment of any consideration therefor, and no shares of capital stock of Newco or other consideration shall be delivered in exchange therefor. (d) At the Effective Time, each share of Dynegy Series B Preferred Stock issued and outstanding immediately prior to the Effective Time, if any, shall remain outstanding and unaffected by the Dynegy Merger. (e) Each share of Newco Common Stock and all other shares of capital stock of Newco issued and outstanding immediately prior to the Effective Time shall, at the Effective Time and without any action on the part of Newco or the holder thereof, cease to be outstanding and shall be canceled and retired without payment of any consideration therefor, and no shares of capital stock of Newco or other consideration shall be delivered in exchange therefor. Section 4.4 Exchange of Certificates. (a) From and after the Effective Time, each outstanding certificate which prior to the Effective Time represented shares of Dynegy Common Stock ("Dynegy Certificates") shall be deemed for all purposes to evidence ownership of, and to represent, the shares of Newco Common Stock into which the shares of Dynegy Common Stock represented by such Dynegy Certificate have been converted as herein provided. The registered owner on the books and records of Dynegy or its transfer agent of any such Dynegy Certificate as of the Effective Time shall, until such Dynegy Certificate shall have been surrendered for transfer or otherwise accounted for to Newco or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Newco Common Stock evidenced by such Dynegy Certificate as above provided. Following the Effective Time, each holder of record of one or more Dynegy Certificates may, but shall not be required to, surrender any Dynegy Certificate for cancellation to Newco or its transfer agent, and the holder of such Dynegy Certificate shall be entitled to receive in exchange therefor a certificate representing that number of shares of Newco Common Stock which such holder has the right to receive pursuant to the provisions of this Article 4, and the Dynegy Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of shares of Dynegy Common Stock that is not registered in the transfer records of Newco or Dynegy, a certificate representing the proper number of shares of Newco Common Stock may be issued to such a transferee if the Dynegy Certificate representing such shares of Dynegy Common Stock is presented to Newco or its transfer agent, accompanied by all documents 7 required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (b) As of the Effective Time, Newco shall appoint Mellon Investor Services LLC or such other party reasonably satisfactory to Enron as exchange agent (the "Exchange Agent"), and Newco shall, when and as needed, deposit, or cause to be deposited with the Exchange Agent for the benefit of the holders of shares of Enron Common Stock for exchange in accordance with this Article 4, certificates representing the shares of Newco Common Stock to be issued pursuant to Section 4.2 and delivered pursuant to this Section 4.4 in exchange for outstanding shares of Enron Common Stock. When and as needed, Newco shall provide the Exchange Agent immediately following the Effective Time cash sufficient to pay cash in lieu of fractional shares in accordance with Section 4.4(c) and (f) (such cash and certificates for shares of Newco Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "Exchange Fund"). (c) Promptly after the Effective Time, Newco shall cause the Exchange Agent to mail to each holder of record of one or more Enron Certificates (together with the Dynegy Certificates, the "Certificates") (other than to holders of shares of Enron Common Stock that, pursuant to Section 4.2(c), are canceled without payment of any consideration therefor): (A) a letter of transmittal (the "Letter of Transmittal"), which shall specify that delivery shall be effected, and risk of loss and title to the Enron Certificates shall pass, only upon delivery of the Enron Certificates to the Exchange Agent and shall be in such form and have such other provisions as Newco may reasonably specify and (B) instructions for use in effecting the surrender of the Enron Certificates in exchange for certificates representing shares of Newco Common Stock and cash in lieu of fractional shares, if any. Upon surrender of an Enron Certificate for cancellation to the Exchange Agent together with such Letter of Transmittal, duly executed and completed in accordance with the instructions thereto, the holder of such Enron Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Newco Common Stock and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive pursuant to the provisions of this Article 4, after giving effect to any required withholding tax, and the Enron Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of Enron Certificates. In the event of a transfer of ownership of Enron Common Stock that is not registered in the transfer records of Enron, a certificate representing the proper number of shares of Newco Common Stock, together with a check for the cash to be paid in lieu of fractional shares, if any, may be issued to such a transferee if the Enron Certificate representing such Enron Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (d) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time with respect to shares of Newco Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Enron Certificate with respect to the shares of Newco Common Stock represented by such Enron Certificate as a result of the conversion provided in Section 4.2(b) until such Enron Certificate is surrendered as provided herein. Subject to the effect of applicable laws, 8 following surrender of any such Enron Certificate, there shall be paid to the holder of the Enron Certificates so surrendered, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable and not paid with respect to the number of whole shares of Newco Common Stock issued pursuant to Section 4.2, less the amount of any withholding taxes, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Newco Common Stock, less the amount of any withholding taxes. (e) At or after the Effective Time, the Enron Surviving Entity and the Dynegy Surviving Entity shall pay from funds on hand at the Effective Time any dividends or make other distributions with a record date prior to the Effective Time that may have been declared or made by Enron or Dynegy, respectively, on shares of Enron Common Stock or Dynegy Common Stock, respectively, that remain unpaid at the Effective Time, and after the Effective Time, there shall be no transfers on the stock transfer books of the Enron Surviving Entity of the shares of Enron Common Stock, or on the stock transfer books of the Dynegy Surviving Entity of the shares of Dynegy Common Stock, that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Enron Certificates are presented to the Enron Surviving Entity or Dynegy Certificates are presented to the Dynegy Surviving Entity, the presented Certificates shall be canceled and exchanged for certificates representing shares of Newco Common Stock and cash in lieu of fractional shares, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article 4. Certificates surrendered for exchange by any person constituting an "affiliate" of Dynegy or Enron for purposes of Rule 145(c) under the Securities Act of 1933, as amended (the "Securities Act"), shall not be exchanged until Newco has received a written agreement from such person as provided in Section 7.11. (f) No fractional shares of Newco Common Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional shares of Newco Common Stock pursuant to Section 4.2(b), cash adjustments will be paid to holders in respect of any fractional shares of Newco Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the Newco Share Price. For purposes of this Agreement, the "Newco Share Price" shall mean the average of the per share last reported prices of the Dynegy Class A Common Stock as reported on the consolidated transaction reporting system for securities traded on the NYSE (as reported in the New York City edition of The Wall Street Journal or, if not reported thereby, another authoritative source) for the 20 consecutive trading days ending on the fifth trading day prior to the Closing Date, appropriately adjusted for any stock splits, reverse stock splits, stock dividends, recapitalizations or other similar transactions. (g) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any certificates for shares of Newco Common Stock) that remains undistributed to the former shareholders of Enron one year after the Effective Time shall be delivered to Newco. Any former shareholders of Enron who have not theretofore complied with this Article 4 shall thereafter look only to Newco for delivery of certificates representing their shares of Newco Common Stock and cash in lieu of fractional shares, if any, and for any unpaid 9 dividends and distributions on the shares of Newco Common Stock deliverable to such former shareholder pursuant to this Agreement. (h) None of Newco, Dynegy, Enron, the Dynegy Surviving Entity, the Enron Surviving Entity, the Exchange Agent or any other person shall be liable to any person for any portion of the Exchange Fund properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (i) If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Newco, the posting by such person of a bond in such reasonable amount as Newco may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate certificates representing the shares of Newco Common Stock, cash in lieu of fractional shares, if any, and unpaid dividends and distributions on shares of Newco Common Stock deliverable in respect thereof pursuant to this Agreement. Section 4.5 Options. (a) At the Effective Time, (i) all options to acquire shares of Enron Common Stock outstanding at the Effective Time under Enron's stock plans (collectively, the "Enron Stock Plans") identified in Section 4.5(a) of the Enron Disclosure Letter (individually, a "Enron Option" and collectively, the "Enron Options") and (ii) all options to acquire shares of Dynegy Class A Common Stock outstanding at the Effective Time under Dynegy's stock plans (collectively, the "Dynegy Stock Plans") identified in Section 4.5(a) of the Dynegy Disclosure Letter (individually, a "Dynegy Option" and collectively, the "Dynegy Options") shall remain outstanding following the Effective Time, subject to the modifications described in this Section 4.5(a). Prior to the Effective Time, Enron, Dynegy and Newco shall take all actions (if any) as may be required to permit the assumption of such Enron Options and Dynegy Options by Newco pursuant to this Section 4.5(a). At the Effective Time, the Enron Options and the Dynegy Options shall be assumed and adjusted by Newco in the manner set forth herein and with respect to Dynegy Options that are incentive stock options within the meaning of Section 422 of the Code in such manner that Newco is a corporation "assuming a stock option in a transaction to which Section 424(a) applies" within the meaning of Section 424 of the Code. Each Enron Option assumed and adjusted by Newco shall be subject to the same terms and conditions as under the applicable Enron Stock Plan and the applicable option agreement entered into pursuant thereto, except that, immediately following the Effective Time, (A) each Enron Option shall be an option for that whole number of shares of Newco Class A Common Stock (rounded up to the next whole share) equal to the number of shares of Enron Common Stock subject to such Enron Option immediately prior to the Effective Time multiplied by the Enron Merger Ratio, and (B) the exercise price per Newco share shall be an amount equal to the exercise price per share of Enron Common Stock subject to such Enron Option in effect immediately prior to the Effective Time divided by the Enron Merger Ratio (the price per share, as so determined, being rounded down to the nearest whole cent). Each Dynegy Option assumed and adjusted by Newco shall be subject to the same terms and conditions as under the applicable Dynegy Stock Plan and the applicable option agreement entered into pursuant thereto, except that, immediately following the Effective Time, each Dynegy Option shall be an option for the number of shares of Newco 10 Class A Common Stock equal to the number of shares of Dynegy Common Stock subject to such Dynegy Option immediately prior to the Effective Time. Without limiting the foregoing, effective at the Effective Time, Newco shall assume the Enron Corp. 1999 Stock Plan, Enron Corp. 1994 Stock Plan, Enron Corp. 1991 Stock Plan, Dynegy Inc. 2000 Long Term Incentive Plan, Dynegy Inc. 2001 Non-Executive Stock Incentive Plan and Dynegy Inc. 2001 Special Long-Term Incentive Plan (collectively, the "Assumed Plans") for purposes of employing such plans to make grants of stock options and other awards based on shares of Newco Class A Common Stock following the Effective Time; to the extent that any obligation exists at the Effective Time to issue Enron Common Stock or Dynegy Class A Common Stock under any Assumed Plan, the obligation of Newco thereafter to issue Newco Common Stock in fulfillment of such previous obligation shall be to issue the number of shares of Newco Common Stock equal to (i) in the case of Enron Common Stock, the number of shares (rounded to the nearest whole share) of Enron Common Stock subject to such obligation multiplied by the Enron Merger Ratio and (ii) in the case of Dynegy Class A Common Stock, the number of shares of Dynegy Class A Common Stock subject to such obligation; provided, however, that, if the obligation is an award of a specified dollar amount of Enron Common Stock or Dynegy Common Stock, the substitution shall be effected simply by substituting Newco Common Stock having the specified dollar value. (b) At or prior to the Effective Time, Newco shall take all corporate action necessary to reserve for issuance a number of shares of Newco Class A Common Stock equal to the number of shares of Newco Class A Common Stock available for issuance pursuant to the Assumed Plans (which number shall be the sum of (i) the product (rounded to the nearest whole share) of the number of shares of Enron Common Stock available for issuance immediately prior to the Effective Time multiplied by the Enron Merger Ratio plus (ii) the number of shares of Dynegy Common Stock available for issuance immediately prior to the Effective Time). Promptly following the Closing Date, Newco shall file with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-8 (or a post-effective amendment on Form S-8 with respect to the Form S-4 or such other appropriate form) covering all such shares of Newco Class A Common Stock and shall cause such registration statement to remain effective (and shall cause the prospectus or prospectuses relating thereto to remain compliant with applicable securities laws) for as long as there are outstanding any such Enron Options or Dynegy Options or, with respect to Assumed Plans other than the Enron Stock Plans or Dynegy Stock Plans, for as long as required under applicable securities laws. (c) Except as otherwise specifically provided by this Section 4.5, the terms of the Enron Options and Dynegy Options and the relevant Enron Stock Plans and Dynegy Stock Plans, as in effect on the Effective Time, shall remain in full force and effect with respect to the Enron Options and Dynegy Options, as applicable, after giving effect to the Mergers and the assumptions by Newco as set forth above; similarly, the terms of each other Assumed Plan shall remain in full force and effect after giving effect to the Mergers and the assumptions by Newco as set forth above. As soon as practicable following the Effective Time, Newco shall deliver to the holders of Enron Options and Dynegy Options and beneficiaries of awards under Assumed Plans other than Enron Stock Plans and Dynegy Stock Plans appropriate notices setting forth the rights of such holders and beneficiaries pursuant to the respective Enron Stock Plans and Dynegy Stock Plans and other Assumed Plans and under the agreements evidencing the grants of such Enron Options and Dynegy Options, and that such Enron Options and Dynegy Options and such 11 Assumed Plans shall be assumed by Newco and shall continue in effect on the same terms and conditions (subject to any adjustments required by this Section 4.5). Section 4.6 Dynegy Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, no share of Dynegy Common Stock the holder of which shall have properly complied with the provisions of Section 11.70 of the IBCA as to rights to dissent with respect to the Dynegy Merger (a "Dynegy Dissenting Share") shall be deemed converted into and to represent the right to receive the Dynegy Consideration hereunder; and the holders of Dynegy Dissenting Shares, if any, shall be entitled to receive such consideration as shall be determined pursuant to and in accordance with the provisions of such Section 11.70; provided, however, that, if any holder fails to properly perfect or exercise his or her rights to payment as provided in such Section 11.70, such holder shall forfeit such right to payment for such Dynegy Dissenting Shares and each such Dynegy Dissenting Share shall thereupon be deemed to be converted into the right to receive the Dynegy Consideration. Section 4.7 Adjustment of Enron Merger Ratio. If, subsequent to the date of this Agreement but prior to the Effective Time, Dynegy changes the number of shares of Dynegy Common Stock, or Enron changes the number of shares of Enron Common Stock, issued and outstanding as a result of a stock split, reverse stock split, stock dividend, recapitalization or other similar transaction, the Enron Merger Ratio and other items dependent thereon shall be appropriately adjusted. Section 4.8 Rule 16b-3 Approval. Newco agrees that its Board of Directors shall, at or prior to the Effective Time, adopt resolutions specifically approving, for purposes of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the receipt, pursuant to Section 4.2 or Section 4.3, of shares of Newco Common Stock, and of options to acquire shares of Newco Class A Common Stock, by executive officers or directors of Enron or Dynegy who become executive officers or directors of Newco subject to Rule 16b-3. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ENRON Except as set forth in the disclosure letter delivered to Dynegy by Enron at or prior to the execution hereof (the "Enron Disclosure Letter"), Enron represents and warrants to Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub that: Section 5.1 Existence; Good Standing; Corporate Authority. Enron is a corporation duly incorporated, validly existing and of active status under the laws of the State of Oregon. Enron is duly qualified to do business and, to the extent such concept or similar concept exists in the relevant jurisdiction, is in good standing under the laws of any jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified does not and is not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. Enron has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. The copies of Enron's articles of 12 incorporation and bylaws previously made available to Dynegy are true and correct and contain all amendments as of the date hereof. Section 5.2 Authorization, Validity and Effect of Agreements. Enron has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements and documents required to be executed and delivered by Enron pursuant to this Agreement. The consummation by Enron of the transactions contemplated hereby has been duly authorized (i) by the Board of Directors of Enron by unanimous vote of the directors present and (ii) by all other requisite corporate action on behalf of Enron, other than the approval referred to in Section 5.20. This Agreement constitutes the valid and legally binding obligation of Enron, enforceable against Enron in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to creditors' rights and general principles of equity. Enron has taken all action necessary to render the restrictions set forth in Section 60.825 to 60.845 of the OBCA and in Article V of its articles of incorporation inapplicable to this Agreement and the transactions contemplated hereby. Section 5.3 Capitalization. The authorized capital stock of Enron consists of 1,200,000,000 shares of Enron Common Stock and 16,500,000 shares of preferred stock, no par value ("Enron Preferred Stock"). As of October 31, 2001, there were (i) 743,905,381 outstanding shares of Enron Common Stock, (ii) 85,479,162 shares of Enron Common Stock reserved for issuance upon exercise of outstanding Enron Options, (iii) 6,400,000 shares of Enron Common Stock reserved for issuance upon exercise of an option held by Bank of America, (iv) 167,053,369 shares of Enron Common Stock reserved for issuance upon conversion of outstanding Enron convertible or exchangeable securities and (v) 1,570,934.568509 outstanding shares of Enron Preferred Stock, consisting of 1,137,991 shares of Cumulative Second Preferred Convertible Stock (the "Second Preferred Stock"), 35.568509 shares of 9.142% Perpetual Second Preferred Stock (the "9.142% Preferred Stock"), 250,000 shares of Mandatorily Convertible Junior Preferred Stock, Series B (the "Series B Preferred Stock"), and 182,908 shares of Mandatorily Convertible Single Reset Preferred Stock, Series C (the "Series C Preferred Stock"). All such issued and outstanding shares of Enron Common Stock and Enron Preferred Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. As of the date of this Agreement, except as set forth in this Section 5.3 and except for shares delivered upon exercises of options or conversions or exchanges of convertible or exchangeable securities set forth in this Section 5.3 from October 31, 2001 to the date hereof, there are no outstanding shares of capital stock of Enron, and there are no options, warrants, calls, subscriptions, convertible securities or other rights, agreements or commitments that may obligate Enron or any of its Subsidiaries to issue, transfer or sell any shares of capital stock or other voting securities of Enron or any of its Significant Subsidiaries. Enron has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote, or (except for the Second Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Zero Coupon Convertible Senior Notes due 2021 of Enron (the "Zeros")) which are convertible into or exercisable for securities having the right to vote, with the shareholders of Enron on any matter. Section 5.4 Subsidiaries. For purposes of this Agreement, "Significant Subsidiary" shall mean significant subsidiary as defined in Rule 1-02 of Regulation S-X of the Exchange Act. Each of Enron's Significant Subsidiaries is a corporation or other legal entity 13 duly organized, validly existing and, to the extent such concept or similar concept exists in the relevant jurisdiction, in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or other entity power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing (where applicable) in each jurisdiction in which the ownership, operation or lease of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing does not and is not reasonably likely to have an Enron Material Adverse Effect. As of the date of this Agreement, all of the outstanding shares of capital stock of, or other ownership interests in, each of Enron's Significant Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by Enron free and clear of all mortgages, deeds of trust, liens, security interests, pledges, leases, conditional sale contracts, charges, privileges, easements, rights of way, reservations, options, rights of first refusal and other encumbrances ("Liens"). Section 5.5 Compliance with Laws; Permits. Except for such matters as, individually or in the aggregate, do not or are not reasonably likely to have an Enron Material Adverse Effect and except for matters arising under Environmental Laws, which are treated exclusively in Section 5.13, and for tax matters, which are treated exclusively in Section 5.10: (a) Neither Enron nor any Subsidiary of Enron is in violation of any applicable law, rule, regulation, code, governmental determination, order, treaty, convention, governmental certification requirement or other public limitation, U.S. or non-U.S. (collectively, "Applicable Laws"), and no claim is pending or, to the knowledge of Enron, threatened with respect to any such matters. To the knowledge of Enron, no condition exists which does or is reasonably likely to constitute a violation of or deficiency under any Applicable Law by Enron or any Subsidiary of Enron. (b) Enron and each Subsidiary of Enron hold all permits, licenses, certifications, variations, exemptions, orders, franchises and approvals of all governmental or regulatory authorities necessary for the conduct of their respective businesses as currently conducted (the "Enron Permits"). All Enron Permits are in full force and effect and there exists no default thereunder or breach thereof, and Enron has no notice or actual knowledge that such Enron Permits will not be renewed in the ordinary course after the Effective Time. No governmental authority has given, or, to the knowledge of Enron, threatened to give, any action to terminate, cancel or reform any Enron Permit. (c) Enron and each Subsidiary of Enron possess all permits, licenses, operating authorities, orders, exemptions, franchises, variances, consents, approvals or other authorizations required for the present ownership and operation of all its real property or leaseholds ("Enron Real Property"). There exists no material default or breach with respect to, and no party or governmental authority has taken or, to the knowledge of Enron, threatened to take, any action to terminate, cancel or reform any such permit, license, operating authority, order, exemption, franchise, variance, consent, approval or other authorization pertaining to Enron Real Property. 14 Section 5.6 No Conflict. (a) Neither the execution and delivery by Enron of this Agreement nor the consummation by Enron of the transactions contemplated hereby in accordance with the terms hereof will (i) subject to the approvals referred to in Section 5.20, conflict with or result in a breach of any provisions of the articles of incorporation or bylaws of Enron; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or give rise to a right of purchase under, or accelerate the performance required by, or result in the creation of any Lien upon any of the properties of Enron or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, or otherwise result in a detriment to Enron or any of its Subsidiaries under, any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of trust, license, concession, franchise, permit, lease, contract, agreement, joint venture or other instrument or obligation to which Enron or any of its Subsidiaries is a party, or by which Enron or any of its Subsidiaries or any of their properties is bound or affected; or (iii) subject to the filings and other matters referred to in Section 5.6(b), contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to Enron or any of its Subsidiaries, except, in the case of matters described in clause (ii) or (iii), as do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. (b) Neither the execution and delivery by Enron of this Agreement nor the consummation by Enron of the transactions contemplated hereby in accordance with the terms hereof will require any consent, approval, qualification or authorization of, or filing or registration with, any court or governmental or regulatory authority, other than (i) the filing of the Articles of Merger provided for in Section 1.3, (i) the filing of a listing application with the NYSE pursuant to Section 7.9, (iii) filings required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Exchange Act, the Securities Act, the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), or applicable state securities and "Blue Sky" laws, (iv) filings, approvals and notifications required under applicable non-U.S. competition, antitrust or premerger notification laws, (v) filings with, and the approval of, or notices to, non-U.S. regulatory authorities having jurisdiction over the Mergers set forth in Section 5.6(b)(v) of the Enron Disclosure Letter, (vi) filings with, and the approval of, or notices to, other state regulatory authorities having jurisdiction over the Mergers set forth in Section 5.6(b)(vi) of the Enron Disclosure Letter (the filings, approvals and notices in this clause (vi), collectively, the "Enron Regulatory Approvals") and (vii) filings with, approvals of or notices to the Federal Energy Regulatory Commission (the "FERC") in connection with the Mergers, except for any consent, approval, qualification or authorization the failure of which to obtain and for any filing or registration the failure of which to make does not and is not reasonably likely to have an Enron Material Adverse Effect. Section 5.7 SEC Documents. Enron has filed with the SEC all documents (including exhibits and any amendments thereto) required to be so filed by it since January 1, 1999 pursuant to Sections 13(a), 14(a) and 15(d) of the Exchange Act, and has made available (in paper form or via the internet) to Dynegy each registration statement, report, proxy statement or information statement (other than preliminary materials) it has so filed, each in the form 15 (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Enron Reports") and has included in the Enron Disclosure Letter a draft of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 (the "Draft Third Quarter Report"). As of its respective date, each Enron Report (i) complied in all material respects in accordance with the applicable requirements of the Exchange Act and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except for such statements, if any, as have been modified by subsequent filings with the SEC prior to the date hereof. Each of the consolidated balance sheets included in or incorporated by reference into the Enron Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of Enron and its consolidated Subsidiaries as of its date, and each of the consolidated statements of operations, cash flows and changes in shareholders' equity included in or incorporated by reference into the Enron Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in shareholders' equity, as the case may be, of Enron and its consolidated Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end audit adjustments which will not be material), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. The draft consolidated balance sheet of Enron and its consolidated Subsidiaries as of September 30, 2001 (the "September 30, 2001 Balance Sheet") included in the Draft Third Quarter Report (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of Enron and its consolidated Subsidiaries as of that date, and the consolidated statements of operations, cash flows and changes in shareholders' equity included in the Draft Third Quarter Report (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in shareholders' equity, as the case may be, of Enron and its consolidated Subsidiaries for the period then ended (subject to (A) such exceptions as may be permitted by Form 10-Q of the SEC, (B) normal year-end audit adjustments which will not be material and (C) changes routinely anticipated in the preparation of the final Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 which will not be material), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Except as and to the extent set forth in the September 30, 2001 Balance Sheet, neither Enron nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a consolidated balance sheet of Enron and its consolidated Subsidiaries or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities or obligations that were incurred in the ordinary course of business since September 30, 2001 and liabilities or obligations that do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. All reserves or adjustments required by generally accepted accounting principles to be reflected in the carrying value of the assets included in the September 30, 2001 Balance Sheet have been taken other than reserves or adjustments which do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. 16 Section 5.8 Litigation. Except as described in the Enron Reports filed prior to the date of this Agreement and the Draft Third Quarter Report (collectively, the "Enron Filed Reports") and except for tax matters, which are treated exclusively in Section 5.10, there are no actions, suits or proceedings pending against Enron or any of its Subsidiaries or, to Enron's knowledge, threatened against Enron or any of its Subsidiaries, at law or in equity or in any arbitration or similar proceedings, before or by any U.S. federal, state or non-U.S. court, commission, board, bureau, agency or instrumentality or any U.S. or non-U.S. arbitral or other dispute resolution body, that are reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. Section 5.9 Absence of Certain Changes. Except as described in the Enron Filed Reports, since December 31, 2000, there has not been (i) any event or occurrence, or series of events or occurrences, that has had or is reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, except for such changes or effects described in clause (1) of the definition of Enron Material Adverse Effect resulting from changes in general industry conditions or changes in general economic conditions, (ii) any material change by Enron or any of its Subsidiaries, when taken as a whole, in any of its accounting methods, principles or practices or any of its tax methods, practices or elections, (iii) any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of Enron or any redemption, purchase or other acquisition of any of its securities, except dividends on shares of Enron Common Stock at a rate of not more than $0.125 per share per quarter, on shares of its Second Preferred Stock at a rate of not more than $3.413 per share per quarter, on shares of its 9.142% Preferred Stock at an annual rate of not more than $91.420 per share and on shares of its Series B Preferred Stock at an annual rate of 6.5% of the liquidation preference thereof, or (iv) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan, except in the ordinary course of business consistent with past practice. Section 5.10 Taxes. (a) All tax returns, statements, reports, declarations, estimates and forms ("Returns") required to be filed by or with respect to Enron or any of its Subsidiaries (including any Return required to be filed by an affiliated, consolidated, combined, unitary or similar group for a taxable year in which Enron or any of its Subsidiaries was included in such group) on or prior to the date hereof have been properly filed on a timely basis with the appropriate governmental authorities, except to the extent that any failure to file does not and is not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, and all taxes due with such Returns have been duly paid, or deposited in full on a timely basis or adequately reserved for in accordance with generally accepted accounting principles, except to the extent that any failure to pay or deposit or make adequate provision for the payment of such taxes does not and is not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. Representations made in this Section 5.10 are made to the knowledge of Enron to the extent that the representations relate to a corporation which was, but is not currently, a part of Enron's or any of its Subsidiaries' affiliated, consolidated, combined, unitary or similar group. 17 (b) Except to the extent not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, (i) no audits or other administrative proceedings or court proceedings are presently pending with regard to any taxes or Returns of Enron or any of its Subsidiaries as to which any taxing authority has asserted in writing any claim; (ii) no governmental authority is now asserting in writing any deficiency or claim for taxes or any adjustment to taxes with respect to which Enron or any of its Subsidiaries may be liable with respect to income and other material taxes that have not been fully paid or finally settled; (iii) neither Enron nor any of its Subsidiaries has any liability for taxes under Treas. Reg. ss. 1.1502-6 or any similar provision of state, local, or non-U.S. tax law, except for taxes of the affiliated group of which Enron or any of its Subsidiaries is the common parent, within the meaning of Section 1504(a)(1) of the Code or any similar provision of state, local, or non-U.S. tax law; and (iv) neither Enron nor any of its Subsidiaries is a party to, is bound by or has any obligation under any tax sharing, allocation or indemnity agreement or any similar agreement or arrangement. Neither Enron nor any of its Subsidiaries is a party to an agreement that provides for the payment of any amount in connection with the Mergers that would be reasonably likely to constitute an "excess parachute payment" within the meaning of Section 280G of the Code. (c) Neither Enron nor any of its Subsidiaries knows of any fact, or has taken any action or has failed to take any action, as a result of which the Mergers would not qualify as transfers of Enron Common Stock and Dynegy Common Stock to Newco in a transaction qualifying under Section 351 of the Code. (d) For purposes of this Agreement, "tax" or "taxes" means all net income, gross income, gross receipts, sales, use, ad valorem, transfer, accumulated earnings, personal holding company, excess profits, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, disability, capital stock, or windfall profits taxes, customs duties or other taxes, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority. Section 5.11 Employee Benefit Plans. (a) Section 5.11 of the Enron Disclosure Letter lists or describes all Enron Benefit Plans. The term "Enron Benefit Plans" means all material employee benefit plans and other material benefit arrangements, including all "employee benefit plans" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not U.S.-based plans, and all other material employee benefit, bonus, incentive, deferred compensation, stock option (or other equity-based compensation), severance, employment, change in control, welfare (including post-retirement medical and life insurance) and fringe benefit plans, practices or agreements, whether or not subject to ERISA or U.S.-based and whether written or oral, sponsored, maintained or contributed to or required to be contributed to by Enron or any of its Subsidiaries, to which Enron or any of its Subsidiaries is a party or is required to provide benefits under applicable law or in which any person who is currently, has been or, prior to the Effective Time, is expected to become an employee of Enron is a participant. Enron will make available to Dynegy, within 30 days after the date hereof, with true and complete copies of the Enron Benefit Plans and, if applicable, the most recent trust agreements, Forms 5500, summary plan descriptions, funding statements, annual reports and actuarial reports, if applicable, for each such plan. 18 (b) Except for such matters as, individually or in the aggregate, do not and are not reasonably likely to have an Enron Material Adverse Effect: all applicable reporting and disclosure requirements have been met with respect to Enron Benefit Plans; there has been no "reportable event," as that term is defined in Section 4043 of ERISA, with respect to Enron Benefit Plans subject to Title IV of ERISA for which the 30-day reporting requirement has not been waived; to the extent applicable, the Enron Benefit Plans comply with the requirements of ERISA and the Code or with other applicable law, and have been maintained and operated in accordance with their terms, and, to Enron's knowledge, there are no breaches of fiduciary duty in connection with the Enron Benefit Plans; there are no pending or, to Enron's knowledge, threatened claims against or otherwise involving any Enron Benefit Plan; with respect to the Enron Benefit Plans or any "employee pension benefit plans," as defined in Section 3(2) of ERISA, that are or were subject to Title IV of ERISA and have been maintained or contributed to within six years prior to the Effective Time by Enron, its Subsidiaries or any trade or business (whether or not incorporated) that is under common control, or that is treated as a single employer, with Enron or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code (an "ERISA Affiliate"), (i) neither Enron nor any of its Subsidiaries has incurred any direct or indirect liability under Title IV of ERISA in connection with any termination thereof or withdrawal therefrom; and (ii) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived. (c) Neither Enron nor any of its Subsidiaries nor any of its ERISA Affiliates contributes to, or has an obligation to contribute to, a "multiemployer plan" within the meaning of Section 3(37) of ERISA, and the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit or compensation plan, policy, arrangement or agreement or any trust or loan (in connection therewith) that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee of Enron or any Subsidiary thereof which, individually or in the aggregate, are reasonably likely to have an Enron Material Adverse Effect. (d) Except as provided in this Agreement, since September 1, 2001, no U.S. Enron Benefit Plan has been amended or modified in a material substantive respect and no awards or compensation has been made or committed to or paid under any U.S. Enron Benefit Plan that was not in the ordinary course of business and consistent with past practices. Section 5.12 Labor Matters. (a) As of the date of this Agreement, neither Enron nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement or similar contract, agreement or understanding with a labor union or similar labor organization that is material to Enron and its Subsidiaries, taken as a whole. To the knowledge of Enron, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened that is reasonably likely to have an Enron Material Adverse Effect. (b) Except for such matters as do not and are not reasonably likely to have an Enron Material Adverse Effect and except as described in the Enron Filed Reports, (i) neither 19 Enron nor any Subsidiary of Enron has received any written complaint of any unfair labor practice or other unlawful employment practice or any written notice of any material violation of any federal, state or local statutes, laws, ordinances, rules, regulations, orders or directives with respect to the employment of individuals by, or the employment practices of, Enron or any Subsidiary of Enron or the work conditions or the terms and conditions of employment and wages and hours of their respective businesses and (ii) there are no unfair labor practice charges or other employee related complaints against Enron or any Subsidiary of Enron pending or, to the knowledge of Enron, threatened, before any governmental authority by or concerning the employees working in their respective businesses. Section 5.13 Environmental Matters. (a) Enron and each Subsidiary of Enron has been and is in compliance with all applicable orders of any court, governmental authority or arbitration board or tribunal and any applicable law, ordinance, rule, regulation or other legal requirement (including common law) related to human health and the environment ("Environmental Laws") except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere with the conduct of any of their respective businesses in the manner now conducted or which interfere with continued compliance with any Environmental Law, except for any noncompliance or interference that is not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. (b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, (i) no judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of Enron, threatened against Enron or its Subsidiaries that allege the violation of or seek to impose liability pursuant to any Environmental Law, and (ii) there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current (or, to the knowledge of Enron or its Subsidiaries, former) businesses, assets or properties of Enron or any Subsidiary of Enron, including but not limited to on-site or off-site disposal, release or spill of any material, substance or waste classified, characterized or otherwise regulated as hazardous, toxic or otherwise harmful to human health or the environment under Environmental Laws, including petroleum or petroleum products or byproducts ("Hazardous Materials") which facts, conditions or circumstances violate Environmental Law or are reasonably likely to give rise to (x) costs, expenses, liabilities or obligations for any cleanup, remediation, disposal or corrective action under any Environmental Law, (y) claims arising for personal injury, property damage or damage to natural resources, or (z) fines, penalties or injunctive relief. (c) Neither Enron nor any of its Subsidiaries has (i) received any notice of noncompliance with, violation of, or liability or potential liability under any Environmental Law or (ii) entered into any consent decree or order or is subject to any order of any court or governmental authority or tribunal under any Environmental Law or relating to the cleanup of any Hazardous Materials, except for any such matters as do not and are not reasonably likely to have an Enron Material Adverse Effect. 20 Section 5.14 Intellectual Property. Enron and its Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, know-how, trade secrets, trademarks, trademark rights and other proprietary information and other proprietary intellectual property rights used or held for use in connection with their respective businesses as currently being conducted, except where the failure to own or possess such licenses and other rights does not and is not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, and there are no assertions or claims challenging the validity of any of the foregoing that are reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. To the knowledge of Enron, the conduct of Enron's and its Subsidiaries' respective businesses as currently conducted does not conflict with any patents, patent rights, licenses, trademarks, trademark rights, trade names, trade name rights or copyrights of others that are reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. To the knowledge of Enron, there is no material infringement of any proprietary right owned by or licensed by or to Enron or any of its Subsidiaries that is reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect. Section 5.15 Decrees, Etc. Except for such matters as do not and are not reasonably likely to have an Enron Material Adverse Effect, (a) no order, writ, injunction or decree of any court or governmental authority or any arbitral or other dispute resolution body has been issued or entered against Enron or any Subsidiary of Enron that continues to be in effect that affects the ownership or operation of any of their respective assets, and (b) since January 1, 1991, no criminal order, writ, fine, injunction, decree, judgment or determination of any court or governmental authority has been issued against Enron or any Subsidiary of Enron. Section 5.16 Insurance. (a) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, Enron and its Subsidiaries maintain insurance coverage with financially responsible insurance companies in such amounts and against such losses as are customary in the industries in which Enron and its Subsidiaries operate on the date hereof. (b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, an Enron Material Adverse Effect, (i) no event relating specifically to Enron or its Subsidiaries has occurred that is reasonably likely, after the date of this Agreement, to result in an upward adjustment in premiums under any insurance policies they maintain, (ii) excluding insurance policies that have expired and been replaced in the ordinary course of business, no excess liability or protection and indemnity insurance policy has been canceled by the insurer within one year prior to the date hereof, and to Enron's knowledge, no threat in writing has been made to cancel (excluding cancellation upon expiration or failure to renew) any such insurance policy of Enron or any Subsidiary of Enron during the period of one year prior to the date hereof, and (iii) no event has occurred, including the failure by Enron or any Subsidiary of Enron to give any notice or information or by giving any inaccurate or erroneous notice or information, that limits or impairs the rights of Enron or any Subsidiary of Enron under any such excess liability or protection and indemnity insurance policies. 21 Section 5.17 No Brokers. Enron has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Enron, Newco or Dynegy to pay any finder's fees, brokerage or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Enron has retained J.P. Morgan Securities Inc. and Salomon Smith Barney Inc. as its financial advisors, the arrangements with which have been disclosed in writing to Dynegy prior to the date hereof. Section 5.18 Opinions of Financial Advisors. The Board of Directors of Enron has received the separate opinions of J.P. Morgan Securities Inc. and Salomon Smith Barney Inc. to the effect that, as of the date of this Agreement, the Enron Merger Ratio is fair, from a financial point of view, to the holders of Enron Common Stock. Section 5.19 Dynegy Stock Ownership. Neither Enron nor any of its affiliates or associates owns in excess of five percent of the shares of capital stock of Dynegy or of any other securities convertible into or otherwise exercisable to acquire shares of capital stock of Dynegy. Section 5.20 Vote Required. The approval of this Agreement by (i) the holders of a majority of the votes entitled to be cast by holders of Enron Common Stock and the Second Preferred Stock voting together as a single class, with each share of Enron Common Stock being entitled to one vote per share and each share of Second Preferred Stock being entitled to a number of votes per share equal to the number of shares of Enron Common Stock into which such share of Second Preferred Stock is then convertible, and (ii) the holders of a majority of the outstanding shares of Enron Common Stock entitled to vote are the only approvals of the holders of any class or series of Enron capital stock necessary to approve any transaction contemplated by this Agreement. Section 5.21 Regulation as a Utility. (a) Enron is a "holding company" as defined in the 1935 Act. Enron is exempt from registration and all sections of the 1935 Act and the rules and regulations promulgated thereunder, other than from Section 9(a)(2) thereof, pursuant to Rule 2 under Section 3(a)(1) of the 1935 Act. Enron also has filed an application for exemption under Section 3(a)(3) or, in the alternative, Section 3(a)(5) of the 1935 Act. Pending SEC action on that application, Enron is exempt from registration and all sections of the 1935 Act and the rules and regulations promulgated thereunder, other than from Section 9(a)(2) thereof, pursuant to Section 3(c) of the 1935 Act. Portland General Electric Company ("Enron Utility"), a wholly owned direct Subsidiary of Enron, is a "public utility company" within the meaning of Section 2(a)(5) of the 1935 Act. No other Subsidiary of Enron is a "public utility company" within the meaning of Section 2(a)(5) of the 1935 Act. (b) Enron Utility is regulated as a public utility in the State of Oregon and in no other state. Neither Enron nor any "subsidiary company" or "affiliate" (as each such term is defined in the 1935 Act) of Enron (other than Enron Utility) is subject to regulation as a public utility or public service company (or similar designation) by any other state in the United States or any foreign country. 22 Section 5.22 Capital Expenditure Program. Section 5.22 of the Enron Disclosure Letter contains a complete copy of management's most recent capital expenditure budget of Enron as of the date of this Agreement for each quarterly period in 2002 (the "Enron Capital Budget"). Section 5.23 Improper Payments. No bribes, kickbacks or other improper payments have been made by Enron or any Subsidiary of Enron or agent of any of them in connection with the conduct of their respective businesses or the operation of their respective assets, and neither Enron, any Subsidiary of Enron nor any agent of any of them has received any such payments from vendors, suppliers or other persons, where any such payment made or received is reasonably likely to have an Enron Material Adverse Effect. ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF DYNEGY, NEWCO, DYNEGY MERGER SUB AND ENRON MERGER SUB Except as set forth in the disclosure letter delivered to Enron by Dynegy at or prior to the execution hereof (the "Dynegy Disclosure Letter"), Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub, jointly and severally, represent and warrant to Enron that: Section 6.1 Existence; Good Standing; Corporate Authority. Each of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Dynegy is duly qualified to do business and, to the extent such concept or similar concept exists in the relevant jurisdiction, is in good standing under the laws of any jurisdiction in which the character of the properties owned or leased by it therein or in which the transaction of its business makes such qualification necessary, except where the failure to be so qualified does not and is not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. Dynegy has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as now conducted. The copies of the articles or certificate of incorporation and bylaws of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub previously made available to Enron are true and correct and contain all amendments as of the date hereof. Section 6.2 Authorization, Validity and Effect of Agreements. Each of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub has the requisite corporate power and authority to execute and deliver this Agreement and all other agreements and documents required to be executed and delivered by it pursuant to this Agreement. The consummation by Dynegy of the transactions contemplated hereby has been duly authorized (i) by the Board of Directors of Dynegy by unanimous vote of the directors present and (ii) by all other requisite corporate action on behalf of Dynegy, other than the approvals referred to in Section 6.20. The consummation by each of Newco, Dynegy Merger Sub and Enron Merger Sub of the transactions contemplated hereby, including, in the case of Newco, the issuance by Newco of shares of Newco Common Stock pursuant to the Mergers, has been duly authorized by all requisite corporate action on behalf of each of Newco, Dynegy Merger Sub and Enron Merger Sub. This Agreement constitutes the valid and legally binding obligation of each of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub, enforceable against such party in accordance with its terms, subject 23 to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws relating to creditors' rights and general principles of equity. Dynegy has taken all action necessary to render the restrictions set forth in Sections 7.85 and 11.75 of the IBCA inapplicable to this Agreement and the transactions contemplated hereby. Section 6.3 Capitalization. The authorized capital stock of Dynegy consists of 900,000,000 shares of Dynegy Class A Common Stock, 360,000,000 shares of Dynegy Class B Common Stock, and 70,000,000 shares of preferred stock, no par value ("Dynegy Preferred Stock"). As of November 6, 2001, there were (i) 238,956,530 outstanding shares of Dynegy Class A Common Stock and 86,599,914 outstanding shares of Dynegy Class B Common Stock, (ii) 27,211,749 shares of Dynegy Common Stock reserved for issuance upon exercise of outstanding Dynegy Options, and (iii) no outstanding shares of Dynegy Preferred Stock. All such issued and outstanding shares of Dynegy Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights, other than the rights of Chevron U.S.A. Inc. ("Chevron") pursuant to Article 6 of the Shareholder Agreement, dated as of June 14, 1999 (the "Dynegy Shareholder Agreement"), among Energy Convergence Holding Company, Illinova Corporation, Dynegy and Chevron. As of the date of this Agreement, except (a) as set forth in this Section 6.3, (b) for the rights of Chevron pursuant to Article 6 of the Dynegy Shareholder Agreement and pursuant to the Dynegy Subscription Agreement and the Dynegy Series B Preferred Stock and (c) for shares delivered upon exercises of options set forth in this Section 6.3 from October 26, 2001 to the date hereof, there are no outstanding shares of capital stock of Dynegy, and there are no options, warrants, calls, subscriptions, convertible securities or other rights, agreements or commitments that may obligate Dynegy or any of its Subsidiaries to issue, transfer or sell any shares of capital stock or other voting securities of Dynegy or any of its Significant Subsidiaries. Dynegy has no outstanding bonds, debentures, notes or other obligations the holders of which have the right to vote, or which are convertible into or exercisable for securities having the right to vote, with the shareholders of Dynegy on any matter. Section 6.4 Subsidiaries. (a) Each of Dynegy's Significant Subsidiaries is a corporation or other legal entity duly organized, validly existing and, to the extent such concept or similar concept exists in the relevant jurisdiction, in good standing under the laws of its jurisdiction of incorporation or organization, has the corporate or other entity power and authority to own, operate and lease its properties and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing (where applicable) in each jurisdiction in which the ownership, operation or lease of its property or the conduct of its business requires such qualification, except for jurisdictions in which such failure to be so qualified or to be in good standing does not and is not reasonably likely to have a Dynegy Material Adverse Effect. As of the date of this Agreement, all of the outstanding shares of capital stock of, or other ownership interests in, each of Dynegy's Significant Subsidiaries are duly authorized, validly issued, fully paid and nonassessable, and are owned, directly or indirectly, by Dynegy free and clear of all Liens. (b) All of the outstanding capital stock of Newco is owned directly by Dynegy and all of the outstanding capital stock of each of Dynegy Merger Sub and Enron Merger Sub is owned directly by Newco. Each of Newco, Dynegy Merger Sub and Enron Merger Sub has been 24 formed solely for the purpose of engaging in the transactions contemplated hereby and, as of the Effective Time, will not have engaged in any activities other than in connection with the transactions contemplated by this Agreement. Immediately prior to the Effective Time, Newco will have 1,000 outstanding shares of Newco Class A Common Stock, and each of Dynegy Merger Sub and Enron Merger Sub will have 100 outstanding shares of its common stock, no par value. (c) The shares of Newco Common Stock to be issued in connection with the Mergers, when issued in accordance with this Agreement, will be validly issued, fully paid, nonassessable and free of preemptive rights, other than the rights of Chevron pursuant to the Shareholder Agreement dated as of November 9, 2001 among Newco, Dynegy, Enron and Chevron. Section 6.5 Compliance with Laws; Permits. Except for such matters as, individually or in the aggregate, do not or are not reasonably likely to have a Dynegy Material Adverse Effect and except for matters arising under Environmental Laws, which are treated exclusively in Section 6.13, and for tax matters, which are treated exclusively in Section 6.10: (a) Neither Dynegy nor any Subsidiary of Dynegy is in violation of any Applicable Laws, and no claim is pending or, to the knowledge of Dynegy, threatened with respect to any such matters. To the knowledge of Dynegy, no condition exists which does or is reasonably likely to constitute a violation of or deficiency under any Applicable Law by Dynegy or any Subsidiary of Dynegy. (b) Dynegy and each Subsidiary of Dynegy hold all permits, licenses, certifications, variations, exemptions, orders, franchises and approvals of all governmental or regulatory authorities necessary for the conduct of their respective businesses as currently conducted (the "Dynegy Permits"). All Dynegy Permits are in full force and effect and there exists no default thereunder or breach thereof, and Dynegy has no notice or actual knowledge that such Dynegy Permits will not be renewed in the ordinary course after the Effective Time. No governmental authority has given, or, to the knowledge of Dynegy, threatened to give, any action to terminate, cancel or reform any Dynegy Permit. (c) Dynegy and each Subsidiary of Dynegy possess all permits, licenses, operating authorities, orders, exemptions, franchises, variances, consents, approvals or other authorizations required for the present ownership and operation of all its real property or leaseholds ("Dynegy Real Property"). There exists no material default or breach with respect to, and no party or governmental authority has taken or, to the knowledge of Dynegy, threatened to take, any action to terminate, cancel or reform any such permit, license, operating authority, order, exemption, franchise, variance, consent, approval or other authorization pertaining to Dynegy Real Property. Section 6.6 No Conflict. (a) Neither the execution and delivery by Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub of this Agreement nor the consummation by Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub of the transactions contemplated hereby in accordance with the 25 terms hereof will (i) subject to the approvals referred to in Section 6.20, conflict with or result in a breach of any provisions of the articles or certificate of incorporation or bylaws of Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub; (ii) violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination or in a right of termination or cancellation of, or give rise to a right of purchase under, or accelerate the performance required by, or result in the creation of any Lien upon any of the properties of Dynegy or its Subsidiaries under, or result in being declared void, voidable, or without further binding effect, or otherwise result in a detriment to Dynegy or any of its Subsidiaries under, any of the terms, conditions or provisions of, any note, bond, mortgage, indenture, deed of trust, license, concession, franchise, permit, lease, contract, agreement, joint venture or other instrument or obligation to which Dynegy or any of its Subsidiaries is a party, or by which Dynegy or any of its Subsidiaries or any of their properties is bound or affected; or (iii) subject to the filings and other matters referred to in Section 6.6(b), contravene or conflict with or constitute a violation of any provision of any law, rule, regulation, judgment, order or decree binding upon or applicable to Dynegy or any of its Subsidiaries, except, in the case of matters described in clause (ii) or (iii), as do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. (b) Neither the execution and delivery by Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub of this Agreement nor the consummation by Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub of the transactions contemplated hereby in accordance with the terms hereof will require any consent, approval, qualification or authorization of, or filing or registration with, any court or governmental or regulatory authority, other than (i) the filing of the Articles of Merger provided for in Section 1.3, (ii) the filing of a listing application with the NYSE pursuant to Section 7.9, (iii) filings required under the HSR Act, the Exchange Act, the Securities Act, the 1935 Act, or applicable state securities and "Blue Sky" laws, (iv) filings, approvals and notifications required under applicable non-U.S. competition, antitrust or premerger notification laws, (v) filings with, and the approval of, or notices to, other state regulatory authorities having jurisdiction over the Mergers set forth in Section 6.6 of the Dynegy Disclosure Letter (the filings, approvals and notices in this clause (v), collectively, the "Dynegy Regulatory Approvals") and (vi) filings with, approvals of or notices to the FERC in connection with the Mergers, except for any consent, approval, qualification or authorization the failure of which to obtain and for any filing or registration the failure of which to make does not and is not reasonably likely to have a Dynegy Material Adverse Effect. Section 6.7 SEC Documents. Dynegy has filed with the SEC all documents (including exhibits and any amendments thereto) required to be so filed by it since January 1, 1999 pursuant to Sections 13(a), 14(a) and 15(d) of the Exchange Act, and has made available (in paper form or via the internet) to Enron each registration statement, report, proxy statement or information statement (other than preliminary materials) it has so filed, each in the form (including exhibits and any amendments thereto) filed with the SEC (collectively, the "Dynegy Reports"). As of its respective date, each Dynegy Report (i) complied in all material respects in accordance with the applicable requirements of the Exchange Act and the rules and regulations thereunder and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading except for such 26 statements, if any, as have been modified by subsequent filings with the SEC prior to the date hereof. Each of the consolidated balance sheets included in or incorporated by reference into the Dynegy Reports (including the related notes and schedules) fairly presents in all material respects the consolidated financial position of Dynegy and its consolidated Subsidiaries as of its date, and each of the consolidated statements of operations, cash flows and changes in shareholders' equity included in or incorporated by reference into the Dynegy Reports (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in shareholders' equity, as the case may be, of Dynegy and its consolidated Subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end audit adjustments which will not be material), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Except as and to the extent set forth on the consolidated balance sheet of Dynegy and its consolidated Subsidiaries included in the most recent Dynegy Report filed prior to the date of this Agreement that includes such a balance sheet, including all notes thereto, neither Dynegy nor any of its Subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a consolidated balance sheet of Dynegy or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied, other than liabilities or obligations which are incurred in the ordinary course of business since the date of the balance sheet included in the most recent Dynegy Report filed prior to the date of this Agreement and liabilities or obligations which do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. All reserves or adjustments required by generally accepted accounting principles to be reflected in the carrying value of the assets included in such balance sheet have been taken other than reserves or adjustments which do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. Section 6.8 Litigation. Except as described in the Dynegy Reports filed prior to the date of this Agreement and except for tax matters, which are treated exclusively in Section 6.10, there are no actions, suits or proceedings pending against Dynegy or any of its Subsidiaries or, to Dynegy's knowledge, threatened against Dynegy or any of its Subsidiaries, at law or in equity or in any arbitration or similar proceedings, before or by any U.S. federal, state or non-U.S. court, commission, board, bureau, agency or instrumentality or any U.S. or non-U.S. arbitral or other dispute resolution body, that are reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. Section 6.9 Absence of Certain Changes. Except as described in the Dynegy Reports filed prior to the date of this Agreement, since December 31, 2000, there has not been (i) any event or occurrence, or series of events or occurrences, that has had or is reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, except for such changes or effects described in clause (1) of the definition of Dynegy Material Adverse Effect resulting from changes in general industry conditions or changes in general economic conditions, (ii) any material change by Dynegy or any of its Subsidiaries, when taken as a whole, in any of its accounting methods, principles or practices or any of its tax methods, practices or elections, (iii) any declaration, setting aside or payment of any dividend or distribution in respect of any capital stock of Dynegy or any redemption, purchase or other acquisition of any of its 27 securities, except dividends on shares of Dynegy Common Stock and Dynegy Class B Common Stock at a rate of not more than $0.075 per share per quarter, or (iv) any increase in or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan, except in the ordinary course of business consistent with past practice. Section 6.10 Taxes. (a) All Returns required to be filed by or with respect to Dynegy or any of its Subsidiaries (including any Return required to be filed by an affiliated, consolidated, combined, unitary or similar group for a taxable year in which Dynegy or any of its Subsidiaries was included in such group) on or prior to the date hereof have been properly filed on a timely basis with the appropriate governmental authorities, except to the extent that any failure to file does not and is not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, and all taxes due with such Returns have been duly paid, or deposited in full on a timely basis or adequately reserved for in accordance with generally accepted accounting principles, except to the extent that any failure to pay or deposit or make adequate provision for the payment of such taxes does not and is not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. Representations made in this Section 6.10 are made to the knowledge of Dynegy to the extent that the representations relate to a corporation which was, but is not currently, a part of Dynegy's or any of its Subsidiaries' affiliated, consolidated, combined, unitary or similar group. (b) Except to the extent not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, (i) no audits or other administrative proceedings or court proceedings are presently pending with regard to any taxes or Returns of Dynegy or any of its Subsidiaries as to which any taxing authority has asserted in writing any claim; (ii) no governmental authority is now asserting in writing any deficiency or claim for taxes or any adjustment to taxes with respect to which Dynegy or any of its Subsidiaries may be liable with respect to income and other material taxes that have not been fully paid or finally settled; (iii) neither Dynegy nor any of its Subsidiaries has any liability for taxes under Treas. Reg. ss. 1.1502-6 or any similar provision of state, local, or non-U.S. tax law, except for taxes of the affiliated group of which Dynegy or any of its Subsidiaries is the common parent, within the meaning of Section 1504(a)(1) of the Code or any similar provision of state, local, or non-U.S. tax law; and (iv) neither Dynegy nor any of its Subsidiaries is a party to, is bound by or has any obligation under any tax sharing, allocation or indemnity agreement or any similar agreement or arrangement. Neither Dynegy nor any of its Subsidiaries is a party to an agreement that provides for the payment of any amount in connection with the Mergers that would be reasonably likely to constitute an "excess parachute payment" within the meaning of Section 280G of the Code. (c) Neither Dynegy nor any of its Subsidiaries knows of any fact, or has taken any action or has failed to take any action, as a result of which the Mergers would not qualify as transfers of Enron Common Stock and Dynegy Common Stock to Newco in a transaction qualifying under Section 351 of the Code. 28 Section 6.11 Employee Benefit Plans. (a) Section 6.11 of the Dynegy Disclosure Letter lists or describes all Dynegy Benefit Plans. The term "Dynegy Benefit Plans" means all material employee benefit plans and other material benefit arrangements, including all "employee benefit plans" as defined in Section 3(3) of ERISA, whether or not U.S.-based plans, and all other material employee benefit, bonus, incentive, deferred compensation, stock option (or other equity-based compensation), severance, employment, change in control, welfare (including post-retirement medical and life insurance) and fringe benefit plans, practices or agreements, whether or not subject to ERISA or U.S.-based and whether written or oral, sponsored, maintained or contributed to or required to be contributed to by Dynegy or any of its Subsidiaries, to which Dynegy or any of its Subsidiaries is a party or is required to provide benefits under applicable law or in which any person who is currently, has been or, prior to the Effective Time, is expected to become an employee of Dynegy is a participant. Dynegy will make available to Enron, within 30 days after the date hereof, with true and complete copies of the Dynegy Benefit Plans and, if applicable, the most recent trust agreements, Forms 5500, summary plan descriptions, funding statements, annual reports and actuarial reports, if applicable, for each such plan. (b) Except for such matters as, individually or in the aggregate, do not and are not reasonably likely to have a Dynegy Material Adverse Effect: all applicable reporting and disclosure requirements have been met with respect to Dynegy Benefit Plans; there has been no "reportable event," as that term is defined in Section 4043 of ERISA, with respect to Dynegy Benefit Plans subject to Title IV of ERISA for which the 30-day reporting requirement has not been waived; to the extent applicable, Dynegy Benefit Plans comply with the requirements of ERISA and the Code or with other applicable law, and have been maintained and operated in accordance with their terms, and, to Dynegy's knowledge, there are no breaches of fiduciary duty in connection with Dynegy Benefit Plans; there are no pending or, to Dynegy's knowledge, threatened claims against or otherwise involving any Dynegy Benefit Plan; with respect to Dynegy Benefit Plans or any "employee pension benefit plans," as defined in Section 3(2) of ERISA, that are or were subject to Title IV of ERISA and have been maintained or contributed to within six years prior to the Effective Time by Dynegy, its Subsidiaries or any of its ERISA Affiliates, (i) neither Dynegy nor any of its Subsidiaries has incurred any direct or indirect liability under Title IV of ERISA in connection with any termination thereof or withdrawal therefrom; and (ii) there does not exist any accumulated funding deficiency within the meaning of Section 412 of the Code or Section 302 of ERISA, whether or not waived. (c) Neither Dynegy nor any of its Subsidiaries nor any of its ERISA Affiliates contributes to, or has an obligation to contribute to, a "multiemployer plan" within the meaning of Section 3(37) of ERISA, and the execution of, and performance of the transactions contemplated by, this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) constitute an event under any benefit or compensation plan, policy, arrangement or agreement or any trust or loan (in connection therewith) that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligations to fund benefits with respect to any employee of Dynegy or any Subsidiary thereof which, individually or in the aggregate, are reasonably likely to have a Dynegy Material Adverse Effect. 29 (d) Except as provided in this Agreement, since September 1, 2001, no U.S. Dynegy Benefit Plan has been amended or modified in a material substantive respect and no awards or compensation has been made or committed to or paid under any U.S. Dynegy Benefit Plan that was not in the ordinary course of business and consistent with past practices. Section 6.12 Labor Matters. (a) As of the date of this Agreement, neither Dynegy nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement or similar contract, agreement or understanding with a labor union or similar labor organization that is material to Dynegy and its Subsidiaries, taken as a whole. To the knowledge of Dynegy, there are no organizational efforts with respect to the formation of a collective bargaining unit presently being made or threatened that is reasonably likely to have a Dynegy Material Adverse Effect. (b) Except for such matters as do not and are not reasonably likely to have a Dynegy Material Adverse Effect and except as described in the Dynegy Reports filed prior to the date of this Agreement, (i) neither Dynegy nor any Subsidiary of Dynegy has received any written complaint of any unfair labor practice or other unlawful employment practice or any written notice of any material violation of any federal, state or local statutes, laws, ordinances, rules, regulations, orders or directives with respect to the employment of individuals by, or the employment practices of, Dynegy or any Subsidiary of Dynegy or the work conditions or the terms and conditions of employment and wages and hours of their respective businesses and (ii) there are no unfair labor practice charges or other employee related complaints against Dynegy or any Subsidiary of Dynegy pending or, to the knowledge of Dynegy, threatened, before any governmental authority by or concerning the employees working in their respective businesses. Section 6.13 Environmental Matters. (a) Dynegy and each Subsidiary of Dynegy has been and is in compliance with all Environmental Laws except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere with the conduct of any of their respective businesses in the manner now conducted or which interfere with continued compliance with any Environmental Law, except for any noncompliance or interference that is not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. (b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, (i) no judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of Dynegy, threatened against Dynegy or its Subsidiaries that allege the violation of or seek to impose liability pursuant to any Environmental Law, and (ii) there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current (or, to the knowledge of Dynegy or its Subsidiaries, former) businesses, assets or properties of Dynegy or any Subsidiary of Dynegy, including but not limited to on-site or off-site disposal, release or spill of any Hazardous Materials which facts, conditions or circumstances violate Environmental Law or are reasonably likely to give rise to (x) costs, expenses, liabilities or 30 obligations for any cleanup, remediation, disposal or corrective action under any Environmental Law, (y) claims arising for personal injury, property damage or damage to natural resources, or (z) fines, penalties or injunctive relief. (c) Neither Dynegy nor any of its Subsidiaries has (i) received any notice of noncompliance with, violation of, or liability or potential liability under any Environmental Law or (ii) entered into any consent decree or order or is subject to any order of any court or governmental authority or tribunal under any Environmental Law or relating to the cleanup of any Hazardous Materials, except for any such matters as do not and are not reasonably likely to have a Dynegy Material Adverse Effect. Section 6.14 Intellectual Property. Dynegy and its Subsidiaries own or possess adequate licenses or other valid rights to use all patents, patent rights, know-how, trade secrets, trademarks, trademark rights and other proprietary information and other proprietary intellectual property rights used or held for use in connection with their respective businesses as currently being conducted, except where the failure to own or possess such licenses and other rights does not and is not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, and there are no assertions or claims challenging the validity of any of the foregoing that are reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. To the knowledge of Dynegy, the conduct of Dynegy's and its Subsidiaries' respective businesses as currently conducted does not conflict with any patents, patent rights, licenses, trademarks, trademark rights, trade names, trade name rights or copyrights of others that are reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. To the knowledge of Dynegy, there is no material infringement of any proprietary right owned by or licensed by or to Dynegy or any of its Subsidiaries that is reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect. Section 6.15 Decrees, Etc. Except for such matters as do not and are not reasonably likely to have a Dynegy Material Adverse Effect, (a) no order, writ, injunction or decree of any court or governmental authority or any arbitral or other dispute resolution body has been issued or entered against Dynegy or any Subsidiary of Dynegy that continues to be in effect that affects the ownership or operation of any of their respective assets, and (b) since January 1, 1991, no criminal order, writ, fine, injunction, decree, judgment or determination of any court or governmental authority has been issued against Dynegy or any Subsidiary of Dynegy. Section 6.16 Insurance. (a) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, Dynegy and its Subsidiaries maintain insurance coverage with financially responsible insurance companies in such amounts and against such losses as are customary in the industries in which Dynegy and its Subsidiaries operate on the date hereof. (b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, (i) no event relating specifically to Dynegy or its Subsidiaries has occurred that is reasonably likely, after the date of this Agreement, to result in an upward adjustment in premiums under any insurance policies they maintain, (ii) excluding insurance policies that have expired and been replaced in the ordinary 31 course of business, no excess liability or protection and indemnity insurance policy has been canceled by the insurer within one year prior to the date hereof, and to Dynegy's knowledge, no threat in writing has been made to cancel (excluding cancellation upon expiration or failure to renew) any such insurance policy of Dynegy or any Subsidiary of Dynegy during the period of one year prior to the date hereof, and (iii) no event has occurred, including the failure by Dynegy or any Subsidiary of Dynegy to give any notice or information or by giving any inaccurate or erroneous notice or information, that limits or impairs the rights of Dynegy or any Subsidiary of Dynegy under any such excess liability or protection and indemnity insurance policies. Section 6.17 No Brokers. Dynegy has not entered into any contract, arrangement or understanding with any person or firm which may result in the obligation of Enron, Newco or Dynegy to pay any finder's fees, brokerage or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby, except that Dynegy has retained Lehman Brothers Inc. as its financial advisor, the arrangements with which have been disclosed in writing to Enron prior to the date hereof. Section 6.18 Opinion of Financial Advisor. The Board of Directors of Dynegy has received the opinion of Lehman Brothers Inc. to the effect that, as of the date of this Agreement, from a financial point of view the Dynegy Merger Ratio is fair to the holders of Dynegy Class A Common Stock in light of the Enron Merger Ratio. Section 6.19 Enron Stock Ownership. Neither Dynegy nor any of its affiliates or associates owns in excess of five percent of the shares of capital stock of Enron or of any other securities convertible into or otherwise exercisable to acquire shares of capital stock of Enron. Section 6.20 Vote Required. The only vote of the holders of any class or series of Dynegy capital stock necessary to approve any transaction contemplated by this Agreement is the affirmative vote in favor of the approval of this Agreement of the holders of at least two-thirds of the shares of Dynegy Class A Common Stock and Dynegy Class B Common Stock (voting together). Concurrently with the execution and delivery hereof, Chevron, the owner of 86,599,914 shares of Dynegy Class B Common Stock, is entering into a Shareholder Agreement providing for, among other things, the voting of the Dynegy Class B Common Stock owned by it. Section 6.21 Regulation as a Utility. (a) Each of Dynegy and Illinova Corporation, a wholly owned direct subsidiary of Dynegy ("Illinova"), is a "holding company" as defined in the 1935 Act. Each of Dynegy and Illinova is exempt from registration and all sections of the 1935 Act and the rules and regulations promulgated thereunder, other than from Section 9(a)(2) thereof, under Section 3(a)(1) of the 1935 Act. Illinois Power Company ("Illinois Power") is a Subsidiary of Dynegy and is a "public utility company" within the meaning of Section 2(a)(5) of the 1935 Act. No other Subsidiary of Dynegy is a "public utility company" within the meaning of Section 2(a)(5) of the 1935 Act. 32 (b) Illinois Power is regulated as a public utility in the State of Illinois and in no other state. Neither Dynegy nor any "subsidiary company" or "affiliate" (as each such term is defined in the 1935 Act) of Dynegy (other than the Illinois Power) is subject to regulation as a public utility or public service company (or similar designation) by any other state in the United States or any foreign country. Section 6.22 Improper Payments. No bribes, kickbacks or other improper payments have been made by Dynegy or any Subsidiary of Dynegy or agent of any of them in connection with the conduct of their respective businesses or the operation of their respective assets, and neither Dynegy, any Subsidiary of Dynegy, nor any agent of any of them has received any such payments from vendors, suppliers or other persons, where any such payment made or received is reasonably likely to have a Dynegy Material Adverse Effect. ARTICLE 7 COVENANTS Section 7.1 Conduct of Business. From and after the date hereof and prior to the Effective Time, except as set forth in the Dynegy Disclosure Letter or the Enron Disclosure Letter or as expressly contemplated by any other provision of this Agreement or (provided that the party proposing to take such action has provided the other party with advance notice of the proposed action to the extent practicable) as required by Applicable Laws, unless the other party has consented in writing thereto (which, in the case of Section 7.1(m), shall not be unreasonably withheld), each of Dynegy and Enron: (a) shall, and shall cause each of its Subsidiaries to, conduct its operations according to their usual, regular and ordinary course in substantially the same manner as heretofore conducted; provided, however, that this subsection (a) shall not prevent a party from introducing, or permitting its Subsidiaries from introducing, new products and services related to the business and operations heretofore conducted by them; (b) shall use its commercially reasonable best efforts, and shall cause each of its Subsidiaries to use its commercially reasonable best efforts, to preserve intact their business organizations and goodwill (except that any of its Subsidiaries may be merged with or into, or be consolidated with, any of its Subsidiaries or may be liquidated into it or any of its Subsidiaries), keep available the services of their respective officers and employees and maintain satisfactory relationships with those persons having business relationships with them; (c) shall not amend its articles of incorporation or bylaws, except that Enron may amend its articles of incorporation to increase its authorized Enron Common Stock by not more than 500 million shares; (d) shall promptly notify the other of any material adverse change in its condition (financial or otherwise) or business or any termination, cancellation, repudiation or material breach of any material contract (or communications expressly indicating that the same may be contemplated) or the institution of any material litigation or proceedings (including arbitration and other dispute resolution proceedings) or 33 material governmental complaints, investigations, inquiries or hearings (or communications indicating that the same may be contemplated) or the breach in any material respect of any representation or warranty contained herein; (e) shall promptly make available (in paper form or via the internet) to the other true and correct copies of any report, statement or schedule filed with the SEC subsequent to the date of this Agreement; (f) in the case of Enron, shall not, and shall not permit any of its Subsidiaries to, (i) except (A) pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement or not required to be disclosed pursuant to this Agreement or (B) pursuant to the exercise of awards granted after the date hereof and expressly permitted under this Agreement or in connection with transactions permitted by Section 7.1(j), issue or sell any shares of its capital stock in excess of $2.0 billion in the aggregate (or such larger amount as (x) Enron may propose in order to prevent a downgrading of Enron's senior debt to less than investment grade by Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc., by Moody's Investors Service, Inc. or by Fitch, Inc. that shall not affect the intended accounting treatment set forth in the recitals to this Agreement and (y) Dynegy consents to in writing, which consent shall not be unreasonably withheld) for all such issuances and sales (and provided that any such shares must be converted into Enron Common Stock prior to the Mergers if the Mergers are to occur), effect any stock split or otherwise change its capitalization as it existed on the date hereof, (ii) grant, confer or award any option, warrant, conversion right or other right not existing on the date hereof to acquire any shares of its capital stock, (iii) amend or otherwise modify any option, warrant, conversion right or other right to acquire any shares of its capital stock existing on the date hereof, (iv) with respect to any of its former or present employees (including officers and directors), increase any compensation or benefits, or enter into, amend or extend (or permit the extension of) any employment or consulting agreement, except in each case in the ordinary course of business consistent with past practice, (v) adopt any new employee benefit plan or agreement (including any stock option, stock benefit or stock purchase plan) or amend (except as required by law) any existing employee benefit plan in any material respect, except in the ordinary course of business consistent with past practice, or (vi) permit any holder of an option to acquire shares of Enron Common Stock to have shares withheld upon exercise, for tax purposes, in excess of the number of shares needed to satisfy the minimum statutory withholding requirements for federal and state tax withholding; (g) in the case of Dynegy, shall not, except pursuant to the exercise of options, warrants, conversion rights and other contractual rights existing on the date hereof and disclosed pursuant to this Agreement or not required to be disclosed pursuant to this Agreement or pursuant to the exercise of awards granted after the date hereof and not prohibited by this Agreement, issue any shares of its capital stock if it is reasonably likely to delay materially or to affect materially and adversely the ability of Dynegy to solicit the approval of its shareholders of this Agreement and the Dynegy Merger or to obtain any consent, authorization, order or approval of any governmental commission, board or 34 other regulatory body or the expiration of any applicable waiting period required to consummate the transactions contemplated by this Agreement; (h) except for (i) the payment of regular dividends on the shares of Enron Common Stock at a quarterly rate of not more than $0.125 per share, (ii) the payment of dividends on the shares of Enron's Second Preferred Stock at a quarterly rate of not more than $3.413 per share, on shares of its 9.142% Preferred Stock at an annual rate of not more than $91.420 per share, on shares of its Series B Preferred Stock at an annual rate of 6.5% of the liquidation value thereof, (iii) any additional dividend payments on the Second Preferred Stock, the 9.142% Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock required by the terms of Enron's articles of incorporation or statement of resolutions establishing such series of Preferred Stock, and (iv) the payment of regular dividends on the shares of Dynegy Common Stock at a quarterly rate of not more than $0.075 per share, in each case with customary record and payment dates, shall not (1) declare, set aside or pay any dividend or make any other distribution or payment with respect to any shares of its capital stock or (2) redeem, purchase or otherwise acquire any shares of its capital stock or capital stock of any of its Subsidiaries, or make any commitment for any such action; (i) in the case of Enron, shall not, and shall not permit any of its Subsidiaries to, except for contractual commitments in effect on the date hereof and disclosed in the Enron Disclosure Letter, sell, lease or otherwise dispose of any of its assets (including capital stock of Subsidiaries) that are, individually or in the aggregate, material to it and its Subsidiaries as a whole, except for (i) sales of surplus or obsolete equipment, (ii) sales of other assets in the ordinary course of business, or (iii) sales, leases or other transfers between such party and its wholly owned Subsidiaries or between those Subsidiaries; (j) in the case of Enron, shall not, and shall not permit any of its Subsidiaries to, except pursuant to contractual commitments in effect on the date hereof and disclosed in the Enron Disclosure Letter, acquire or agree to acquire by merging or consolidating with, or by purchasing an equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof, in each case (i) for an aggregate consideration for all such acquisitions in excess of $50 million (excluding acquisitions approved in writing by both parties) or (ii) where a filing under the HSR Act or any non-U.S. competition, antitrust or premerger notification laws is required; (k) shall not, except as may be required as a result of a change in generally accepted accounting principles, change any of the material accounting principles or practices used by it; (l) shall, and shall cause any of its Subsidiaries to, use commercially reasonable best efforts to maintain with financially responsible insurance companies insurance in such amounts and against such risks and losses as are customary for such party; (m) shall not, and shall not permit any of its Subsidiaries to, (i) make or rescind any material election relating to taxes, including elections for any and all joint 35 ventures, partnerships, limited liability companies, working interests or other investments where it has the capacity to make such binding election, other than an initial election for an entity under Treas. Reg.ss. 301.7701-3, (ii) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to taxes, or (iii) change in any material respect any of its methods of reporting any item for tax purposes from those employed in the preparation of its tax returns for the most recent taxable year for which a return has been filed, except as may be required by applicable law; (n) in the case of Enron, shall not, and shall not permit any of its Subsidiaries to, (i) incur Debt, net of Debt repaid, in an aggregate principal amount in excess of $1 billion over amounts reflected in the Debt schedule included in Section 7.1 of the Enron Disclosure Letter, or guarantee any such Debt or issue or sell any warrants or rights to acquire any of such Debt or guarantee any debt securities of others, (ii) except in the ordinary course of business or with or between its Subsidiaries, enter into any material lease (whether such lease is an operating or capital lease) or create any material mortgages, Liens, security interests or other encumbrances on its property in connection with any indebtedness thereof (other than Permitted Liens) or (iii) make or commit to make capital expenditures that, individually or in the aggregate with all other capital expenditures made in a quarter, exceed the capital expenditures forecast in the Enron Capital Budget for such quarter by more than 20%, excluding capital expenditures to repair damage covered by insurance (provided that if the Termination Date is extended pursuant to Section 9.2(a), Enron shall submit for Dynegy's approval, which shall not be unreasonably withheld, a capital budget through the extended Termination Date, and such capital budget, as so approved, shall be substituted for such forecast for periods after December 31, 2002); for the purposes of this Agreement, (x) "Debt" shall mean, with respect to any person, the aggregate amount, without duplication, of (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services; (iv) all capitalized lease obligations; (v) all obligations or liabilities of others secured by a lien on any asset owned by such person whether or not such obligation or liability is assumed, to the extent of the lesser of such obligation or liability or the book value of such asset; (vi) all Contingent Obligations of such person; and (vii) any other obligations or liabilities which are required by generally accepted accounting principles to be shown as debt on a balance sheet, and (y) "Contingent Obligation" shall mean, as applied to any person, any direct or indirect liability, contingent or otherwise, of that person with respect to any indebtedness, lease, dividend, letter of credit or other similar obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that person, or in respect of which that person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet, income or other financial condition of the obligor of such obligation, or to make payment for any 36 products, materials or supplies or for any transportation, services or lease regardless of the nondelivery or nonfurnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, with the amount of any Contingent Obligation being equal to the amount of the obligation, or portion thereof, so guaranteed or otherwise supported; (o) shall not enter into any transaction that is reasonably likely to delay materially or to affect materially and adversely the ability of any of the parties hereto to solicit the approval of its shareholders of this Agreement and the applicable Merger or to obtain any consent, authorization, order or approval of any governmental commission, board or other regulatory body or the expiration of any applicable waiting period required to consummate the transactions contemplated by this Agreement; (p) unless in the good faith opinion of its Board of Directors after consultation with its outside legal counsel the following would be inconsistent with its fiduciary duties, (i) shall not terminate, amend, modify or waive any provision of any agreement containing a standstill covenant to which it is a party and (ii) during such period shall enforce, to the fullest extent permitted under Applicable Law, the provisions of such agreement, including by obtaining injunctions to prevent any breaches of such agreements and to enforce specifically the terms and provisions thereof in any court of the United States of America or any state having jurisdiction; (q) in the case of Enron, shall not, and shall cause its Subsidiaries not to, make any increase in its risk control limits or value at risk limits for its trading or other activities above those in effect on the date hereof as established by Enron's Board of Directors; and (r) shall not (i) agree in writing or otherwise to take any of the foregoing actions or (ii) permit any of its Subsidiaries to agree in writing or otherwise to take any of the foregoing actions that refer to Subsidiaries. Section 7.2 No Solicitation by Enron. (a) Enron agrees that (i) neither it nor any of its Subsidiaries shall, and it shall not authorize or permit any of its officers, directors, employees, agents or representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries) to, and on becoming aware of it will use its reasonable best efforts to stop such person from continuing to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing nonpublic information), or take any action designed to facilitate, directly or indirectly, any inquiry, proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a tender or exchange offer, merger, consolidation, business combination, purchase or similar transaction or series of transactions (other than the transactions contemplated by this Agreement) involving, individually or in the aggregate, 15% or more of the assets, net revenues or net operating income of Enron and its Subsidiaries on a consolidated basis or, except as permitted by Section 7.1(f), 15% or more of any class of capital stock of Enron, including, without limitation, any merger or similar transaction in which 15% or more of Enron's 37 capital stock is issued to a third party or its shareholders (any such proposal, offer or transaction being hereinafter referred to as a "Enron Acquisition Proposal") or cooperate with or assist, participate or engage in any discussions or negotiations concerning an Enron Acquisition Proposal; and (ii) it will immediately cease and cause to be terminated any existing negotiations with any parties conducted heretofore with respect to any of the foregoing; provided that nothing contained in this Agreement shall prevent Enron or its Board of Directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Enron Acquisition Proposal or (B) prior to the Cutoff Date, providing information (pursuant to a confidentiality agreement in reasonably customary form and which does not contain terms that prevent Enron from complying with its obligations under this Section 7.2) to, or engaging in any negotiations or discussions with, any person or entity who has made an unsolicited bona fide written Enron Acquisition Proposal with respect to all the outstanding shares of Enron Common Stock or all or substantially all the assets of Enron that, in the good faith judgment of the Board of Directors of Enron, after consultation with a financial advisor of recognized national reputation, and taking into account the likelihood of financing and consummation, is superior to the Mergers (a "Enron Superior Proposal") or is reasonably likely to lead to an Enron Superior Proposal, to the extent the Board of Directors of Enron, after consultation with its outside legal counsel, determines that the failure to do so would be inconsistent with its fiduciary obligations; provided, however, that this Section 7.2 shall not limit the ability of Enron or any of its Subsidiaries from selling or otherwise disposing of any assets to the extent permitted by Section 7.1(i). (b) Prior to taking any action referred to in Section 7.2(a), if Enron intends to participate in any such discussions or negotiations or provide any such information to any such third party, Enron shall give prompt prior oral and written notice to Dynegy of each such action. Enron will immediately notify Dynegy orally and in writing of any such requests for such information or the receipt of any Enron Acquisition Proposal or any inquiry with respect to or that could lead to an Enron Acquisition Proposal, including the identity of the person or group engaging in such discussions or negotiations, requesting such information or making such Enron Acquisition Proposal, and the material terms and conditions of any Enron Acquisition Proposal. Enron will (i) keep Dynegy fully informed of the status in reasonable detail (including any changes or proposed changes to such status in reasonable detail) on a timely basis of any such requests, Enron Acquisition Proposals or inquiries and (ii) use its reasonable best efforts to provide to Dynegy as soon as practicable after receipt or delivery thereof with copies of all material correspondence and other material written material sent or provided to Enron from any third party in connection with any Enron Acquisition Proposal or sent or provided by Enron to any third party in connection with any Enron Acquisition Proposal (this sentence not requiring the providing of information more frequently than once every 24 hours or the provision of confidential information of such party to Dynegy, other than the terms and conditions of any Enron Acquisition Proposal). Any written notice under this Section 7.2 shall be given by facsimile with receipt confirmed or personal delivery. (c) Nothing in this Section 7.2 shall permit Enron to enter into any agreement with respect to an Enron Acquisition Proposal during the term of this Agreement, it being agreed that during the term of this Agreement (except pursuant to Section 9.3(c)), Enron shall not enter into any agreement with any person that provides for, or in any way facilitates, an Enron Acquisition Proposal, other than a confidentiality and/or standstill agreement in reasonably 38 customary form and that does not contain terms that prevent Enron from complying with its obligations under this Section 7.2. (d) For purposes hereof, the "Cutoff Date," when used with respect to Enron, means the date the condition set forth in Section 8.1(a)(i) is satisfied. Section 7.3 No Solicitation by Dynegy. (a) Dynegy agrees that (i) neither it nor any of its Subsidiaries shall, and it shall not authorize or permit any of its officers, directors, employees, agents or representatives (including, without limitation, any investment banker, attorney or accountant retained by it or any of its Subsidiaries) to, and on becoming aware of it will use its reasonable best efforts to stop such person from continuing to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing nonpublic information), or take any action designed to facilitate, directly or indirectly, any inquiry, proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to a tender or exchange offer, merger, consolidation, business combination, purchase or similar transaction or series of transactions (other than the transactions contemplated by this Agreement or transactions pursuant to Article 6 of the Dynegy Shareholder Agreement) involving, individually or in the aggregate, 15% or more of the assets, net revenues or net operating income of Dynegy and its Subsidiaries on a consolidated basis or 15% or more of any class of capital stock of Dynegy, including, without limitation, any merger or similar transaction in which 15% or more of Dynegy's capital stock is issued to a third party or its shareholders (any such proposal, offer or transaction being hereinafter referred to as a "Dynegy Acquisition Proposal") or cooperate with or assist, participate or engage in any discussions or negotiations concerning a Dynegy Acquisition Proposal; and (ii) it will immediately cease and cause to be terminated any existing negotiations with any parties conducted heretofore with respect to any of the foregoing; provided that nothing contained in this Agreement shall prevent Dynegy or its Board of Directors from (A) complying with Rule 14e-2 promulgated under the Exchange Act with regard to a Dynegy Acquisition Proposal or (B) prior to the Cutoff Date, providing information (pursuant to a confidentiality agreement in reasonably customary form and which does not contain terms that prevent Dynegy from complying with its obligations under this Section 7.3) to or engaging in any negotiations or discussions with any person or entity who has made an unsolicited bona fide written Dynegy Acquisition Proposal with respect to all the outstanding shares of Dynegy Common Stock or all or substantially all the assets of Dynegy that, in the good faith judgment of the Board of Directors of Dynegy, after consultation with a financial advisor of recognized national reputation, and taking into account the likelihood of financing and consummation, is superior to the Mergers (a "Dynegy Superior Proposal") or is reasonably likely to lead to a Dynegy Superior Proposal, to the extent that the Board of Directors of Dynegy, after consultation with its outside legal counsel, determines that the failure to do so would be inconsistent with its fiduciary obligations. (b) Prior to taking any action referred to in Section 7.3(a), if Dynegy intends to participate in any such discussions or negotiations or provide any such information to any such third party, Dynegy shall give prompt prior oral and written notice to Enron of each such action. Dynegy will immediately notify Enron orally and in writing of any such requests for such information or the receipt of any Dynegy Acquisition Proposal or any inquiry with respect to or that could lead to a Dynegy Acquisition Proposal, including the identity of the person or 39 group engaging in such discussions or negotiations, requesting such information or making such Dynegy Acquisition Proposal, and the material terms and conditions of any Dynegy Acquisition Proposal. Dynegy will (i) keep Enron fully informed of the status in reasonable detail (including any changes or proposed changes to such status in reasonable detail) on a timely basis of any such requests, Dynegy Acquisition Proposals or inquiries and (ii) use its reasonable best efforts to provide to Enron as soon as practicable after receipt or delivery thereof with copies of all material correspondence and other material written material sent or provided to Dynegy from any third party in connection with any Dynegy Acquisition Proposal or sent or provided by Dynegy to any third party in connection with any Dynegy Acquisition Proposal (this sentence not requiring the providing of information more frequently than once every 24 hours or the provision of confidential information of such party to Enron, other than the terms and conditions of any Dynegy Acquisition Proposal). Any written notice under this Section 7.3 shall be given by facsimile with receipt confirmed or personal delivery. (c) Nothing in this Section 7.3 shall permit Dynegy to enter into any agreement with respect to a Dynegy Acquisition Proposal during the term of this Agreement, it being agreed that during the term of this Agreement (except pursuant to Section 9.4(c)), Dynegy shall not enter into any agreement with any person that provides for, or in any way facilitates, a Dynegy Acquisition Proposal, other than a confidentiality and/or standstill agreement in reasonably customary form and that does not contain terms that prevent Dynegy from complying with its obligations under this Section 7.3. (d) For purposes hereof, the "Cutoff Date," when used with respect to Dynegy, means the date the condition set forth in Section 8.1(a)(ii) is satisfied. Section 7.4 Meetings of Shareholders. (a) Each of Dynegy and Enron shall take all action necessary, in accordance with applicable law and its articles of incorporation and bylaws, to convene a meeting of its shareholders as promptly as practicable to consider and vote upon the matters presented in connection with the Mergers. Dynegy and Enron shall coordinate and cooperate with respect to the timing of such meetings and shall use their commercially reasonable best efforts to hold such meetings on the same day. Notwithstanding any other provision of this Agreement, unless this Agreement is terminated in accordance with the terms hereof, Enron and Dynegy shall each submit the foregoing matters to its shareholders, whether or not the Board of Directors of Enron or Dynegy, as the case may be, withdraws, modifies or changes its recommendation and declaration regarding such matters. (b) Each of Dynegy and Enron, through its Board of Directors, shall recommend approval of such matters and use its commercially reasonable best efforts to solicit from its shareholders proxies in favor of such matters; provided, however, that the Board of Directors of Dynegy or the Board of Directors of Enron may at any time prior to such party's Cut-Off Date upon two business days' prior written notice to Enron or Dynegy, respectively, (i) withdraw, modify or change any recommendation and declaration regarding such matters or (ii) recommend and declare advisable any Enron Superior Proposal or Dynegy Superior Proposal, as the case may be, if in the good faith opinion of such Board of Directors after consultation with its outside legal counsel the failure so (x) to withdraw, modify or change its 40 recommendation and declaration or (y) to recommend and declare advisable any Enron Superior Proposal or Dynegy Superior Proposal, as the case may be, would be inconsistent with its fiduciary obligations. Section 7.5 Filings; Commercially Reasonable Best Efforts, Etc. (a) Subject to the terms and conditions herein provided, Enron and Dynegy shall: (i) make their respective required filings under the HSR Act (and shall share equally all filing fees incident thereto), which filings shall be made promptly, and thereafter shall promptly make any other required submissions under the HSR Act; (ii) use their commercially reasonable best efforts to cooperate with one another in (A) determining which filings are advisable to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are advisable to be obtained prior to the Effective Time from, governmental or regulatory authorities under any applicable non-U.S. competition, antitrust or premerger notification laws (the "Non-U.S. Antitrust Laws") in connection with the execution and delivery of this Agreement, and the consummation of the Mergers and the transactions contemplated hereby; and (B) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (iii) use their commercially reasonable best efforts to cooperate with one another in (A) determining which filings are required to be made prior to the Effective Time with, and which consents, approvals, permits or authorizations are required to be obtained prior to the Effective Time from, any governmental or regulatory authorities of the United States, the several states and non-U.S. jurisdictions (other than with respect to any Non-U.S. Antitrust Laws) in connection with the execution and delivery of this Agreement, and the consummation of the Mergers and the transactions contemplated hereby; and (B) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (iv) promptly notify each other of any communication concerning this Agreement or the transactions contemplated hereby to that party from any governmental or regulatory authority and permit the other party to review in advance any proposed communication concerning this Agreement or the transactions contemplated hereby to any governmental or regulatory authority; (v) not agree to participate in any meeting or discussion with any governmental or regulatory authority in respect of any filings, investigation or other inquiry concerning this Agreement or the transactions contemplated hereby unless it consults with the other party in advance and, to the extent permitted by such governmental or regulatory authority, gives the other party the opportunity to attend and participate in such meeting or discussion; 41 (vi) furnish the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between them and their Subsidiaries and their respective representatives on the one hand, and any government or regulatory authority or members or any such authority's staff on the other hand, with respect to this Agreement and the transactions contemplated hereby; and (vii) furnish the other party with such necessary information and reasonable assistance as such other party and its affiliates may reasonably request in connection with their preparation of necessary filings, registrations or submissions of information to any governmental or regulatory authorities, including, without limitation, any filings necessary or appropriate under the provisions of the HSR Act or any applicable Non-U.S. Antitrust Laws. (b) Without limiting Section 7.5(a), Dynegy and Enron shall: (i) each use commercially reasonable best efforts to avoid the entry of, or to have vacated, terminated or modified, any decree, order or judgment that would restrain, prevent or delay the Closing; and (ii) each use commercially reasonable best efforts to take any and all steps necessary to obtain any consents or eliminate any impediments to the Mergers. (c) Dynegy and Enron intend that the Mergers will qualify as transfers of Enron Common Stock and Dynegy Common Stock to Newco in a transaction qualifying under Section 351 of the Code. Neither Dynegy, Enron nor their respective Subsidiaries shall take actions, cause actions to be taken or fail to take actions, as a result of which the Mergers would not qualify as transfers of Enron Common Stock and Dynegy Common Stock to Newco in a transaction qualifying under Section 351 of the Code. Section 7.6 Inspection. From the date hereof to the Effective Time, each of Enron and Dynegy shall allow all designated officers, attorneys, accountants, financing sources and other representatives of Dynegy or Enron, as the case may be, access, at all reasonable times, upon reasonable notice, to the records and files, correspondence, audits and properties, as well as to all information relating to commitments, contracts, titles, financial position, litigation, proceedings, complaints, investigations, inquiries or hearings, or otherwise pertaining to the business and affairs of Dynegy and Enron and their respective Subsidiaries, including inspection of such properties; provided that no investigation pursuant to this Section 7.6 shall affect any representation or warranty given by any party hereunder, and provided further that notwithstanding the provision of information or investigation by any party, no party shall be deemed to make any representation or warranty except as expressly set forth in this Agreement. Notwithstanding the foregoing, no party shall be required to provide any information which it reasonably believes it may not provide to the other party by reason of applicable law, rules or regulations, which constitutes information protected by attorney/client privilege if such privilege would be adversely affected by reason of being so provided, or which it is required to keep confidential by reason of contract or agreement with third parties. The parties hereto shall make reasonable and appropriate substitute disclosure arrangements under circumstances in which the 42 restrictions of the preceding sentence apply. Each of Dynegy and Enron agrees that it shall not, and shall cause its respective representatives not to, use any information obtained pursuant to this Section 7.6 for any purpose unrelated to the consummation of the transactions contemplated by this Agreement. All nonpublic information obtained pursuant to this Section 7.6 shall be governed by the Confidentiality Agreement dated October 28, 2001 between Dynegy and Enron (the "Confidentiality Agreement"). Section 7.7 Publicity. The parties shall consult with each other before issuing any press release or public announcement pertaining to this Agreement or the transactions contemplated hereby and shall not issue any such press release or make any such public announcement without the prior written consent of the other party, which consent shall not be unreasonably withheld, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange, in which case the party proposing to issue such press release or make such public announcement shall use its commercially reasonable best efforts to consult in good faith with the other party before issuing any such press releases or making any such public announcements. Section 7.8 Registration Statement on Form S-4. (a) Each of Dynegy and Enron shall cooperate and promptly prepare, and Newco shall file with the SEC, as soon as practicable, a Registration Statement on Form S-4 (the "Form S-4") under the Securities Act with respect to the shares of Newco Common Stock issuable in the Mergers, a portion of which Registration Statement shall also serve as the joint proxy statement with respect to the meetings of the shareholders of Dynegy and of Enron in connection with the transactions contemplated by this Agreement (the "Proxy Statement/Prospectus"). The respective parties shall cause the Proxy Statement/Prospectus and the Form S-4 to comply as to form in all material respects with the applicable provisions of the Securities Act, the Exchange Act and the rules and regulations thereunder. Dynegy and Newco shall use commercially reasonable best efforts, and Enron shall cooperate with Dynegy and Newco, to have the Form S-4 declared effective by the SEC as promptly as practicable. Dynegy and Newco shall use commercially reasonable best efforts to obtain, prior to the effective date of the Form S-4, all necessary non-U.S. securities laws, state securities law or "Blue Sky" permits or approvals required to carry out the transactions contemplated by this Agreement, and Dynegy and Enron shall share equally all expenses incident thereto (including all SEC and other filing fees and all printing and mailing expenses associated with the Form S-4 and the Proxy Statement/Prospectus). Newco shall advise Enron and Dynegy, promptly after it receives notice thereof, of the time when the Form S-4 has become effective or any supplement or amendment has been filed, the issuance of any stop order, the suspension of the qualification of the shares of Newco Common Stock issuable in connection with the Mergers for offering or sale in any jurisdiction or any request by the SEC for amendment of the Proxy Statement/Prospectus or the Form S-4 or comments thereon and responses thereto or requests by the SEC for additional information. Each of the parties shall also promptly provide each other party copies of all written correspondence received from the SEC and summaries of all oral comments received from the SEC in connection with the transactions contemplated by this Agreement. Each of the parties shall promptly provide each other party with drafts of all correspondence intended to be sent to the SEC in connection with the transactions contemplated by this Agreement and allow each such party the opportunity to comment thereon prior to delivery to the SEC. 43 (b) Dynegy and Enron shall each use its commercially reasonable best efforts to cause the Proxy Statement/Prospectus to be mailed to its shareholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. (c) Each of Dynegy and Enron shall ensure that the information provided by it for inclusion in the Proxy Statement/Prospectus and each amendment or supplement thereto, at the time of mailing thereof and at the time of the respective meetings of shareholders of Dynegy and Enron, or, in the case of information provided by it for inclusion in the Form S-4 or any amendment or supplement thereto, at the time it becomes effective, (i) will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) will comply as to form in all material respects with the provisions of the Securities Act and the Exchange Act. Section 7.9 Listing Application. Dynegy shall cause Newco promptly to prepare and submit to the NYSE a listing application covering the shares of Newco Class A Common Stock issuable in the Mergers and shall use commercially reasonable best efforts to obtain, prior to the Effective Time, approval for the listing of such shares of Newco Class A Common Stock, subject to official notice of issuance. Section 7.10 Letters of Accountants. (a) Enron shall use commercially reasonable best efforts to cause to be delivered to Dynegy "comfort" letters of Arthur Andersen LLP, Enron's independent public accountants, dated within two business days of the effective date of the Form S-4 and within two business days of the Closing Date, respectively, and addressed to Dynegy and Newco with regard to certain financial information regarding Enron included in the Form S-4, in form reasonably satisfactory to Dynegy and customary in scope and substance for "comfort" letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. (b) Dynegy shall use commercially reasonable best efforts to cause to be delivered to Enron "comfort" letters of Arthur Andersen LLP, Dynegy's independent public accountants, dated within two business days of the effective date of the Form S-4 and within two business days of the Closing Date, respectively, and addressed to Enron, with regard to certain financial information regarding Newco and Dynegy included in the Form S-4, in form reasonably satisfactory to Enron and customary in scope and substance for "comfort" letters delivered by independent public accountants in connection with registration statements similar to the Form S-4. Section 7.11 Agreements of Rule 145 Affiliates. Prior to the Effective Time, each of Dynegy and Enron shall cause to be prepared and delivered to the other a list identifying all persons who such party believes, at the date of the meeting of such party's shareholders to consider and vote upon the approval of the matters presented in connection with the Mergers, may be deemed to be "affiliates" of such party, as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Rule 145 Affiliates"). Each of Dynegy and Enron shall use commercially reasonable best efforts to cause each person who is identified as a Rule 145 Affiliate in such list to deliver to the other, at or prior to the Effective Time, a written agreement, 44 in the form of Exhibit 7.11. Newco shall be entitled to place restrictive legends on any shares of Newco Common Stock issued to such Rule 145 Affiliates pursuant to the Mergers. Section 7.12 Expenses. Whether or not the Mergers are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses, except as expressly provided in Section 7.5(a)(i), Section 7.8(a) and Section 9.5(c) of this Agreement or as otherwise agreed in writing by the parties. Section 7.13 Indemnification and Insurance. (a) From and after the Effective Time, Newco and, as applicable, the Dynegy Surviving Entity and the Enron Surviving Entity shall indemnify, defend and hold harmless to the fullest extent permitted under applicable law each person (other than any Excluded Person, except to the extent of existing irrevocable contractual rights) who is, or has been at any time prior to the Effective Time, an officer or director of Dynegy or Enron, respectively, or any Subsidiary or division thereof, and each person who served at the request of Dynegy or Enron, respectively, as a director, officer, trustee or fiduciary of another corporation, partnership, joint venture, trust, pension or other employee benefit plan or enterprise, and each person who is, or has been at any time prior to the Effective Time, a party to a written employee indemnification agreement with Dynegy or Enron or any Subsidiary thereof (individually, an "Indemnified Party" and, collectively, the "Indemnified Parties") against all losses, claims, damages, liabilities, costs or expenses (including attorneys' fees), judgments, fines, penalties and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to acts or omissions, or alleged acts or omissions, by them in their capacities as such, whether commenced, asserted or claimed before or after the Effective Time. In the event of any such claim, action, suit, proceeding or investigation (an "Action"), (i) Newco and, as applicable, the Dynegy Surviving Entity or the Enron Surviving Entity shall pay, as incurred, the fees and expenses of counsel selected by the Indemnified Party, which counsel shall be reasonably acceptable to Newco and such Surviving Entity, in advance of the final disposition of any such Action to the fullest extent permitted by applicable law and, if required, upon receipt of any undertaking required by applicable law, and (ii) Newco and such Surviving Entity shall cooperate in the defense of any such matter; provided, however, Newco and such Surviving Entity shall not be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld or delayed), and provided further, that Newco and such Surviving Entity shall not be obligated pursuant to this Section 7.13 to pay the fees and disbursements of more than one counsel (other than local counsel) for all Indemnified Parties in any single Action, unless, in the good faith judgment of any of the Indemnified Parties, there is or may be a conflict of interests between two or more of such Indemnified Parties, in which case there may be separate counsel for each similarly situated group. For purposes of this Agreement, "Excluded Person" shall mean each officer or director or former officer or director of Enron specified by Enron in a notice to Dynegy delivered prior to the Closing referencing this Section 7.13 and identifying such person as an Excluded Person for purposes hereof. (b) The parties agree that the rights to indemnification, including provisions relating to advances of expenses incurred in defense of any action or suit, in the certificate or 45 articles of incorporation and bylaws of Dynegy, Enron and their respective Subsidiaries with respect to matters occurring through the Effective Time shall survive the Mergers. (c) For a period of six years after the Effective Time, Newco and, as applicable, the Dynegy Surviving Entity and the Enron Surviving Entity shall cause to be maintained officers' and directors' liability insurance covering the Indemnified Parties who are, or at any time prior to the Effective Time were, covered by existing officers' and directors' liability insurance policies of Dynegy or Enron, as applicable, on terms substantially no less advantageous to the Indemnified Parties than such existing insurance, provided that Newco, the Dynegy Surviving Entity and the Enron Surviving Entity shall not be required to pay aggregate premiums for the six-year period in excess of six times 150% of the last annual premium paid by Dynegy or Enron, as applicable, prior to the date hereof (the amount of which premium is set forth in the Dynegy Disclosure Letter and the Enron Disclosure Letter, as the case may be), but in such case shall purchase as much coverage as reasonably practicable for such amount. (d) The rights of each Indemnified Party hereunder shall be in addition to any other rights such Indemnified Party may have under the articles or certificate of incorporation or bylaws of Dynegy, Enron or any of their respective Subsidiaries, under applicable law or otherwise. The provisions of this Section 7.13 shall survive the consummation of the Mergers and expressly are intended to benefit each of the Indemnified Parties. (e) If Newco, the Dynegy Surviving Entity or the Enron Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then and in either such case, proper provision shall be made so that the successors and assigns of Newco or such Surviving Entity, as the case may be, shall assume the obligations set forth in this Section 7.13. Section 7.14 Agreements Regarding Enron Supplemental Indentures. Newco shall take such actions as are required by the Indenture, dated as of February 7, 2001, by and between Enron and The Chase Manhattan Bank, as Trustee, relating to the Zeros to assume the obligations of Enron to deliver securities, cash or other assets upon conversion of the Zeros. Newco shall take all actions as are required by the articles of incorporation of Enron and the applicable statement of resolutions establishing each of the Second Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock to assume the obligations of Enron to deliver securities, cash or other assets upon conversion of such series of Enron Preferred Stock. Section 7.15 No Hire. From the date of this Agreement until the Effective Time, Dynegy and Enron shall not, and shall cause their respective Subsidiaries not to, solicit for employment or employ any officer, director or key employee (personnel at the director level and above in the case of Dynegy or the manager level and above in the case of Enron) of the other party or its Subsidiaries. If this Agreement is terminated, Dynegy and Enron shall not, and shall cause their respective Subsidiaries not to, solicit for employment any officer, director or key employee of the other party or its Subsidiaries for a period of 180 days after such termination, provided that this restriction shall not apply (i) to Dynegy, if the fee provided for in Section 9.5(a) is payable, or (ii) to Enron, if the fee provided for in Section 9.5(b) is payable. The solicitation prohibitions of this Section 7.15 shall not apply to solicitations made to the public or 46 the industry generally, and a party shall not be prohibited from employing any such person who has an outstanding offer of employment as of the date hereof. Section 7.16 Employee Matters. Newco shall maintain without substantive modification for a period of one year following the Effective Time those Enron Benefit Plans that are tax qualified ("tax qualified plans") under Sections 401(a) and 501(a) of the Code. The active or former employees of Enron who after the Effective Time participate in a tax qualified plan sponsored or maintained by Newco or its U.S. federal income tax consolidated Subsidiaries (collectively, "Newco Group") will receive credit for service under such plan, but only for purposes of eligibility and vesting, as if service with Enron prior to the Effective Time had been service with Dynegy. From and after the Effective Time, Enron employees, excluding those covered by collective bargaining agreements, will be provided severance benefits that are at least comparable in all respects to the severance benefits provided by Dynegy under its severance benefit plans and arrangements for similarly situated employees. For purposes of the foregoing obligation regarding severance, the term "severance benefit plans and arrangements" shall not include any individually negotiated agreements. The foregoing notwithstanding, nothing in this Section 7.16 shall obligate Dynegy to provide severance benefits if an employee is offered a comparable position, benefits and salary with a third-party purchaser of the business operation in which the employee works without regard to the form of the third-party purchase transaction. Enron Benefit Plans that are employee welfare benefit plans within the meaning of section 3(1) of ERISA, other than severance pay plans, shall be maintained for one year after the Effective Time without substantive change in either benefits provided or classes of employees covered; provided that such plans may be modified in accordance with past practice to take into account customary periodic design adjustments and employee premium costs to reflect experience and change in the law and provided that Enron employees may be provided medical benefits under the Dynegy medical benefit plans and arrangements for similarly situated employees commencing as of the January 1 immediately following the Effective Time. Enron employees who on or after the Effective Time become eligible for health care benefits under plans other than Enron Benefit Plans, if other than at the end of an annual coverage period under the analogous or correlative Enron Benefit Plan providing similar health benefits, shall under such plans be granted credit for co-pays, deductibles and the like applicable under the Enron Benefit Plan and shall not be subject to any preexisting condition exclusion that was not applicable under the Enron Benefit Plan. With respect to sick pay, severance pay and vacation time from and after the Effective Time, (i) to the extent benefits are dependent upon years of service and/or compensation criteria, service with and compensation received from Enron prior to the Effective Time shall be credited as if it had been service with Dynegy and (ii) no Enron employee who was active at the Effective Time shall have his annual vacation entitlement reduced for a one-year period following the Effective Time. Enron may in its discretion continue its present retiree medical program and its existing portable medical program until the Effective Time, provided there is no substantive change. Section 7.17 Alternative Structure. The parties acknowledge that they would prefer to structure the transactions contemplated hereby in a manner 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, in lieu of the Mergers provided for herein. Accordingly, the parties agree to cooperate with each other in analyzing and 47 determining such a structure that is advisable in connection with these transactions and promptly to execute and deliver an appropriate amendment to this Agreement to reflect such structure. ARTICLE 8 CONDITIONS Section 8.1 Conditions to Each Party's Obligation to Effect the Mergers. The respective obligation of each party to effect the Mergers shall be subject to the fulfillment at or prior to the Closing Date of the following conditions: (a) (i) The Enron Merger and this Agreement shall have been approved by the affirmative vote of (A) holders of a majority of the votes entitled to be cast by holders of Enron Common Stock and the Second Preferred Stock voting together as a single class and (B) holders of a majority of the outstanding shares of Enron Common Stock entitled to vote thereon; and (ii) This Agreement shall have been approved by the affirmative vote of the holders of at least two-thirds of the shares of Dynegy Class A Common Stock and Dynegy Class B Common Stock (voting together) entitled to vote thereon. (b) (i) Any waiting period applicable to the consummation of the Mergers under the HSR Act shall have expired or been terminated, (ii) approval of the FERC with respect to the Mergers under Section 203 of the Federal Power Act shall have been granted, (iii) the SEC shall have taken all necessary action under Section 9(a)(2) of the 1935 Act and there shall not have been received a written notice from the SEC (that has not been subsequently withdrawn or negated) of a challenge to Newco's, Chevron's or ChevronTexaco's reliance on the good-faith exemption provided by Section 3(c) of the 1935 Act in connection with the Mergers, (iv) there shall not be pending or threatened in writing any claim, proceeding or action by an agency of the government of the United States, of the United Kingdom or of the European Union seeking to restrain, prohibit or rescind any transactions contemplated by this Agreement as an actual or threatened violation of the HSR Act, Non-U.S. Antitrust Laws or other antitrust, competition or premerger notification, trade regulation law, regulation or order, as applicable, or seeking to penalize a party for completing any such transaction which in any of such cases is, in the reasonable judgment of either Enron or Dynegy, reasonably likely to have a Material Adverse Effect on Newco after the Effective Time, (v) in the event of any review by the U.K. Office of Fair Trading or, if applicable, the U.K. Secretary of State for Trade and Industry, indications reasonably satisfactory to each of Enron and Dynegy that the Mergers will not be referred to the Competition Commission shall have been received or, if the Mergers are referred to the Competition Commission, indications reasonably satisfactory to each of Enron and Dynegy that the Mergers can proceed, (vi) any mandatory waiting period under any applicable Non-U.S. Antitrust Laws (where the failure to observe such waiting period referred to in this clause (vi) would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Newco after the Effective Time) shall have expired or been terminated, (vii) the Enron Regulatory Approvals and the Dynegy Regulatory Approvals 48 shall have been obtained, and no such Enron Regulatory Approval or Dynegy Regulatory Approval shall impose or contain terms or conditions that would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Newco after the Effective Time, (viii) all consents, approvals, permits and authorizations referred to in Section 7.5(a)(iii) shall have been obtained (where the failure to obtain such consents, approvals, permits or authorizations would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Newco after the Effective Time), and no consent, approval, permit or authorization shall impose or contain terms or conditions that would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Newco after the Effective Time, and (ix) there shall not have been a final or preliminary administrative order denying approval of or prohibiting the Mergers issued by a governmental authority with jurisdiction to enforce applicable Non-U.S. Antitrust Laws, which order is in the reasonable judgment of either Enron or Dynegy reasonably likely to have a Material Adverse Effect on Newco after the Effective Time. (c) None of the parties hereto shall be subject to any decree, order or injunction that prohibits the consummation of the Mergers issued by a court of competent jurisdiction of (i) the United States or any state or other jurisdiction in the United States, (ii) the European Union or any member state thereof or Canada (the "Specified Jurisdictions") or (iii) any other jurisdiction (the "Other Non-U.S. Jurisdictions"); provided, however, that, prior to invoking this condition, each party shall have complied with Section 7.5, and with respect to other matters not covered by Section 7.5, shall have used its commercially reasonable best efforts to have any such decree, order or injunction lifted or vacated; and no statute, rule or regulation shall have been enacted by any governmental authority which prohibits or makes unlawful the consummation of the Mergers; provided, further, that, with respect to any decree, order, injunction, statute, rule or regulation of any Other Non-U.S. Jurisdiction, noncompliance with such decree, order, injunction, statute, rule or regulation would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Enron, Dynegy or Newco. (d) The Form S-4 shall have become effective and no stop order with respect thereto shall be in effect. (e) The shares of Newco Class A Common Stock to be issued pursuant to the Mergers shall have been authorized for listing on the NYSE, subject to official notice of issuance. Section 8.2 Conditions to Obligation of Enron to Effect the Mergers. The obligation of Enron to effect the Mergers shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: (a) Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub shall have performed, in all material respects, their covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date, and the representations and warranties of Dynegy, Newco, Dynegy Merger Sub and Enron 49 Merger Sub contained in this Agreement (i) that are qualified as to materiality or Dynegy Material Adverse Effect shall be true and correct in all respects as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case as of such earlier date), and (ii) that are not so qualified shall be true and correct in all respects as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case as of such earlier date) and except for such breaches of representations and inaccuracies in warranties referred to in this clause (ii) that do not have and are not reasonably likely to have, individually or in the aggregate, a Dynegy Material Adverse Effect, and Enron shall have received a certificate of each of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub, executed on its behalf by its President or one of its Vice Presidents, dated the Closing Date, certifying to such effect. (b) Enron shall have received the opinion of Vinson & Elkins L.L.P., counsel to Enron, in form and substance reasonably satisfactory to Enron and dated the Closing Date, a copy of which shall be furnished to Dynegy, to the effect that the Mergers will be treated as transfers of Enron Common Stock by the holders of Enron Common Stock and of Dynegy Common Stock by the holders of Dynegy Common Stock to Newco in exchange for Newco Common Stock in a transaction qualifying under Section 351 of the Code and that no gain or loss will be recognized for United States federal income tax purposes by the shareholders of Enron who exchange Enron Common Stock solely for Newco Common Stock pursuant to the Enron Merger (except to the extent of any cash received in lieu of fractional shares). In rendering such opinion, such counsel shall be entitled to receive and rely upon representations of officers of Enron, Dynegy, Chevron and ChevronTexaco, substantially in the form of Exhibits 8.2(a), 8.2(b), 8.2(c) and 8.2(d), respectively, dated as of the Closing Date. (c) The representations and warranties contained in Section 6.9(i) [no event constituting a Dynegy Material Adverse Effect] shall be true and correct in all respects as of the Closing Date. Section 8.3 Conditions to Obligation of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub to Effect the Mergers. The obligations of Dynegy, Newco, Dynegy Merger Sub and Enron Merger Sub to effect the Mergers shall be subject to the fulfillment or waiver at or prior to the Closing Date of the following conditions: (a) Enron shall have performed, in all material respects, its covenants and agreements contained in this Agreement required to be performed on or prior to the Closing Date, and the representations and warranties of Enron contained in this Agreement (i) that are qualified as to materiality or Enron Material Adverse Effect shall be true and correct in all respects as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case as of such earlier date), and (ii) that are not so qualified shall be true and correct in all respects as of the Closing Date, except to the extent such representations and warranties expressly relate to an earlier date (in which case as of such earlier date) and except for such breaches of representations and inaccuracies in warranties referred to in this clause (ii) that do not have and are not reasonably likely to have, individually or in the 50 aggregate, an Enron Material Adverse Effect, and Dynegy shall have received a certificate of Enron, executed on its behalf by its President or one of its Vice Presidents, dated the Closing Date, certifying to such effect. (b) Dynegy shall have received the opinion of Baker Botts L.L.P., counsel to Dynegy, in form and substance reasonably satisfactory to Dynegy and dated the Closing Date, a copy of which shall be furnished to Enron, to the effect that the Mergers will be treated as transfers of Enron Common Stock by the holders of Enron Common Stock and of Dynegy Common Stock by the holders of Dynegy Common Stock to Newco in exchange for Newco Common Stock in a transaction qualifying under Section 351 of the Code and that no gain or loss will be recognized for United States federal income tax purposes by the shareholders of Dynegy who exchange Dynegy Common Stock solely for Newco Common Stock pursuant to the Dynegy Merger and by the shareholders of Enron who exchange Enron Common Stock solely for Newco Common Stock pursuant to the Enron Merger (except to the extent of any cash received in lieu of fractional shares). In rendering such opinion, such counsel shall be entitled to receive and rely upon representations of officers of Enron, Dynegy, Chevron and ChevronTexaco, substantially in the form of Exhibits 8.2(a), 8.2(b), 8.2(c) and 8.2(d), respectively, dated as of the Closing Date. (c) The representations and warranties contained in Section 5.9(i) [no event constituting an Enron Material Adverse Effect] shall be true and correct in all respects as of the Closing Date. ARTICLE 9 TERMINATION Section 9.1 Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Effective Time by the mutual written consent of Enron and Dynegy. Section 9.2 Termination by Dynegy or Enron. This Agreement may be terminated at any time prior to the Effective Time by action of the Board of Directors of Dynegy or Enron if: (a) the Mergers shall not have been consummated by November 30, 2002 (the "Termination Date"); provided, however, that the right to terminate this Agreement pursuant to this clause (a) shall not be available to any party whose failure to perform or observe in any material respect any of its obligations under this Agreement in any manner shall have been the cause of, or resulted in, the failure of the Mergers to occur on or before such date; provided, further, that, if on the initial Termination Date (i) the conditions to Closing set forth in Section 8.1(b) shall not have been fulfilled and/or (ii) the conditions to Closing set forth in Section 8.1(a) shall not have been fulfilled and the meetings of shareholders shall not have been held, but in either case all other conditions to the Closing shall have been fulfilled or shall be capable of being fulfilled, then the Termination Date may be extended from time to time by either Enron or Dynegy, by notice to the other, to a date not later than May 31, 2003; 51 (b) a meeting (including adjournments and postponements) of Enron's shareholders for the purpose of obtaining the approvals required by Section 8.1(a)(i) shall have been held and such shareholder approvals shall not have been obtained; (c) a meeting (including adjournments and postponements) of Dynegy's shareholders for the purpose of obtaining the approvals required by Section 8.1(a)(ii) shall have been held and such shareholder approvals shall not have been obtained; or (d) a court of competent jurisdiction or governmental, regulatory or administrative agency or commission of the United States, any state or other jurisdiction of the United States, any Specified Jurisdiction or any Other Non-U.S. Jurisdiction shall have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; provided, that, with respect to any order, decree, ruling or other action of any Other Non-U.S. Jurisdiction, noncompliance with such order, decree, ruling or other action would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Enron, Dynegy or Newco. Section 9.3 Termination by Enron. This Agreement may be terminated at any time prior to the Effective Time by action of the Board of Directors of Enron, after, in the case of Section 9.3(b) or (c), consultation with its outside legal advisors, if (a) (i) there has been a breach by Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub shall have become untrue, in either case such that the conditions set forth in Section 8.2(a) would not be satisfied and (ii) such breach is not curable, or, if curable, is not cured within 30 days after written notice of such breach is given to Dynegy by Enron; (b) the Board of Directors of Dynegy shall have withdrawn or materially modified, in a manner adverse to Enron, its approval or recommendation of the Dynegy Merger or recommended a Dynegy Acquisition Proposal, or resolved to do so; or (c) prior to the Cutoff Date, (i) the Board of Directors of Enron has received an Enron Superior Proposal, (ii) in light of such Enron Superior Proposal the Board of Directors of Enron shall have determined in good faith, after consultation with its outside legal advisors, and taking into account all reasonably available information, including information concerning the likelihood that the approval by Enron's shareholders of the Enron Merger and this Agreement will not be obtained by reason of the existence of such Enron Superior Proposal, that proceeding with the Enron Merger would be inconsistent with its fiduciary obligations, (iii) Enron is not in material breach of Section 7.2, Section 7.4, Section 7.5 and Section 7.8, (iv) Enron has paid the fee provided for under Section 9.5(a)(i), and (v) the Board of Directors of Enron concurrently approves, and Enron concurrently enters into, a binding definitive written agreement providing for the implementation of such Enron Superior Proposal; provided that Enron may not effect such termination pursuant to this Section 9.3(c) unless and until (i) Dynegy receives at 52 least four business days' prior written notice from Enron of its intention to effect such termination pursuant to this Section 9.3(c), which notice includes the terms of the applicable Enron Acquisition Proposal; and (ii) during such four business day period, Enron shall, and shall cause its respective financial and legal advisors to, consider any adjustment in the terms and conditions of this Agreement that Dynegy may propose. Section 9.4 Termination by Dynegy. This Agreement may be terminated at any time prior to the Effective Time by action of the Board of Directors of Dynegy, after, in the case of Section 9.4(b) or (c), consultation with its outside legal advisors, if: (a) (i) there has been a breach by Enron of any representation, warranty, covenant or agreement set forth in this Agreement or if any representation or warranty of Enron shall have become untrue, in either case such that the conditions set forth in Section 8.3(a) would not be satisfied and (ii) such breach is not curable, or, if curable, is not cured within 30 days after written notice of such breach is given by Dynegy to Enron; (b) the Board of Directors of Enron shall have withdrawn or materially modified, in a manner adverse to Dynegy, its approval or recommendation of the Enron Merger or recommended an Enron Acquisition Proposal, or resolved to do so; or (c) prior to the Cutoff Date, (i) the Board of Directors of Dynegy has received a Dynegy Superior Proposal, (ii) in light of such Dynegy Superior Proposal the Board of Directors of Dynegy shall have determined in good faith, after consultation with its outside legal advisors, and taking into account all reasonably available information, including information concerning the likelihood that the approval of this Agreement by Dynegy's shareholders will not be obtained by reason of the existence of such Dynegy Superior Proposal, that proceeding with the Dynegy Merger would be inconsistent with its fiduciary obligations, (iii) Dynegy is not in material breach of Section 7.3, Section 7.4, Section 7.5 and Section 7.8, (iv) Dynegy has paid the fee provided for under Section 9.5(b)(i), and (v) the Board of Directors of Dynegy concurrently approves, and Dynegy concurrently enters into, a binding definitive written agreement providing for the implementation of such Dynegy Superior Proposal; provided that Dynegy may not effect such termination pursuant to this Section 9.4(c) unless and until (i) Enron receives at least four business days' prior written notice from Dynegy of its intention to effect such termination pursuant to this Section 9.4(c), which notice includes the terms of the applicable Dynegy Acquisition Proposal; and (ii) during such four business day period, Dynegy shall, and shall cause its respective financial and legal advisors to, consider any adjustment in the terms and conditions of this Agreement that Enron may propose. Section 9.5 Effect of Termination. (a) If this Agreement is terminated: (A) by Enron or Dynegy pursuant to Section 9.2(b) [failure to obtain Enron shareholder approval] either (1) after the public announcement of an Enron Acquisition Proposal, whether or not the Enron Acquisition Proposal is still pending or has been consummated, and Enron enters into an agreement with respect to any Enron Acquisition Proposal or is a party to or subject to a 53 completed Enron Acquisition Proposal (in either case, whether or not relating to the initial Enron Acquisition Proposal) on or prior to the date 12 months after such termination or (2) after the Board of Directors of Enron has withdrawn or modified, in a manner adverse to Dynegy, its approval or recommendation of the Enron Merger or recommended an Enron Acquisition Proposal, or resolved to do so; or (B) by Dynegy pursuant to Section 9.4(b) [withdrawal of Enron recommendation to shareholders]; or (C) by Enron pursuant to Section 9.3(c) [fiduciary out]; then Enron shall pay Dynegy a fee of $297.5 million at the time of such termination (or, in the case of clause (A)(1), at the time such clause is satisfied, and such fee shall be reduced by any prior payment under Section 9.5(c)) and shall concurrently pay a fee of $52.5 million to ChevronTexaco, in each case in cash by wire transfer to an account designated by Dynegy or ChevronTexaco, respectively. (ii) If this Agreement is terminated by Enron pursuant to Section 9.3(c) and in accordance with the terms thereof (including the payment of the fee referred to therein), no fee additional to the fee specified in Section 9.3(c) shall be payable by Enron to Dynegy. (b) If this Agreement is terminated: (A) by Enron or Dynegy pursuant to Section 9.2(c) [failure to obtain Dynegy shareholder approval] either (1) after the public announcement of a Dynegy Acquisition Proposal, whether or not the Dynegy Acquisition Proposal is still pending or has been consummated, and Dynegy enters into an agreement with respect to any Dynegy Acquisition Proposal or is a party to or subject to a completed Dynegy Acquisition Proposal (in either case, whether or not relating to the initial Dynegy Acquisition Proposal) on or prior to the date 12 months after such termination or (2) after the Board of Directors of Dynegy has withdrawn or modified, in a manner adverse to Enron, its approval or recommendation of the Dynegy Merger or recommended a Dynegy Acquisition Proposal, or resolved to do so; or (B) by Enron pursuant to Section 9.3(b) [withdrawal of Dynegy recommendation to shareholders]; or (C) by Dynegy pursuant to Section 9.4(c) [fiduciary out]; then Dynegy shall pay Enron a fee of $350 million at the time of such termination (or, in the case of clause (A)(1), at the time such clause is satisfied, and such fee shall be reduced by any prior payment under Section 9.5(c)) in cash by wire transfer to an account designated by Enron. (ii) If this Agreement is terminated by Dynegy pursuant to Section 9.4(c) and in accordance with the terms thereof (including the payment of the fee referred to 54 therein), no fee additional to the fee specified in Section 9.4(c) shall be payable by Dynegy to Enron. (c) If this Agreement is terminated by Enron or Dynegy pursuant to Section 9.2(b) other than in circumstances covered by Section 9.5(a) requiring the payment of the fee specified therein at the time of termination, then Enron shall pay Dynegy a fee of $10 million to reimburse it for its costs and expenses incurred in connection with this transaction. If this Agreement is terminated by Enron or Dynegy pursuant to Section 9.2(c), other than in circumstances covered by Section 9.5(b) requiring the payment of the fee specified therein at the time of termination, then Dynegy shall pay Enron a fee of $10 million to reimburse it for its costs and expenses incurred in connection with this transaction. (d) In the event of termination of this Agreement and the abandonment of the Mergers pursuant to this Article 9, all obligations of the parties hereto shall terminate, except the obligations of the parties pursuant to this Section 9.5, the last sentence of Section 7.6 and Section 7.12 and Section 7.15 and except for the provisions of Sections 10.2, 10.3, 10.4, 10.6, 10.8, 10.9, 10.11, 10.12, 10.13 and 10.14, provided that nothing in this Section 9.5(d) shall relieve any party from any liability for any willful and material breach by such party of any of its representations or warranties set forth in this Agreement or any material breach by such party of any of its covenants or agreements set forth in this Agreement and, subject to Section 10.14, all rights and remedies of such nonbreaching party under this Agreement in the case of any such breach, at law or in equity, shall be preserved. The Confidentiality Agreement shall survive any termination of this Agreement, and the provisions of such Confidentiality Agreement shall apply to all information and material delivered by any party hereunder. Section 9.6 Extension; Waiver. At any time prior to the Effective Time, each party may by action taken by its Board of Directors, to the extent legally allowed, (a) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (b) waive any inaccuracies in the representations and warranties made to such party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions for the benefit of such party contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE 10 GENERAL PROVISIONS Section 10.1 Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall not survive the Mergers; provided, however, that the agreements contained in Article 4 and in Sections 3.1, 3.2, 7.11, 7.12, 7.13, 7.14 and 7.16 and this Article 10 and the agreements delivered pursuant to this Agreement shall survive the Mergers. Section 10.2 Notices. Except as otherwise provided herein, any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission or by courier service (with proof of service), or hand delivery, addressed as follows: 55 (a) if to Enron: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Facsimile (713) 853-3129 with a copy to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor, III, Esq. Scott N. Wulfe, Esq. Facsimile: (713) 758-2346 (b) if to Dynegy, Newco, Dynegy Merger Sub or Enron Merger Sub: Dynegy Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Attention: General Counsel Facsimile (713) 507-6808 with a copy to: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Facsimile: (713) 229-1522 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. Section 10.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except for the provisions of Article 4, Section 7.13 and Section 9.5(a) and except as provided in any agreements delivered pursuant hereto (collectively, the "Third-Party Provisions"), nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, 56 successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The Third-Party Provisions may be enforced by the beneficiaries thereof (including ChevronTexaco with respect to Section 9.5(a)). Notwithstanding the foregoing and any other provision of this Agreement, and in addition to any other required action of the Board of Directors of Newco, a majority of the Former Enron Directors (or their successors) serving on the Board of Directors of Newco shall be entitled during the one-year period commencing at the Effective Time to enforce the provisions of Section 7.16 on behalf of Enron's officers, directors and employees, as the case may be. Such directors' rights and remedies under the preceding sentence are cumulative and are in addition to any other rights and remedies that they may have at law or in equity, but in no event shall this Section 10.3 be deemed to impose any additional duties on any such directors. Newco shall pay, at the time they are incurred, all reasonable costs, fees and expenses of such directors incurred in connection with the assertion of any rights on behalf of the persons set forth above pursuant to this Section 10.3. Section 10.4 Entire Agreement. This Agreement, the exhibits to this Agreement, the Enron Disclosure Letter, the Dynegy Disclosure Letter and any documents delivered by the parties in connection herewith constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto, except that the Confidentiality Agreement shall continue in effect. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. Section 10.5 Amendments. This Agreement may be amended by the parties hereto, by action taken or authorized by their Boards of Directors, at any time before or after approval of matters presented in connection with the Mergers by the shareholders of Enron or Dynegy, but after any such shareholder approval, no amendment shall be made which by law requires the further approval of shareholders without obtaining such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its rules of conflicts of laws, except to the extent the laws of the State of Illinois are required to be applicable to the Dynegy Merger or the laws of the State of Oregon are required to be applicable to the Enron Merger. Section 10.7 Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. Section 10.8 Headings. Headings of the Articles and Sections of this Agreement are for the convenience of the parties only and shall be given no substantive or interpretative effect whatsoever. 57 Section 10.9 Interpretation. In this Agreement: (a) Unless the context otherwise requires, words describing the singular number shall include the plural and vice versa, words denoting any gender shall include all genders, and words denoting natural persons shall include corporations and partnerships and vice versa. (b) The phrase "to the knowledge of" and similar phrases relating to knowledge of Enron or Dynegy, as the case may be, shall mean the actual knowledge of its executive officers. (c) "Material Adverse Effect" with respect to any person shall mean a material adverse effect on or change in the business, assets, liabilities, financial condition or results of operations of such person and its Subsidiaries, taken as a whole, or the ability of the party to consummate the transactions contemplated by this Agreement or fulfill the conditions to closing. "Enron Material Adverse Effect" and "Dynegy Material Adverse Effect" mean a Material Adverse Effect with respect to Enron and Dynegy, respectively. For purposes of determining whether an Enron Material Adverse Effect has occurred from and after the date of this Agreement, to the extent that the liabilities and expenses from and after the date hereof 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 proceeds of insurance and litigation reserves reflected on the September 30, 2001 Balance Sheet), the amount of such excess over $2 billion will be taken into account in determining whether an Enron Material Adverse Effect has occurred, and, in any event, if the amount of such excess exceeds, or is reasonably likely to exceed, $1.5 billion, an Enron Material Adverse Effect will be deemed to have occurred; provided, however, that such $1.5 billion threshold shall have no implication, or be used, for purposes of interpreting any other provision or sentence of this Agreement, including, without limitation, interpreting whether an Enron Material Adverse Effect has occurred with respect to any matters other than litigation matters. (d) The term "Subsidiary," when used with respect to any party, shall mean any corporation or other organization (including a limited liability company), whether incorporated or unincorporated, of which such party directly or indirectly owns at least 50% of the securities or other interests having by their terms ordinary voting power to elect at least 50% of the board of directors or others performing similar functions with respect to such corporation or other organization or, except with respect to Article 7, any organization of which such party or a Subsidiary of such party is a general partner or managing member. Section 10.10 Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be 58 construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. Section 10.11 Incorporation of Disclosure Letters and Exhibits. The Enron Disclosure Letter, the Dynegy Disclosure Letter and all exhibits attached hereto and referred to herein are hereby incorporated herein and made a part hereof for all purposes as if fully set forth herein. Section 10.12 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Section 10.13 Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. Section 10.14 No Special Damages. IN NO EVENT SHALL ANY PARTY BE LIABLE IN RESPECT OF THIS AGREEMENT FOR EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES. 59 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. DYNEGY INC. By: /s/ CHARLES L. WATSON ------------------------------------ Charles L. Watson Chairman of the Board and Chief Executive Officer STANFORD, INC. By: /s/ CHARLES L. WATSON ------------------------------------ Charles L. Watson President SORIN, INC. By: /s/ CHARLES L. WATSON ------------------------------------ Charles L. Watson President BADIN, INC. By: /s/ CHARLES L. WATSON ------------------------------------ Charles L. Watson President ENRON CORP. By: /s/ KENNETH L. LAY ------------------------------------ Kenneth L. Lay Chairman of the Board and Chief Executive Officer 60 EXHIBIT 2.1(a) RESTATED CERTIFICATE OF INCORPORATION OF STANFORD, INC. Under Sections 242 and 245 of the Delaware General Corporation Law Stanford, Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), hereby certifies that: 1. The current name of the Corporation is Stanford, Inc. The original Certificate of Incorporation of the Corporation (as heretofore amended, the "Certificate of Incorporation") was filed with the Secretary of State of the State of Delaware on November 2, 2001. 2. The Board of Directors of the Corporation duly adopted resolutions proposing and declaring advisable the amendments to the Certificate of Incorporation this Restated Certificate of Incorporation is effecting, and the Corporation's sole stockholder has duly adopted those amendments and this Restated Certificate of Incorporation, all in accordance with the provisions of Sections 228, 242 and 245 of the DGCL. 3. This Restated Certificate of Incorporation (hereinafter, this Restated Certificate of Incorporation, as it may be further amended or restated from time to time, is referred to as this "Restated Certificate of Incorporation") restates and amends the Certificate of Incorporation in its entirety as follows: RESTATED CERTIFICATE OF INCORPORATION FIRST: The name of the Corporation is Stanford, Inc. (hereinafter, the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Zip Code 19801, and the name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "DGCL"). FOURTH: The aggregate number of shares of capital stock that the Corporation shall have authority to issue is 3,000,000,000, of which 2,000,000,000 shares are classified as Class A common stock, no par value ("Class A Common Stock"), and 800,000,000 shares are classified as Class B common stock, no par value ("Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), and 200,000,000 shares are classified as preferred stock, no par value ("Preferred Stock"). The Corporation may issue shares of any class or series of its capital stock from time to time for such consideration and for such corporate purposes as the Board of Directors of the Corporation (the "Board of Directors") may from time to time determine. The following is a statement of the powers, preferences and rights, and the qualifications, limitations or restrictions, of the Preferred Stock, the Class A Common Stock and the Class B Common Stock: DIVISION A. PREFERRED STOCK The shares of Preferred Stock may be divided into and issued in one or more series, the relative rights, powers and preferences of which series may vary in any and all respects. The Board of Directors is expressly vested with the authority to fix, by resolution or resolutions adopted prior to and providing for the issuance of any shares of each particular series of Preferred Stock and incorporate in a certificate of designations filed with the Secretary of State of the State of Delaware, the designations, powers, preferences, rights, qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, to the extent not provided for in this Restated Certificate of Incorporation, and with the authority to increase or decrease the number of shares within each such series; provided, however, that the Board of Directors may not decrease the number of shares within a series of Preferred Stock below the number of shares within such series that is then issued. The authority of the Board of Directors with respect to fixing the designations, powers, preferences, rights, qualifications, limitations and restrictions of each such series of Preferred Stock shall include, but not be limited to, determination of the following: (1) the distinctive designation and number of shares of that series; (2) the rate of dividends (or the method of calculation thereof) payable with respect to shares of that series, the dates, terms and other conditions upon which such dividends shall be payable, and the relative rights of priority of such dividends to dividends payable on any other class or series of capital stock of the Corporation; (3) the nature of the dividend payable with respect to shares of that series as cumulative, noncumulative or partially cumulative, and if cumulative or partially cumulative, from which date or dates and under what circumstances; (4) whether shares of that series shall be subject to redemption, and, if made subject to redemption, the times, prices, rates, adjustments and other terms and conditions of such redemption (including the manner of selecting shares of that series for redemption if fewer than all shares of such series are to be redeemed); (5) the rights of the holders of shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation (which rights may be 2 different if such action is voluntary than if it is involuntary), including the relative rights of priority in such event as to the rights of the holders of any other class or series of capital stock of the Corporation; (6) the terms, amounts and other conditions of any sinking or similar purchase or other fund provided for the purchase or redemption of shares of that series; (7) whether shares of that series shall be convertible into or exchangeable for shares of capital stock or other securities of the Corporation or of any other corporation or entity, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments, and other terms and conditions of such conversion or exchange; (8) the extent, if any, to which the holders of shares of that series shall be entitled (in addition to any voting rights provided by law) to vote as a class or otherwise with respect to the election of directors or otherwise; (9) the restrictions and conditions, if any, upon the issue or reissue of any additional Preferred Stock ranking on a parity with or prior to shares of that series as to dividends or upon liquidation, dissolution or winding up; (10) any other repurchase obligations of the Corporation, subject to any limitations of applicable law; and (11) any other designations, powers, preferences, rights, qualifications, limitations or restrictions of shares of that series. Any of the designations, powers, preferences, rights, qualifications, limitations or restrictions of any series of Preferred Stock may be dependent on facts ascertainable outside this Restated Certificate of Incorporation, or outside the resolution or resolutions providing for the issue of such series of Preferred Stock adopted by the Board of Directors pursuant to authority expressly vested in it by this Restated Certificate of Incorporation. Except as applicable law or this Restated Certificate of Incorporation otherwise may require, the terms of any series of Preferred Stock may be amended without consent of the holders of any other series of Preferred Stock or any class of capital stock of the Corporation. The relative powers, preferences and rights of each series of Preferred Stock in relation to the powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to the authority granted in this Division A of this Article FOURTH, and the consent, by class or series vote or otherwise, of holders of Preferred Stock of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock, whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in such resolution or resolutions adopted with respect to any series of Preferred Stock that the consent of holders of at least a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of shares of any or all other series of Preferred Stock. 3 Shares of any series of Preferred Stock shall have no voting rights except as required by law or as provided in the relative powers, preferences and rights of such series. DIVISION B. COMMON STOCK Except as otherwise set forth in this Article FOURTH, Division B, the relative powers, preferences and rights, and the qualifications, limitations and restrictions, of the Class A Common Stock and the Class B Common Stock shall be identical in all respects. 1. Dividends. Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Restated Certificate of Incorporation, holders of Common Stock shall be entitled to receive such dividends and other distributions in cash, stock of any corporation (other than Common Stock) or property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in all such dividends and other distributions. In the case of dividends or other distributions payable in Common Stock, including distributions pursuant to stock splits or divisions of Common Stock, only shares of Class A Common Stock shall be paid or distributed with respect to Class A Common Stock and only shares of Class B Common Stock shall be paid or distributed with respect to Class B Common Stock. The number of shares of Class A Common Stock and Class B Common Stock so distributed on each share shall be equal in number. Neither the shares of Class A Common nor the shares of Class B Common Stock may be reclassified, subdivided or combined unless such reclassification, subdivision or combination occurs simultaneously and in the same proportion for each class. 2. Voting. (a) Except as may be otherwise required by law or by the provisions of this Restated Certificate of Incorporation or the Bylaws of the Company, the holders of the Class B Common Stock shall vote together with the holders of the Class A Common Stock as a single class on every matter coming before any meeting of the stockholders or otherwise to be acted upon by the stockholders, subject to any voting rights which may be granted to holders of any other class or series of Preferred Stock. So long as any Class B Common Stock is outstanding, the Corporation shall not (x) without the affirmative vote of 66 2/3% of the shares of Class A and Class B Common Stock outstanding, voting as a single class, effect any amendments to this Restated Certificate of Incorporation, any mergers, consolidations, reorganizations, or sales of assets requiring stockholder approval under the DGCL or dispositions of all or substantially all of the Corporation's assets, or any liquidation, dissolution or winding up of the Corporation, or (y) without the affirmative vote of a majority of the shares of Class B Common Stock outstanding, voting as a separate class, and the affirmative vote of 66 2/3% of the shares of Class A and Class B Common Stock, voting as a single class, amend any provision of this paragraph (a) of Section 2 relating to the Common Stock. (b) The Board of Directors of the Corporation shall consist of at least twelve members and no more than fifteen members as established from time to time by resolution of the Board of Directors, except that such numbers are subject to automatic adjustment as necessary, under those circumstances and during those time periods that holders of any other class or series 4 of the Corporation's outstanding Preferred Stock have rights to elect members of the Board of Directors (the "Preferred Stock Directors"), as set forth in this Restated Certificate of Incorporation or in the resolution of the Board of Directors establishing and designating such series and fixing and determining the relative rights and preferences thereof. So long as any shares of Class B Common Stock are outstanding, the holders of the Class B Common Stock, as such holders, shall be entitled to vote as a separate class for the election of the greater of (x) three directors of the Corporation and (y) that whole number of directors that is closest to but not less than 20% of the total number of directors (the "Class B Directors") and the holders of the Class A Common Stock shall be entitled to vote as a separate class for the remaining directors of the Corporation (the "Class A Directors"), excluding Preferred Stock Directors, if any. At such time as no Class B Common Stock is outstanding, the term of all Class B Directors shall immediately end. (c) For purposes of electing Class B Directors, the Board of Directors will nominate such individuals as may be specified by a majority vote of the then existing Class B Directors or, if there are no Class B Directors, by holders of a majority of the Class B Common Stock. The remaining directors will be nominated in accordance with the Corporation's Bylaws. (d) At any meeting having as a purpose the election of directors by holders of the Common Stock, the presence, in person or by proxy, of the holders of a majority of the shares of the relevant class or classes of Common Stock then outstanding shall be required and be sufficient to constitute a quorum of such class or classes for the election of any director by such holders. Each director shall be elected by the vote or written consent required under the DGCL of the holders of such class or classes. At any such meeting or adjournment thereof, (i) the absence of a quorum of such holders of an applicable class of Common Stock shall not prevent the election of the directors to be elected by the holders of shares other than such class of Common Stock, and (ii) in the absence of such quorum (either of holders of such class of Common Stock or of shares other than such class of Common Stock, or both), a majority of the holders, present in person or by proxy, of the class or classes of stock which lack a quorum shall have power to adjourn the meeting for the election of directors which they are entitled to elect, from time to time, without notice other than announcement at the meeting, until a quorum shall be present. All of the holders of Class A Common Stock that are entitled to vote at an election of Class A Directors shall have the right to vote, in person or by proxy, the number of shares of Class A Common Stock owned by him or her for as many persons as there are Class A Directors to be elected and for whose election he or she has a right to vote, or to cumulate the votes by giving one candidate as many votes as the number of such Class A Directors multiplied by the aggregate number of votes shall equal, or by distributing such votes on the same principle among any number of such candidates. All of the holders of Class B Common Stock that are entitled to vote at an election of Class B Directors shall have the right to vote, in person or by proxy, the number of shares of Class B Common Stock owned by him or her for as many persons as there are Class B Directors to be elected and for whose election he or she has a right to vote, but in no event shall he or she be permitted to cumulate his or her votes for one or more Class B Directors. (e) Any vacancy in the office of a class of director may be filled by the remaining directors of such class, unless such vacancy occurred because of the removal (with or without cause) of a director or all offices of a class of directors are vacant, in which event such vacancy or vacancies shall be filled by the affirmative vote of the holders of a majority of the outstanding 5 shares of the applicable class of Common Stock. Any or all of the directors may be removed, with or without cause, by vote or by written consent in each case in accordance with Section 141 of the DGCL by the holders of the applicable class of Common Stock and not otherwise. Any director elected to fill a vacancy shall serve the same remaining term as that of his or her predecessor, subject, however, to prior death, resignation, retirement, disqualification, or removal from office. (f) Without the affirmative vote of the holders of at least 66 2/3% of the outstanding shares of the Class B Common Stock, the Corporation may not effect any change in the rights, privileges or preferences of the Class B Common Stock. This provision shall not be applicable to any amendment to this Restated Certificate of Incorporation or adoption of resolutions of the Board of Directors which establishes or designates one or more classes or series of Preferred Stock in accordance with Article FOURTH, Division A. (g) With respect to actions by the holders of Class B Common Stock upon those matters on which such holders are entitled to vote as a separate class, such actions may be taken without a stockholders meeting, and without any action by the holders of Class A Common Stock if no approval or action by the holders of Class A Common Stock is required pursuant to this Restated Certificate of Incorporation either voting as a separate class or together with the holders of Class B Common Stock acting as a single class, by the written consent of holders of the Class B Common Stock who would be entitled to vote at a meeting those shares having voting power to cast not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of Class B Common Stock entitled to vote were present and voted. Notice shall be given in accordance with the applicable provisions of the DGCL of the taking of corporate action without a meeting by less than unanimous written consent to those holders of Class B Common Stock on the record date whose shares were not represented on the written consent. 3. Transfer. (a) If any person holding shares of Class B Common Stock of record (a "Class B Holder") purports to transfer such shares of Class B Common Stock, whether by sale, assignment, gift, bequest or otherwise, except to a Permitted Transferee, such transfer shall be deemed to constitute a request by the Class B Holder for conversion of such shares and shall result in such shares being converted into Class A Common Stock as provided by Section 4 of this Article FOURTH, Division B. (b) In the case of a Class B Holder acquiring record and beneficial ownership of the shares of Class B Common Stock in question upon initial issuance by the Corporation (an "Original Holder"), a "Permitted Transferee" shall mean any Affiliate (as defined below) of such Original Holder. In the case of a Class B Holder which is a Permitted Transferee of an Original Holder, a "Permitted Transferee" shall mean: (y) any Original Holder, or (z) any Permitted Transferee of any Original Holder. 6 For this paragraph and Section 4 of this Article FOURTH, Division B, "Affiliate" means any corporation, partnership, limited liability company or other entity (each, a "Person") that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person, and includes any Person acting in concert with another Person. (c) With respect to a Class B Holder which holds shares by virtue of its status as an Affiliate, the subsequent loss of Affiliate status shall, unless within 15 days thereafter all shares of Class B Common Stock held by such Class B Holder are transferred to an Original Holder or a Permitted Transferee of an Original Holder, result in the automatic conversion of all of its shares of Class B Common Stock into shares of Class A Common Stock, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent shares of Class A Common Stock as provided by Section 4 of this Article FOURTH, Division B. (d) Any transfer of shares of Class B Common Stock not permitted hereunder shall result in the conversion of the transferee's shares of Class B Common Stock into shares of Class A Common Stock as provided by Section 4 of this Article FOURTH, Division B, effective as of the date on which certificates representing such shares are presented for transfer on the books of the Corporation or on such earlier date that the Corporation receives notice of such attempted transfer. The Corporation may, in connection with preparing a list of stockholders entitled to vote at any meeting of stockholders, or as a condition to the transfer or the registration of shares of Class B Common Stock on the Corporation's books, require the furnishing of such affidavits or other proof as it deems necessary to establish that the person is the beneficial owner of shares of Class B Common Stock or is a Permitted Transferee. (e) Shares of Class B Common Stock shall be registered in the names of the beneficial owners thereof and not in "street" or "nominee" name. For this purpose, a "beneficial owner" of any shares of Class B Common Stock shall mean a person who, or any entity which, possesses the powers, either singly or jointly, to direct the voting or disposition of such shares. Certificates for shares of Class B Common Stock shall bear the following legend: The rights, preferences and limitations of the Class B Common Stock represented by this certificate are specified in and governed by the Restated Certificate of Incorporation of Stanford, Inc., a Delaware corporation (the "Corporation"), which has been filed with the Secretary of State of the State of Delaware, and the Corporation's Bylaws. This certificate is transferable only in the circumstances described and upon compliance with the conditions specified in the Corporation's Restated Certificate of Incorporation and Bylaws. A copy of the Corporation's Restated Certificate of Incorporation and Bylaws is available from the Corporation without charge to the record holder of this certificate upon written request to the Corporation at its principal place of business or record office. 7 4. Conversion. (a) Each share of Class B Common Stock shall be converted at such time, in such manner and upon such terms and conditions as provided herein into one fully paid and non-assessable share of Class A Common Stock. (b) Each share of Class B Common Stock shall automatically convert into a share of Class A Common Stock (x) at such time as the holders of all Class B Common Stock cease to own in the aggregate 15% of the issued and outstanding Common Stock, or (y) at such earlier time as provided in Section 3 of this Article FOURTH, Division B. Upon automatic conversion of shares of Class B Common Stock, the Corporation shall reflect such conversion, and the issuance of Class A Common Stock in connection therewith on its books and records for all purposes even if certificates reflecting such converted shares of Class B Common Stock are not surrendered to the Corporation or its transfer agent. All shares of Class B Common Stock, upon conversion thereof into Class A Common Stock, shall retain their designation as Class B Common Stock and shall have the status of authorized and unissued shares of Class B Common Stock; provided that if all shares of Class B Common Stock outstanding are converted into shares of Class A Common Stock, then all authorized but unissued shares or treasury shares of Class B Common Stock shall automatically convert into authorized but unissued or treasury shares of Class A Common Stock, as the case may be, and no further shares of Class B Common Stock shall exist. Except as specifically contemplated under this Section 4, shares of Class B Common Stock may not be converted into Class A Common Stock. (c) Each share of Class A Common Stock beneficially owned (within the meaning of Section 3 of this Article FOURTH, Division B) by Chevron U.S.A. Inc., a Pennsylvania corporation ("Chevron"), or its Affiliates shall simultaneous with Chevron or its Affiliate acquiring such ownership automatically be converted into one fully paid and non-assessable share of Class B Common Stock; provided, however, that for purposes of any shares of Class B Common Stock so issued, only Chevron will be deemed to be the Original Holder thereof for purposes of the provisions of Section 3 of this Article FOURTH, Division B, and provided, further, that this provision shall not apply with respect to shares of Class A Common Stock issued upon conversion of all Class B Common Stock in accordance with part (x) of the first sentence of paragraph (b) of this Section 4, or any shares of Class A Common Stock owned by Chevron or its Affiliates, after such conversion shall have occurred. Upon automatic conversion of shares of Class A Common Stock, the Corporation shall reflect such conversion and the issuance of Class B Common Stock in connection therewith on its books and records for all purposes even if certificates reflecting such converted shares of Class A Common Stock are not surrendered to the Corporation for transfer. All shares of Class B Common Stock shall be subject to the restrictions and provisions contained in this Restated Certificate of Incorporation. All shares of Class A Common Stock, upon conversion thereof into Class B Common Stock, shall retain their designation as Class A Common Stock and shall have the status of authorized and unissued shares of Class A Common Stock. (d) Nothing herein shall prevent the Original Holder (or any Permitted Transferee) of the Class B Common Stock and the Corporation from executing an agreement allowing the Original Holder (or any Permitted Transferee), at its option, to convert the Class B Common Stock into Class A Common Stock, nor the conversion of any Class B Common Stock pursuant to such agreement. 8 (e) The Corporation will, as soon as practicable after such deposit of a certificate or certificates for Common Stock to be converted in accordance with this Section 4, issue and deliver at the office of the Corporation or of its transfer agent to the person for whose account such Common Stock was so surrendered, a certificate or certificates for the number of full shares of Common Stock into which the shares represented by the surrendered certificate are converted. If surrendered certificates for Common Stock are converted only in part, the Corporation will issue and deliver to the holder, without charge therefor, a new certificate or certificates representing the aggregate of the unconverted shares of such class of Common Stock. The failure of the holder to deliver to the Corporation certificates representing shares of a class of Common Stock converted in accordance with this Section 4, shall in no way affect the automatic conversion of such shares. (f) The issuance of certificates for shares of a class of Common Stock upon conversion of shares of the other class of Common Stock shall be made without charge for any issue, stamp or other similar tax in respect of such issuance; provided, however, if any such certificate is to be issued in a name other than that of the holder of the share or shares of the class of Common Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (g) The Corporation shall at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Class B Common Stock, such number of shares of Class A Common Stock as shall be issuable upon the conversion of all such outstanding shares, provided that nothing contained herein shall be construed to preclude the Corporation from satisfying the obligations in respect of the conversion of the outstanding shares of Class B Common Stock by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation. The Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Class A Common Stock issuable upon conversion of shares of Class B Common Stock upon issue will be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. In order that the Corporation may issue shares of Class A Common Stock upon conversion of the Class B Common Stock, the Corporation will endeavor to comply with all applicable Federal and state securities laws and will endeavor to list such shares to be issued upon conversion on such securities exchange on which the Class A Common Stock is then listed. (h) The Corporation shall at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Class A Common Stock a number of shares of Class B Common Stock equal to 40% of the number of outstanding shares of Class A Common Stock, provided that nothing contained herein shall be construed to preclude the Corporation from satisfying the obligations in respect of the conversion of the outstanding shares of Class A Common Stock by delivery of shares of Class B Common Stock which are held in the treasury of the Corporation. The Corporation shall take all such corporate and other actions as from time to time may be necessary to insure that all shares of Class B Common Stock issuable upon conversion of shares of Class A Common Stock upon issue will be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. In order that the Corporation may issue shares of Class B Common Stock upon 9 conversion of the Class A Common Stock, the Corporation will endeavor to comply with all applicable Federal and state securities laws. 5. Distribution of Assets. In the event of any liquidation, dissolution or winding up of the Corporation, or any reduction or decrease of its capital stock resulting in a distribution of assets to the holders of the Common Stock, after there shall have been paid to or set aside for the holders of the stock ranking senior to the Common Stock the full preferential amounts to which they are respectively entitled, the holders of the Common Stock shall be entitled to receive, pro rata, all of the remaining assets of the Corporation available for distribution to its stockholders. 6. Entire Designations. Except as may otherwise be required by law and for the equitable rights and remedies which may otherwise be available to holders of Common Stock, the shares of Common Stock shall not have any designations, preferences, limitations or relative rights, other than those specifically set forth in this Restated Certificate of Incorporation. 7. Headings. The headings of the various subdivisions of this Division B are for convenience of reference only and shall not affect the interpretation of any of the provisions of this Section. FIFTH: Directors. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the authority and powers conferred on the Board of Directors by the DGCL or by the other provisions of this Restated Certificate of Incorporation, the Board of Directors is authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the DGCL, this Restated Certificate of Incorporation and the Bylaws of the Corporation; provided, however, that no Bylaws hereafter adopted, or any amendments thereto, shall invalidate any prior act of the Board of Directors that would have been valid if such Bylaws or amendment had not been adopted. SIXTH: Action by Written Consent; Special Meetings. Except as contemplated by Section 2(g) of Article FOURTH, Division B of this Restated Certificate of Incorporation, no action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, and the power of the stockholders of the Corporation to consent in writing to the taking of any action by written consent without a meeting is specifically denied. Unless otherwise provided by the DGCL, by this Restated Certificate of Incorporation or by any provisions established pursuant to Article FOURTH hereof with respect to the rights of holders of one or more outstanding series of Preferred Stock, special meetings of the stockholders of the Corporation may be called at any time only by the Chairman of the Board of Directors, the President, the Chief Executive Officer of the Corporation, by the Board of Directors pursuant to a resolution approved by the affirmative vote of at least a majority of the members of the Board of Directors, or by any holder or holders of at least 20% of the outstanding shares of Common Stock entitled to vote on the matter for which the meeting is called, and no such special meeting may be called by any other person or persons. SEVENTH: No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a 10 director of the Corporation; provided, however, that this Article SEVENTH shall not eliminate or limit the liability of such a director (1) for any breach of such director's duty of loyalty to the Corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, as the same exists or as such provision may hereafter be amended, supplemented or replaced, or (4) for any transactions from which such director derived an improper personal benefit. If the DGCL is amended after the filing of this Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by such law, as so amended. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. EIGHTH: Subject to the provisions of this Restated Certificate of Incorporation, the Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, by the board of directors; provided that no amendment or repeal of (a) the last sentence of Section 3 of Article III of the Bylaws, and (b) Sections 6, 7(b), 7(c), 9 and 10 of Article III of the Bylaws, nor the adoption of any provision of the Bylaws which would substantially and adversely affect the rights of the holders of Class B Common Stock, shall be effective except upon the affirmative vote of a majority of the shares of Class B Common Stock outstanding, voting as a separate class. IN WITNESS WHEREOF, the Corporation has caused the Restated Certificate of Incorporation to be signed and attested by its duly authorized officers, this ____ day of _______, 2001. STANFORD, INC. By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- 11 EXHIBIT 2.1(b) AMENDED AND RESTATED BYLAWS OF STANFORD, INC. Adopted and Amended by Resolution of the Board of Directors on __________ ___, 2001 ARTICLE I CAPITAL STOCK Section 1. Share Ownership. Shares for the capital stock of the Company shall be certificated; provided, however, that the Board of Directors of the Company may provide by resolution or resolutions that some or all of any or all classes or series of the Company's stock may be uncertificated shares. Owners of shares of the capital stock of the Company shall be recorded in the share transfer records of the Company and ownership of such shares shall be evidenced by a certificate or book entry notation in the share transfer records of the Company. Any certificates representing such shares shall be signed by the Chairman of the Board, if there is one, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant Corporate Secretary and shall be sealed with the seal of the Company, which signatures and seal may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer at the date of its issuance. Section 2. Stockholders of Record. The Board of Directors of the Company may appoint one or more transfer agents or registrars of any class of stock or other security of the Company. The Company may be its own transfer agent if so appointed by the Board of Directors. The Company shall be entitled to treat the holder of record of any shares of the Company as the owner thereof for all purposes, and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares, on the part of any other person, including (but without limitation) a purchaser, assignee or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Company shall have either actual or constructive notice of the interest of such other person. Section 3. Transfer of Shares. The shares of the capital stock of the Company shall be transferable in the share transfer records of the Company by the holder of record thereof, or his duly authorized attorney or legal representative in accordance with the Restated Certificate of Incorporation of the Company and applicable law, upon presentation to the Company or to its transfer agent (if any) of a duly executed assignment and other evidence of authority to transfer, or proper evidence of succession, and, if the shares are represented by a certificate, a duly endorsed certificate or certificates for shares surrendered for cancellation, and with such proof of the authenticity of the signatures as the corporation or its transfer agent may reasonably require. All certificates representing shares surrendered for transfer, properly endorsed, shall be canceled and new certificates for a like number of shares shall be issued therefor. In the case of lost, stolen, destroyed or mutilated certificates representing shares for which the Company has been requested to issue new certificates, new certificates or other evidence of such new shares may be issued upon such conditions as may be required by the Board of Directors or the Corporate Secretary or an Assistant Corporate Secretary for the protection of the Company and any transfer agent or registrar. Uncertificated shares shall be transferred in the share transfer records of the Company upon the written instruction originated by the appropriate person to transfer the shares. Section 4. Stockholders of Record and Fixing of Record Date. Except as otherwise required by applicable law, for the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive a distribution by the Company (other than a distribution involving a purchase or redemption by the Company of any of its own shares) or a share dividend, or in order to make a determination of stockholders for any other proper purpose, the Board of Directors may fix in advance a record date for any such determination of stockholders, such date to be not more than sixty days, and in the case of a meeting of stockholders not less than ten days, prior to the date on which the particular action requiring such determination of stockholders is to be taken. If no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive a distribution (other than a distribution involving a purchase or redemption by the Company of any of its own shares) or a share dividend, the day next preceding the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such distribution or share dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as herein provided, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the share transfer records and the stated period of closing has expired. ARTICLE II Meetings of Stockholders Section 1. Place of Meetings. All meetings of stockholders shall be held at the principal office of the Company, in the City of Houston, Texas, or at such other place within or without the State of Delaware as may be designated by the Board of Directors or officer calling the meeting. Section 2. Annual Meeting. The annual meeting of the stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors or as may otherwise be stated in the notice of the meeting. Section 3. Special Meetings. Special meetings of the stockholders of the Company may be called at any time only by the Chairman of the Board, if there is one, the President and Chief Executive Officer of the Company, by the Board of Directors pursuant to a resolution approved by the affirmative vote of at least a majority of the members of the Board of Directors, or by any holder or holders of at least 20% of the outstanding shares entitled to vote on the matter for which the meeting is called, and no such special meeting may be called by any other person or persons. Page 2 of 20 Section 4. Notice of Meeting. Except as otherwise required by applicable law, written or printed notice of all meetings stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, if there is one, the Chief Executive Officer, if there is one, the President, the Corporate Secretary or the officer or person calling the meeting to each stockholder of record entitled to vote at such meetings. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his address as it appears on the share transfer records of the Company, with postage thereon prepaid. Section 5. Voting List. The officer or agent having charge of the share transfer records for shares of the Company shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal place of business of the Company and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original share transfer records shall be prima facie evidence as to who are the stockholders entitled to examine such list or to vote at any meeting of stockholders. Failure to comply with any requirements of this Section 5 shall not affect the validity of any action taken at such meeting. Section 6. Quorum and Vote of Stockholders. Except as otherwise provided by law, the Restated Certificate of Incorporation of the Company or these Bylaws, the holders of a majority of shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, but, if a quorum is not represented, a majority in interest of those represented may adjourn the meeting from time to time. With respect to each matter other than the election of directors as to which no other voting requirement is specified by law, the Restated Certificate of Incorporation of the Company or in this Section 6, the affirmative vote of the holders of a majority of the shares entitled to vote on that matter and represented in person or by proxy at a meeting at which a quorum is present shall be the act of the stockholders. With respect to a matter submitted to a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of the New York Stock Exchange, Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any provision of the Internal Revenue Code, in each case for which no higher voting requirement is specified by law, the Restated Certificate of Incorporation of the Company or these Bylaws, the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, that matter at a meeting at which a quorum is present shall be the act of the stockholders, provided that approval of such matter shall also be conditioned on any more restrictive requirement of such stockholder approval policy, Rule 16b-3 or Internal Revenue Code provision, as applicable, being satisfied. With respect to the approval of independent public accountants (if submitted for a vote of the stockholders), the affirmative vote of the holders of a majority of the shares entitled to vote on, and voted for or against, that matter at a meeting of stockholders at which a quorum is present shall be the act of the stockholders. Page 3 of 20 Section 7. Presiding Officer and Conduct of Meetings. The Chairman of the Board, if there is one, or in his absence, the Chief Executive Officer, if there is one, or in his absence, the President shall preside at all meetings of the stockholders or, if such officers are not present at a meeting, by such other person as the Board of Directors shall designate or if no such person is designated by the Board of Directors, the most senior officer of the Company present at the meeting. The Corporate Secretary of the Company, if present, shall act as secretary of each meeting of stockholders; if he is not present at a meeting, then such person as may be designated by the presiding officer shall act as secretary of the meeting. Meetings of stockholders shall follow reasonable and fair procedure. Subject to the foregoing, the conduct of any meeting of stockholders and the determination of procedure and rules shall be within the absolute discretion of the officer presiding at such meeting (the "Chairman of the Meeting"), and there shall be no appeal from any ruling of the Chairman of the Meeting with respect to procedure or rules. Accordingly, in any meeting of stockholders or part thereof, the Chairman of the Meeting shall have the sole power to determine appropriate rules or to dispense with theretofore prevailing rules. Without limiting the foregoing, the following rules shall apply: (a) If disorder should arise which prevents continuation of the legitimate business of meeting, the Chairman of the Meeting may announce the adjournment of the meeting; and upon so doing, the meeting shall be immediately adjourned. (b) The Chairman of the Meeting may ask or require that anyone not a bona fide stockholder or proxy leave the meeting. (c) A resolution or motion proposed by a stockholder shall only be considered for vote of the stockholders if it meets the criteria of Article II, Section 8 (Proper Business--Annual Meeting of Stockholders) or Article II, Section 9 (Proper Business--Special Meeting of Stockholders), as the case may be. The Chairman of the Meeting may propose any resolution or motion for vote of the stockholders. (d) The order of business at all meetings of stockholders shall be determined by the Chairman of the Meeting. (e) The Chairman of the Meeting may impose any reasonable limits with respect to participation in the meeting by stockholders, including, but not limited to, limits on the amount of time taken up by the remarks or questions of any stockholder, limits on the number of questions per stockholder and limits as to the subject matter and timing of questions and remarks by stockholders. (f) Before any meeting of stockholders, the Board of Directors (i) shall appoint three persons other than nominees for office to act as inspectors of election at the meeting or its adjournment and (ii) may designate one or more alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the Chairman of the Meeting shall appoint one or more, up to a maximum of three, inspectors of election to act at the meeting of the stockholders. Page 4 of 20 The duties of the inspectors shall be to: (i) determine the number of shares outstanding and the voting power of each such share, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies and ballots; (ii) receive votes or ballots; (iii) hear and determine all challenges and questions in any way arising in connection with the vote and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors; (iv) count and tabulate all votes and ballots; (v) report and certify to the Board of Directors the results based on the information assembled by the inspectors; and (vi) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. (g) Each inspector of election, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector's ability. (h) In determining the validity and counting of proxies and ballots, the inspectors of election shall be limited to an examination of the items specifically allowed by Section 231(d) of the DGCL. All determinations of the Chairman of the Meeting shall be conclusive unless a matter is determined otherwise upon motion duly adopted by the affirmative vote of the holders of at least 662/3 % of the voting power of the shares of capital stock of the Company entitled to vote in the election of directors held by stockholders present in person or represented by proxy at such meeting. Section 8. Proper Business--Annual Meeting of Stockholders. At any annual meeting of stockholders, only such business shall be conducted as shall be a proper subject for the meeting and shall have been properly brought before the meeting. To be properly brought before an annual meeting of stockholders, business (other than business relating to any nomination of directors, which is governed by Article III, Section 3 of these Bylaws) must (a) be specified in the notice of such meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise be properly brought before the meeting by or at the direction of the Chairman of the Meeting or the Board of Directors (or any duly authorized committee thereof) or (c) otherwise (i) be properly requested to be brought before the meeting by a stockholder of record entitled to vote in the election of directors generally, in compliance with the provisions of this Section 8 and (ii) constitute a proper subject to be brought before such meeting. For business to be properly brought before an annual meeting of stockholders, any stockholder who intends to bring any matter (other than a matter relating to any nomination of directors, which is governed by Article III, Section 3 of these Bylaws) before an annual meeting of stockholders and is entitled to vote on such matter must deliver written notice of such stockholder's intent to bring such matter before the annual Page 5 of 20 meeting of stockholders, either by personal delivery or by United States mail, postage prepaid, to the Corporate Secretary of the Company. Such notice must be received by the Corporate Secretary not less than ninety days nor more than 180 days prior to the date on which the immediately preceding year's annual meeting of stockholders was held. In no event shall the public disclosure of an adjournment of an annual meeting of stockholders commence a new time period for the giving of a stockholder's notice as described above. To be in proper written form, a stockholder's notice to the Corporate Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting of stockholders (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Company's books and records, of the stockholder proposing such business, (c) evidence, reasonably satisfactory to the Corporate Secretary of the Company, of such stockholder's status as such and of the number of shares of each class of capital stock of the Company of which such stockholder is the beneficial owner, (d) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names and the number of shares beneficially owned by them) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (e) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. No business shall be conducted at an annual meeting of stockholders except in accordance with the procedures set forth in this Section 8. Beneficial ownership shall be determined in accordance with Rule 13d-3 under the Exchange Act. When used in these Bylaws, "person" has the meaning ascribed to such term in Section 2(a)(2) of the Securities Act of 1933, as amended, as the context may require. Within thirty days after such stockholder shall have submitted the aforesaid items, the Corporate Secretary or the Board of Directors of the Company shall determine whether the proposed business has been properly requested to be brought before the annual meeting of stockholders and shall notify such stockholder in writing of its determination. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Corporate Secretary or the Board of Directors of the Company determines that the proposed business otherwise has not been properly requested, then such proposal by such stockholder shall not be voted upon by the stockholders of the Company at such annual meeting of stockholders. The Chairman of the Meeting shall, if the facts warrant, determine and declare to the meeting that a proposal made by a stockholder of the Company pursuant to this Section 8 was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. Nothing in this Section 8 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of the Board of Directors of the Company. Section 9. Proper Business--Special Meeting of Stockholders. At any special meeting of stockholders, only such business shall be conducted as shall have been stated in the notice of such meeting or shall otherwise have been properly brought before the meeting by or at the direction of the Chairman of the Meeting or the Board of Directors (or any duly authorized committee thereof). Page 6 of 20 Section 10. Action by Written Consent. Except as set forth otherwise in the Restated Certificate of Incorporation of the Company, no action required to be taken or that may be taken at any annual or special meeting of the stockholders of the Company may be taken without a meeting, and the power of the stockholders of the Company to consent in writing to the taking of any action by written consent without a meeting is specifically denied. ARTICLE III Directors Section 1. General. The business and affairs of the Company shall be managed by or under the direction of the Board of Directors. Section 2. Number; Term. The number of directors which shall constitute the whole Board of Directors shall be fixed in the manner provided in the Restated Certificate of Incorporation of the Company. Except as otherwise provided in the Restated Certificate of Incorporation of the Company or applicable law, in the event of any change in the authorized number of directors, each director then continuing to serve as such shall nevertheless continue as a director until the expiration of his or her current term, or his or her prior death, resignation, disqualification or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Each director elected by the holders of Preferred Stock pursuant to Division A of Article FOURTH of the Restated Certificate of Incorporation of the Company (or elected by such directors to fill a vacancy) shall serve for a term ending upon the earlier of the election of his successor or the termination at any time of a right of the holders of Preferred Stock to elect members of the Board of Directors. The above qualifications and limitations notwithstanding, each director shall serve until his successor shall have been duly elected and qualified, unless he or she shall resign, become disqualified, disabled or shall otherwise be removed. Section 3. Nomination of Directors. Nominations for the election of directors may be made by the Board of Directors or by any stockholder (each, a "Nominator") entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Corporate Secretary of the Company as set forth in this Section 3. To be timely in connection with an annual meeting of stockholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not less than 90 days nor more than 180 days prior to the date on which the immediately preceding year's annual meeting of stockholders was held. To be timely in connection with any election of a director at a special meeting of the stockholders, a Nominator's notice, setting forth the name of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not less than forty days nor more than sixty days prior to the date of such meeting; provided, however, that in the event that less than forty-seven days' notice or prior public disclosure of the date of the special meeting Page 7 of 20 of the stockholders is given or made to the stockholders, the Nominator's notice to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Corporate Secretary of the Company, that the Nominator is a stockholder of the Company and shall identify in writing (a) the name and address of the Nominator, (b) the number of shares of each class of capital stock of the Company owned beneficially by the Nominator, (c) the name and address of each of the persons with whom the Nominator is acting in concert, (d) the number of shares of capital stock beneficially owned by each such person with whom the Nominator is acting in concert and (e) a description of all arrangements or understandings between the Nominator and each nominee and any other persons with whom the Nominator is acting in concert pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Exchange Act and (ii) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors. Within thirty days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Corporate Secretary of the Company, the Corporate Secretary of the Company shall determine whether the evidence of the Nominator's status as a stockholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of his determination. The failure of the Corporate Secretary of the Company to find such evidence reasonably satisfactory, or the failure of the Nominator to submit the requisite information in the form or within the time indicated, shall make the person to be nominated ineligible for nomination at the meeting at which such person is proposed to be nominated. The Chairman of the Meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Beneficial ownership shall be determined in accordance with Rule 13d-3 under the Exchange Act. No provision of this Section 3 shall apply to the election of any Class B Director (as defined in the Restated Certificate of Incorporation). Section 4. Place of Meetings and Meetings by Telephone. Meetings of the Board of Directors may be held either within or without the State of Delaware, at whatever place is specified by the officer calling the meeting. Meetings of the Board of Directors may also be held by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting by means of conference telephone or other communications equipment shall constitute presence in person at such meeting, except where a director participates in a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. In the absence of specific designation by the officer calling the meeting, the meetings shall be held at the principal office of the Company. Section 5. Regular Meetings. The Board of Directors shall meet each year immediately following the annual meeting of the stockholders for the transaction of such business as may Page 8 of 20 properly be brought before the meeting. The Board of Directors shall also meet regularly at such other times as shall be designated by the Board of Directors. No notice of any kind to either existing or newly elected members of the Board of Directors for such annual or regular meetings shall be necessary. Section 6. Special Meetings. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board, if there is one, the Chief Executive Officer, if there is one, the President or the Corporate Secretary of the Company or any three of the directors then in office. Notice of any special meeting shall be given: (i) at least five days prior thereto if the notice is given personally or by an electronic transmission, (ii) at least five business days prior thereto if the notice is given by having it delivered by a third party entity that provides delivery services in the ordinary course of business and guarantees delivery of the notice to the director no later than the following business day, and (iii) at least seven business days prior thereto if the notice is given by mail. Notice of any meeting where any actions described in Section 7(b) of this Article III will be considered shall be given to Class B Directors at least 30 days before the vote on any such action and shall set forth the material terms thereof. For this purpose, the term "electronic transmission" may include, but shall not be limited to, a facsimile, email or other electronic means. Notice shall be delivered to the director's business address and/or telephone number and shall be deemed given upon electronic transmission, upon delivery to the third party delivery service, or upon being deposited in the United States mail with postage thereon prepaid. Notice of the time, place and purpose of any special meeting may be waived in writing before or after such meeting, and shall be equivalent to the giving of notice. Attendance of a director at such meeting shall also constitute a waiver of notice thereof, except where he attends for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Except as otherwise provided by these Bylaws, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum and Voting (a) Except as otherwise provided by applicable law, a majority of the number of directors fixed in the manner provided in the Restated Certificate of Incorporation of the Company shall constitute a quorum for the transaction of business. Except as otherwise provided by law, the Restated Certificate of Incorporation of the Company or these Bylaws, the affirmative vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Any regular or special directors' meeting may be adjourned from time to time by those present, whether a quorum is present or not. (b) Notwithstanding anything to the contrary herein, so long as any shares of Class B Common Stock of the Company are issued and outstanding and the holders of Class B Common Stock have not terminated their rights to block such actions granted to them under Section 4.1 of the Stockholder Agreement between the Company and Chevron U.S.A. Inc., a Pennsylvania corporation, dated November 9, 2001, the Company shall not take (or permit to be taken in its capacity as a stockholder or partner or otherwise permit any subsidiary of the Company to take) any of the following actions if Page 9 of 20 all of the Class B Directors present at the meeting where such action is considered vote against such action: (i) amendment of (A) the last sentence of Article III, Section 3 of these Bylaws, (B) Article III, Sections 6, 7(b), 7(c), 9 and 10 of these Bylaws, or (C) the last two sentences of Section 2(d) of Article IV, Division B of the Restated Certificate of Incorporation of the Company; (ii) adoption of any provision of these Bylaws or amendment to the Restated Certificate of Incorporation which would substantially and adversely affect the rights of the holders of the Class B Common Stock; (iii) authorization of new shares of any stock or other voting securities of the Company where the aggregate consideration to be received by the Company therefor exceeds $3 billion; (iv) any merger or consolidation of the Company or any subsidiary (other than a merger or consolidation by a subsidiary with the Company or another subsidiary), any joint venture, any liquidation or dissolution of the Company, any voluntary initiation of a proceeding in bankruptcy or acquiescence to an involuntary initiation of a proceeding in bankruptcy, any acquisition of stock or assets by the Company or its subsidiaries, or any issuance of common or preferred stock by the Company, any of which would result in the payment or receipt of consideration (including the incurrence or assumption of indebtedness and liabilities) having a fair market value exceeding $3 billion; or (v) any other material transaction (or series of related transactions) which would result in the payment or receipt of consideration (including the incurrence or assumption of indebtedness and liabilities) having a fair market value exceeding $3 billion and is out of the ordinary course of business for the Company. (c) The executive officers of the Company shall advise the members of the Board of Directors of the consideration of a proposal relating to any matter of the type described in Section 7(b) at such time as they determine to give substantive attention to such proposal. Section 8. Compensation. Directors shall receive such compensation for their services as shall be determined by the Board of Directors. Section 9. Executive and Other Committees. The Board of Directors, by resolution or resolutions adopted by a majority of the full Board of Directors, may designate one or more members of the Board of Directors to constitute an Executive Committee, and one or more other committees, which shall in each case be comprised of such number of directors as the Board of Directors may determine from time to time. Unless precluded by applicable law or rule of the New York Stock Exchange, each committee of the Board of Directors, other than any nomination committee with respect to Class A Directors (as such term is defined in the Company's Restated Certificate of Incorporation), shall include at least one Class B Director at Page 10 of 20 all times, unless a majority of Class B Directors consents to a committee not having any Class B Directors. Subject to such restrictions as may be contained in the Company's Restated Certificate of Incorporation or that may be imposed by the DGCL, any such committee shall have and may exercise such powers and authority of the Board of Directors in the management of the business and affairs of the Company as the Board of Directors may determine by resolution and specify in the respective resolutions appointing them, and may authorize the seal of the Company to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders of the Company, any action or matter expressly required by the DGCL to be submitted to the stockholders for approval, (b) adopting, amending or repealing any Bylaw of the Company, or (c) actions set forth in Section 7(b) of this Article III. Each duly authorized action taken with respect to a given matter by any such duly appointed committee of the Board of Directors shall have the same force and effect as the action of the full Board of Directors and shall constitute for all purposes the action of the full Board of Directors with respect to such matter. The Board of Directors shall have the power at any time to change the membership of any such committee and to fill vacancies in it. A majority of the members of any such committee shall constitute a quorum. The Board of Directors shall name a chairman at the time it designates members to a committee. Each such committee shall appoint such subcommittees and assistants as it may deem necessary. Except as otherwise provided by the Board of Directors, meetings of any committee shall be conducted in accordance with the provisions of Sections 4 and 6 of this Article III as the same shall from time to time be amended. Any member of any such committee elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of a member of a committee shall not of itself create contract rights. Section 10. Agenda Items. No action may be taken at a meeting of the Board of Directors with respect to any matter that was not previously set forth on an agenda for such meeting if either a majority of the Class B Directors present at such meeting or a majority of the other directors present at such meeting oppose taking action at such meeting with respect to such matter. ARTICLE IV Officers Section 1. Officers. The officers of the Company shall consist of a President and a Corporate Secretary and such other officers and agents as the Board of Directors may from time to time elect or appoint. The Board of Directors may delegate to the Chairman of the Board, if there is one, and/or the Chief Executive Officer, if there is one, the authority to appoint or remove additional officers and agents of the Company. Each officer shall hold office until his successor shall have been duly elected or appointed and shall qualify or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Any two or more Page 11 of 20 offices may be held by the same person. Except for the Chairman of the Board, if any, no officer need be a director. Section 2. Vacancies; Removal. Whenever any vacancies shall occur in any office by death, resignation, increase in the number of offices of the Company, or otherwise, the officer so elected shall hold office until his successor is chosen and qualified. The Board of Directors may at any time remove any officer of the Company, whenever in its judgment the best interests of the Company will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Powers and Duties of Officers. The officers of the Company shall have such powers and duties as generally pertain to their offices as well as such powers and duties as from time to time shall be conferred by the Board of Directors. The Corporate Secretary shall have the duty to record the proceedings of the meetings of the stockholders and directors in a book to be kept for that purpose. ARTICLE V Indemnification Section 1. General. The Company shall, to the fullest extent permitted by applicable law in effect on the date of effectiveness of these Bylaws, and to such greater extent as applicable law may thereafter permit, indemnify and hold Indemnitee harmless from and against any and all losses, liabilities, claims, damages and, subject to Article V, Section 2 (Expenses), Expenses (as this and all other capitalized words used in this Article V not previously defined in these Bylaws are defined in Article V, Section 16 (Definitions)), whatsoever arising out of any event or occurrence related to the fact that Indemnitee is or was a director or officer of the Company or is or was serving in another Corporate Status. Section 2. Expenses. If Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to any Matter in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf relating to such Matter. The termination of any Matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such Matter. To the extent that the Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 3. Advances. In the event of any threatened or pending action, suit or proceeding in which Indemnitee is a party or is involved and that may give rise to a right of indemnification under this Article V, following written request to the Company by Indemnitee, the Company shall promptly pay to Indemnitee amounts to cover expenses reasonably incurred by Indemnitee in such proceeding in advance of its final disposition upon the receipt by the Company of (i) a written undertaking executed by or on behalf of Indemnitee providing that Page 12 of 20 Indemnitee will repay the advance if it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as provided in these Bylaws and (ii) satisfactory evidence as to the amount of such expenses. Section 4. Repayment of Advances or Other Expenses. Indemnitee agrees that Indemnitee shall reimburse the Company all expenses paid by the Company in defending any civil, criminal, administrative or investigative action, suit or proceeding against Indemnitee in the event and only to the extent that it shall be determined pursuant to the provisions of this Article V or by final judgment or other final adjudication under the provisions of any applicable law that Indemnitee is not entitled to be indemnified by the Company for such expenses. Section 5. Request for Indemnification. To obtain indemnification, Indemnitee shall submit to the Corporate Secretary of the Company a written claim or request. Such written claim or request shall contain sufficient information to reasonably inform the Company about the nature and extent of the indemnification or advance sought by Indemnitee. The Corporate Secretary of the Company shall promptly advise the Board of Directors of such request. Section 6. Determination of Entitlement; No Change of Control. If there has been no Change of Control at the time the request for indemnification is submitted, Indemnitee's entitlement to indemnification shall be determined in accordance with Section 145(d) of the DGCL. If entitlement to indemnification is to be determined by Independent Counsel, the Company shall furnish notice to Indemnitee within ten days after receipt of the request for indemnification, specifying the identity and address of Independent Counsel. The Indemnitee may, within fourteen days after receipt of such written notice of selection, deliver to the Company a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and the objection shall set forth with particularity the factual basis for such assertion. If there is an objection to the selection of Independent Counsel, either the Company or Indemnitee may petition the Court for a determination that the objection is without a reasonable basis and/or for the appointment of Independent Counsel selected by the Court. Section 7. Determination of Entitlement; Change of Control. If there has been a Change of Control at the time the request for indemnification is submitted, Indemnitee's entitlement to indemnification shall be determined in a written opinion by Independent Counsel selected by Indemnitee. Indemnitee shall give the Company written notice advising of the identity and address of the Independent Counsel so selected. The Company may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Indemnitee may, within five days after the receipt of such objection from the Company, submit the name of another Independent Counsel and the Company may, within seven days after receipt of such written notice of selection, deliver to the Indemnitee a written objection to such selection. Any objections referred to in this Section 7 may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel and such objection shall set forth with particularity the factual basis for such assertion. Indemnitee may petition the Court for a determination that the Company's objection to the first and/or second selection of Independent Counsel is without a reasonable basis and/or for the appointment as Independent Counsel of a person selected by the Court. Page 13 of 20 Section 8. Procedures of Independent Counsel. If a Change of Control shall have occurred before the request for indemnification is sent by Indemnitee, Indemnitee shall be presumed (except as otherwise expressly provided in this Article V) to be entitled to indemnification upon submission of a request for indemnification in accordance with Article V, Section 5 (Request for Indemnification), and thereafter the Company shall have the burden of proof to overcome the presumption in reaching a determination contrary to the presumption. The presumption shall be used by Independent Counsel as a basis for a determination of entitlement to indemnification unless the Company provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel convinces him by clear and convincing evidence that the presumption should not apply. Except in the event that the determination of entitlement to indemnification is to be made by Independent Counsel, if the person or persons empowered under Article V, Section 6 (Determination of Entitlement; No Change of Control) or Section 7 (Determination of Entitlement; Change of Control) to determine entitlement to indemnification shall not have made and furnished to Indemnitee in writing a determination within sixty days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification or such indemnification is prohibited by applicable law. The termination of any Proceeding or of any Matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article V) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Company, or with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. A person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan of the Company shall be deemed to have acted in a manner not opposed to the best interests of the Company. For purposes of any determination hereunder, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or Proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Company or another enterprise or on information supplied to him by the officers of the Company or another enterprise in the course of their duties or on the advice of legal counsel for the Company or another enterprise or on information or records given or reports made to the Company or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Company or another enterprise. The term "another enterprise" as used in this Section shall mean any other company or any partnership, limited liability company, association, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Company as a director, officer, employee or agent. The provisions of this paragraph shall not be deemed to be exclusive or to limit in any way the circumstances in which an Indemnitee may be deemed to have met the applicable standards of conduct for determining entitlement to rights under this Article V. Page 14 of 20 Section 9. Independent Counsel Expenses. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred acting pursuant to this Article V and in any proceeding to which it is a party or witness in respect of its investigation and written report and shall pay all reasonable fees and expenses incident to the procedures in which such Independent Counsel was selected or appointed. No Independent Counsel may serve if a timely objection has been made to his selection until a court has determined that such objection is without a reasonable basis. Section 10. Adjudication. In the event that (i) a determination is made pursuant to Article V, Section 6 (Determination of Entitlement; No Change of Control) or Section 7 (Determination of Entitlement; Change of Control) that Indemnitee is not entitled to indemnification under this Article V; (ii) advancement of Expenses is not timely made pursuant to Article V, Section 3 (Advances); (iii) Independent Counsel has not made and delivered a written opinion determining the request for indemnification (a) within ninety days after being appointed by the Court, (b) within ninety days after objections to his selection have been overruled by the Court or (c) within ninety days after the time for the Company or Indemnitee to object to his selection; or (iv) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Article V, Section 6 (Determination of Entitlement; No Change of Control), Section 7 (Determination of Entitlement; Change of Control) or Section 8 (Procedures of Independent Counsel), Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses. In the event that a determination shall have been made that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding commenced pursuant to this Section 10, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. If a determination shall have been made or deemed to have been made that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 10, or otherwise, unless Indemnitee knowingly misrepresented a material fact in connection with the request for indemnification, or such indemnification is prohibited by law. The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 10 that the procedures and presumptions of this Article V are not valid, binding and enforceable and shall stipulate in any such proceeding that the Company is bound by all provisions of this Article V. In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, this Article V, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all Expenses actually and reasonably incurred by him in such judicial adjudication, but only if he prevails therein. If it shall be determined in such judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Page 15 of 20 Section 11. Participation by the Company. With respect to any such claim, action, suit, proceeding or investigation as to which Indemnitee notifies the Company of the commencement thereof: (a) the Company will be entitled to participate therein at its own expense; (b) except as otherwise provided below, to the extent that it may wish, the Company (jointly with any other indemnifying party similarly notified) will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After receipt of notice from the Company to Indemnitee of the Company's election so to assume the defense thereof, the Company will not be liable to Indemnitee under this Article V for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such action, suit, proceeding or investigation but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there is a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action or (iii) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel employed by Indemnitee shall be subject to indemnification pursuant to the terms of this Article V. The Company shall not be entitled to assume the defense of any action, suit, proceeding or investigation brought in the name of or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (ii) above; and (c) the Company shall not be liable to indemnify Indemnitee under this Article V for any amounts paid in settlement of any action or claim effected without its written consent, which consent shall not be unreasonably withheld. The Company shall not settle any action or claim in any manner that would impose any limitation or unindemnified penalty on Indemnitee without Indemnitee's written consent, which consent shall not be unreasonably withheld. Section 12. Nonexclusivity of Rights. The rights of indemnification and advancement of Expenses as provided by this Article V shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled to under applicable law, the Restated Certificate of Incorporation of the Company, these Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Article V or any provision hereof shall be effective as to any Indemnitee for acts, events and circumstances that occurred, in whole or in part, before such amendment, alteration or repeal. The provisions of this Article V shall continue as to an Indemnitee whose Corporate Status has ceased for any reason and shall inure to the benefit of his heirs, executors and administrators. Neither the provisions of this Article V nor those of any agreement to which the Company is a party shall be deemed to preclude the indemnification of any person who is not specified in this Article V as having the right to receive indemnification or is not a party to any such agreement, but whom the Company has the power or obligation to indemnify under the provisions of the DGCL. Section 13. Insurance and Subrogation. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Company would have the power to indemnity such person against such expense, liability or loss under applicable law. Page 16 of 20 The Company shall not be liable under this Article V to make any payment of amounts otherwise indemnifiable hereunder if, but only to the extent that, Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. In the event of any payment hereunder, the Company shall be subrogated to the extent of such payment to all the rights of recovery of Indemnitee, who shall execute all papers required and take all action reasonably requested by the Company to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. Section 14. Severability. If any provision or provisions of this Article V shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article V shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 15. Certain Actions for Which Indemnification Is Not Provided. Notwithstanding any other provision of this Article V, no person shall be entitled to indemnification or advancement of Expenses under this Article V with respect to any Proceeding, or any Matter therein, brought or made by such person against the Company. Section 16. Definitions. For purposes of this Article V: "Change of Control" means a change in control of the Company after the date Indemnitee acquired his Corporate Status, which shall be deemed to have occurred in any one of the following circumstances occurring after such date: (i) there shall have occurred an event required to be reported with respect to the Company in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Exchange Act, whether or not the Company is then subject to such reporting requirement; (ii) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall have become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company's then outstanding voting securities without prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (iii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including, for this purpose, any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. "Corporate Status" describes the status of Indemnitee as a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, limited liability Page 17 of 20 company, association, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company. "Court" means the Court of Chancery of the State of Delaware or any other court of competent jurisdiction. "Designated Professional Capacity" shall include, but not be limited to, a physician, nurse, psychologist or therapist, registered surveyor, registered engineer, registered architect, attorney, certified public accountant or other person who renders such professional services within the course and scope of his employment, who is licensed by appropriate regulatory authorities to practice such profession and who, while acting in the course of such employment, committed or is alleged to have committed any negligent acts, errors or omissions in rendering such professional services at the request of the Company or pursuant to his employment (including, without limitation, rendering written or oral opinions to third parties). "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding. "Indemnitee" includes any officer (including an officer acting in his Designated Professional Capacity) or director of the Company who is, or is threatened to be made, a witness in or a party to any Proceeding as described in Article V, Section 1 (General) or Section 2 (Expenses) by reason of his Corporate Status. "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the five years previous to his selection or appointment has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. "Matter" is a claim, a material issue or a substantial request for relief. "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative, except one initiated by an Indemnitee pursuant to Article V, Section 10 (Adjudication) to enforce his rights under this Article V. Section 17. Notices. Promptly after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if he anticipates or contemplates making a claim for expenses or an advance pursuant to the terms of this Article V, notify the Company of the commencement of such action, suit or proceeding; provided, however, that any delay in so notifying the Company shall not constitute a waiver or release by Indemnitee of rights hereunder and that any omission by Indemnitee to so notify the Company shall not relieve the Company from any liability that it may have to Indemnitee otherwise than under this Article V. Any communication required or permitted to the Company shall be addressed to the Corporate Secretary of the Company and any such communication to Indemnitee shall be Page 18 of 20 addressed to Indemnitee's address as shown on the Company's records unless he specifies otherwise and shall be personally delivered or delivered by overnight mail delivery. Any such notice shall be effective upon receipt. Section 18. Contractual Rights. The right to be indemnified or to the advancement or reimbursement of Expenses (i) is a contract right based upon good and valuable consideration, pursuant to which Indemnitee may sue as if these provisions were set forth in a separate written contract between Indemnitee and the Company, (ii) is intended to be retroactive and shall be available as to events occurring prior to the adoption of these provisions and (iii) shall continue after any rescission or restrictive modification of such provisions as to events occurring prior thereto. Section 19. Indemnification of Employees, Agents and Fiduciaries. The Company, by adoption of a resolution of the Board of Directors, may indemnify and advance expenses to a person who is an employee (including an employee acting in his Designated Professional Capacity), agent or fiduciary of the Company including any such person who is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of any other corporation, partnership, joint venture, limited liability company, trust, employee benefit plan or other enterprise to the same extent and subject to the same conditions (or to such lesser extent and/or with such other conditions as the Board of Directors may determine) under which it may indemnify and advance expenses to an Indemnitee under this Article V. ARTICLE VI Miscellaneous Provisions Section 1. Offices. The address of the registered office of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, 19801, and the name of the registered agent of the Company at such address is The Corporation Trust Company. The principal office of the Company shall be located in Houston, Texas, unless and until changed by resolution of the Board of Directors. The Company may also have offices at such other places as the Board of Directors may designate from time to time, or as the business of the Company may require. The principal office and registered office may be, but need not be, the same. Section 2. Resignations. Any director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time is specified, at the time of its receipt by the Chairman of the Board, if there is one, the Chief Executive Officer, if there is one, the President or the Corporate Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. Section 3. Seal. The Corporate Seal shall be circular in form, shall have inscribed thereon the name of the Company and may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. Page 19 of 20 Section 4. Separability. If one or more of the provisions of these Bylaws shall be held to be invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall not affect any other provision hereof and these Bylaws shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein. ARTICLE VII Amendment of Bylaws Section 1. Vote Requirements. Subject to the provisions of the Company's Restated Certificate of Incorporation, these Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, by the Board of Directors; provided that no amendment or repeal of (a) the last sentence of Article III, Section 3 of these Bylaws, or (b) Article III, Sections 6, 7(b), 7(c), 9 and 10 of these Bylaws, nor the adoption of any provision of these Bylaws which would substantially and adversely affect the rights of the holders of Class B Common Stock, shall be effective except upon the affirmative vote of a majority of the shares of Class B Common Stock outstanding. Page 20 of 20 EXHIBIT 7.11 FORM OF RULE 145 AFFILIATE LETTER ________________, 200_ [Stanford, Inc.] 1000 Louisiana, Suite 5800 Houston, Texas 77002 Ladies and Gentlemen: I have been advised that as of the date of this letter I may be deemed to be an "affiliate" of [Dynegy Inc., an Illinois corporation ("Dynegy"),] [Enron Corp., an Oregon corporation ("Enron"),] as the term "affiliate" is defined for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms of the Agreement and Plan of Merger dated as of November 7, 2001 (the "Agreement"), among Dynegy [Inc., an Illinois corporation ("Dynegy")], Stanford, Inc., a Delaware corporation and wholly owned subsidiary of Dynegy to be renamed Dynegy Inc. (the "Company"), Badin, Inc., an Illinois corporation and wholly owned subsidiary the Company ("Badin"), Sorin, Inc., an Oregon corporation and wholly owned subsidiary the Company ("Sorin") and Enron [Corp., an Oregon corporation ("Enron")], Sorin will be merged with and into Enron, with Enron being the surviving entity (the "Enron Merger"), and concurrently therewith Badin will be merged with and into Dynegy, with Dynegy being the surviving entity (the "Dynegy Merger" and, together with the Enron Merger, the "Mergers"). Pursuant to the Mergers, the outstanding common stock, no par value, of Enron ("Enron Common Stock") will be converted into Class A common stock, par value $.01 per share, of the Company ("Company Class A Common Stock"), and the outstanding Class A common stock, no par value, of Dynegy ("Dynegy Class A Common Stock") and outstanding Class B common stock, no par value, of Dynegy ("Dynegy Class B Common Stock") will be converted into Company Class A Common Stock and Class B common stock, par value $.01 per share, of the Company ("Company Class B Common Stock" and, together with the Company Class A Common Stock, the "Company Common Stock"), respectively. As a result of the [Dynegy] [Enron] Merger, I may receive (i) shares of Company Class A Common Stock in exchange for shares of [Dynegy Class A] [Enron] Common Stock [and/or (ii) shares of Company Class B Common Stock in exchange for shares of Dynegy Class B Common Stock] (or upon the exercise of options for such shares). I represent, warrant and covenant to the Company that as of the date I receive any Company Common Stock as a result of the [Dynegy] [Enron] Merger: A. I shall not make any sale, transfer or other disposition of such Company Common Stock in violation of the Securities Act or the Rules and Regulations. B. I have carefully read this letter and the Agreement and, to the extent I felt necessary, discussed the requirements of such documents and other applicable limitations upon my ability to sell, transfer or otherwise dispose of the Company Common Stock with my counsel. C. I have been advised that the issuance of Company Common Stock to me pursuant to the [Dynegy] [Enron] Merger will be registered with the Commission under the Securities Act on a Registration Statement on Form S-4. I have also been advised, however, that, since, at the time the [Dynegy] [Enron] Merger is submitted for a vote of the shareholders of [Dynegy] [Enron], I may be deemed to be an affiliate of [Dynegy] [Enron] for purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations, I may not sell, transfer or otherwise dispose of the Company Common Stock issued to me in the [Dynegy] [Enron] Merger within one year following the [Dynegy] [Enron] Merger, and, if I am then an affiliate of the Company, thereafter, unless (i) such sale, transfer or other disposition has been registered under the Securities Act, (ii) such sale, transfer or other disposition is made in conformity with the volume and other limitations of Rule 145 of the Rules and Regulations (as such rule may be hereafter from time to time amended), or (iii) in the opinion of counsel reasonably acceptable to Company or as described in a "no action" or interpretive letter obtained by me from the staff of the Commission, such sale, transfer or other disposition is otherwise exempt from registration under the Securities Act. D. [I understand that the Company is under no obligation to register the sale, transfer or other disposition of the Company Common Stock by me or on my behalf under the Securities Act or to take any other action necessary in order to make compliance with an exemption from such registration available.] E. I understand that stop transfer instructions will be given to the Company's transfer agent with respect to the Company Common Stock and that there will be placed on the certificates for the Company Common Stock issued to me in connection with the [Dynegy] [Enron] Merger, or any substitutions therefor, a legend substantially in the form set forth below: "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES AND MAY ONLY BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE REQUIREMENTS OF RULE 145 OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." F. I also understand that unless the transfer by me of my Company Common Stock has been registered under the Securities Act or is a sale made in conformity with the provisions of Rule 145, the Company reserves the right to place the following legend on the certificates issued to my transferee in substantially the form set forth below: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933." G. I also understand and agree that the representations, warranties, covenants and agreements I have made herein are for the benefit of [Dynegy] [Enron] and the Company and will be relied upon by the Company and its counsel and accountants. I understand and agree that the legends set forth in paragraphs [E and F] above will be removed by delivery of substitute certificates without such legend if such legend is not required for purposes of the Securities Act. I understand and agree that such legends and the stop orders referred to above will be removed if (i) one year shall have elapsed from the date I acquire the Company Common Stock received in the [Dynegy] [Enron] Merger and the provisions of Rule 145(d)(2) are then available to me, (ii) two years shall have elapsed from the date I acquire the Company Common Stock received in the [Dynegy] [Enron] Merger and the provisions of Rule 145(d)(3) are then available to me or (iii) the Company has received either an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company, or a "no action" letter obtained by me from the staff of the Commission, to the effect that the restrictions imposed by Rule 145 under the Act no longer apply to me. Execution of this letter should not be considered an admission, stipulation or acknowledgement by me that I am an "affiliate" of [Dynegy] [Enron] or the Company as described in the first paragraph of this letter or considered as a waiver of any rights that I may have to object to any claim that I am an affiliate on or after the date of this letter. Very truly yours, [Insert Name of Affiliate] Accepted this _____ day of ____________________, 200__ by [STANFORD, INC.] By: ______________________________ Name: Title: EXHIBIT 8.2(a) ENRON CORP. OFFICER'S CERTIFICATE The undersigned, a duly authorized officer of Enron Corp., an Oregon corporation ("Enron"), and acting as such, in connection with the opinions to be rendered by Baker Botts L.L.P. and Vinson & Elkins L.L.P. with respect to certain federal income tax consequences under the Internal Revenue Code of 1986, as amended (the "Code"), of the transactions contemplated by the Agreement and Plan of Merger (the "Merger Agreement") dated as of November 7, 2001 by and among Dynegy Inc., an Illinois corporation ("Dynegy"), Sorin, Inc., an Illinois corporation ("Dynegy Merger Sub"), Enron, Badin, Inc., an Oregon corporation ("Enron Merger Sub") and Stanford, Inc., a Delaware corporation ("Newco"), hereby represents as follows:1 1. For purposes of this Certificate, (i) "Chevron Agreements" means the Subscription Agreement by and between ChevronTexaco Corp. ("Chevron") and Newco dated November 7, 2001 and the Series A, B and C Warrants attached thereto as exhibits; (ii) "Chevron Transfers" means the issuance(s) of Newco Stock in exchange for cash pursuant to the Chevron Agreements; (iii) "Disposition" means any transaction that, for federal income tax purposes, constitutes a sale, exchange or other disposition, whether taxable or nontaxable, of shares of Newco Stock. (iv) "Newco Stock" means Newco Series A Common Stock and Newco Series B Common Stock; (v) "Property" means (x) Dynegy Stock or Enron Common Stock exchanged for Newco Stock in the Mergers (excluding any shares of Dynegy Stock as to which dissenters' rights have been exercised under Illinois law) and (y) cash paid by a Transferor for Newco Stock pursuant to the Chevron Agreements; (vi) "Dynegy Stock" means Dynegy Series A Common Stock and Dynegy Series B Common Stock; (vii) "Transactions" means the Mergers and the Chevron Transfers; (viii) "Transferor" means (x) each holder of Dynegy Stock or Enron Common Stock immediately prior to the Effective Time who receives Newco Stock in the Mergers and (y) - --------------------- (1) Capitalized terms used but not defined herein have the meanings ascribed to them in the Merger Agreement. each person to whom Newco issues Newco Stock in exchange for cash pursuant to the Chevron Agreements. 2. The facts relating to Enron, Newco and the Transactions set forth in the Merger Agreement and the other agreements relating to the Transactions are true, accurate and complete in all material respects. 3. The Merger Agreement, the related written agreements entered into contemporaneously therewith or referenced therein and all exhibits and attachments thereto represent the full and complete agreement among Dynegy, Enron and Newco with respect to the Mergers and there are no other written or oral agreements regarding the Mergers. The Mergers will be consummated in accordance with the Merger Agreement (including all agreements referenced therein and all exhibits and attachments thereto), and none of the material terms and conditions therein has been or will be waived or modified. 4. The facts relating to Enron, Newco and the Transactions set forth in the [Proxy Statement-Prospectus/Registration Statement] filed with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended, dated ____, 2002 are true, accurate, and complete in all material respects at the Effective Time. 5. To the knowledge of Enron, none of the Enron Common Stock or Dynegy Stock to be exchanged for Newco Stock pursuant to the Mergers is "section 306 stock" within the meaning of section 306(c) of the Code. 6. The Transactions are not the result of the solicitation by a promoter, broker, or investment house. 7. To the knowledge of Enron, no Transferor of Property to Newco in the Transactions will retain any rights in the Property so transferred. 8. Newco will not assume any indebtedness of any Transferor in connection with the Transactions. To the knowledge of Enron, none of the Property will be received by Newco subject to any indebtedness in the Transactions. 9. There is no plan or intention on the part of Newco to redeem or otherwise reacquire any of the stock of Newco to be issued in the Transactions other than the payment of cash in lieu of fractional shares in the Mergers. 10. To the knowledge of Enron, (i) no Transferor has a binding commitment, and there is no plan or intention on the part of any Transferor, to engage in a Disposition of any shares of Newco Stock to be received by such Transferor in the Transactions and (ii) immediately after the Mergers and each issuance of Newco Stock pursuant to the Chevron Transfers, each Transferor will have the ability to exercise complete dominion and control over all of the shares of Newco Stock received by such Transferor in the Transactions, including, without limitation, all voting rights with respect thereto. -2- 11. Taking into account any issuance of additional shares of Newco Stock, any issuance of Newco Stock for services, the exercise of any Newco stock rights, warrants, or subscriptions, any public offering of Newco Stock, and, to the knowledge of Enron, the Disposition of any of the Newco Stock to be received in the Transactions, the Transferors will be in Control of Newco, regardless of whether any Newco Stock issuable pursuant to the Chevron Agreements after the Effective Date is treated as outstanding. For purposes of this paragraph, "Control" means ownership of stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total number of shares of each other class of stock. 12. The consideration to be issued to the Transferors in the Mergers was the result of arm's-length negotiations between the managements of Dynegy and Enron. Each holder of Property to be exchanged or paid for Newco Stock pursuant to the Transactions will receive Newco Stock (and, if applicable, cash in lieu of fractional shares) approximately equal to the fair market value of the Property exchanged therefor. 13. Newco will remain in existence following the Mergers and any Chevron Transfer. There is no plan or intention by Newco to liquidate Dynegy or Enron, to cause Dynegy or Enron to merge with or into any other entity, to effect a conversion of Dynegy or Enron or to otherwise dispose of any of the Enron Common Stock and Dynegy Stock transferred to it pursuant to the Mergers. 14. Each of Dynegy, Enron and Newco, and, to the knowledge of Enron, each Transferor, will pay its or his or her own expenses, if any, incurred in connection with the Transactions. 15. Newco will not be an investment company within the meaning of section 351(e)(1) of the Code and Treas. Reg. Section 1.351-1(c)(1)(ii). 16. Prior to the Mergers, each of Dynegy Merger Sub and Enron Merger Sub will be a direct, wholly owned subsidiary of Newco. Each of Dynegy Merger Sub and Enron Merger Sub is or will be a transitory corporation formed for the sole purpose of participating in the Mergers. 17. No Newco Stock to be issued in, or in connection with, the Transactions will be placed in escrow or will be issued under a contingent stock arrangement or other similar arrangement. 18. The Transactions are being effected for bona fide business reasons. 19. No Newco Stock will be issued for services rendered to or for the benefit of Newco or any affiliate thereof in connection with the Transactions. No Newco Stock will be issued for indebtedness of Newco that is not evidenced by a security or for interest on indebtedness of Newco. 20. Newco Stock will be the only capital stock of Newco issued and outstanding for federal income tax purposes. There will be no nonvoting class of capital stock of Newco issued and outstanding for federal income tax purposes. -3- 21. There will be no indebtedness between Newco and any Transferor at the Effective Time or at the time of any Chevron Transfer and there will be no indebtedness created in favor of any Transferor as a result of the Transactions. 22. All of the transfers by the Transferors made pursuant to the Transactions will occur under the plan described in the Merger Agreement and the Chevron Agreements, in which the rights of the parties are defined. 23. The payment of cash in lieu of fractional shares of Newco, if any, in the Mergers is solely for the purpose of avoiding the expense and inconvenience to Newco of issuing fractional shares and does not represent separately bargained-for consideration. 24. None of the compensation received or to be received by any shareholder-employee of Dynegy or Enron will be separate consideration for, or allocable to, any of their Dynegy Stock or Enron Common Stock. None of the Newco Stock received by any such shareholder-employee in the Mergers will be separate consideration for, or allocable to, any employment agreement or other compensatory arrangement. The compensation paid to any shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. 25. The undersigned officer is authorized to make all of the statements set forth herein on behalf of Enron. I understand that the representations above will be relied upon by Baker Botts L.L.P. and Vinson & Elkins L.L.P. as a basis for their respective opinions, and that such opinions will be conditioned upon the initial and continuing accuracy of these representations. Dated: ________, 2002 ENRON CORP. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- -4- EXHIBIT 8.2(b) DYNEGY INC. OFFICER'S CERTIFICATE The undersigned, a duly authorized officer of Dynegy Inc., an Illinois corporation ("Dynegy"), and acting as such, in connection with the opinions to be rendered by Baker Botts L.L.P. and Vinson & Elkins L.L.P. with respect to certain federal income tax consequences under the Internal Revenue Code of 1986, as amended (the "Code"), of the transactions contemplated by the Agreement and Plan of Merger (the "Merger Agreement") dated as of November 7, 2001 by and among Dynegy, Sorin, Inc., an Illinois corporation ("Dynegy Merger Sub"), Enron Corp., an Oregon corporation ("Enron"), Badin, Inc., an Oregon corporation ("Enron Merger Sub") and Stanford, Inc., a Delaware corporation ("Newco"), hereby represents as follows:1 1. For purposes of this Certificate, (i) "Chevron Agreements" means the Subscription Agreement by and between ChevronTexaco Corp. ("Chevron") and Newco dated November 7, 2001 and the Series A, B and C Warrants attached thereto as exhibits; (ii) "Chevron Transfers" means the issuance(s) of Newco Stock in exchange for cash pursuant to the Chevron Agreements; (iii) "Disposition" means any transaction that, for federal income tax purposes, constitutes a sale, exchange or other disposition, whether taxable or nontaxable, of shares of Newco Stock. (iv) "Newco Stock" means Newco Series A Common Stock and Newco Series B Common Stock; (v) "Property" means (x) Dynegy Stock or Enron Common Stock exchanged for Newco Stock in the Mergers (excluding any shares of Dynegy Stock as to which dissenters' rights have been exercised under Illinois law) and (y) cash paid by a Transferor for Newco Stock pursuant to the Chevron Agreements; (vi) "Dynegy Stock" means Dynegy Series A Common Stock and Dynegy Series B Common Stock; (vii) "Transactions" means the Mergers and the Chevron Transfers; (viii) "Transferor" means (x) each holder of Dynegy Stock or Enron Common Stock immediately prior to the Effective Time who receives Newco Stock in the Mergers and (y) - --------------------- (1) Capitalized terms used but not defined herein have the meanings ascribed to them in the Merger Agreement. each person to whom Newco issues Newco Stock in exchange for cash pursuant to the Chevron Agreements. 2. The facts relating to Dynegy, Newco and the Transactions set forth in the Merger Agreement, the Chevron Agreements and the other agreements relating to the Transactions are true, accurate and complete in all material respects. 3. The Merger Agreement, the related written agreements entered into contemporaneously therewith or referenced therein and all exhibits and attachments thereto represent the full and complete agreement among Dynegy, Enron and Newco with respect to the Mergers and there are no other written or oral agreements regarding the Mergers. The Mergers will be consummated in accordance with the Merger Agreement (including all agreements referenced therein and all exhibits and attachments thereto), and none of the material terms and conditions therein has been or will be waived or modified. 4. The Chevron Agreements (including all agreements referenced therein and all exhibits and attachments thereto) represent the full and complete agreement between Newco and Chevron with respect to the Chevron Transfers and there are no other written or oral agreements regarding the Chevron Transfers. The Chevron Transfers will be consummated in accordance with the Chevron Agreements (including all agreements referenced therein and all exhibits and attachments thereto), and none of the material terms and conditions therein has been or will be waived or modified. 5. The facts relating to Dynegy, Newco and the Transactions set forth in the [Proxy Statement-Prospectus/Registration Statement] filed with the Securities and Exchange Commission under the Securities and Exchange Act of 1934, as amended, dated ____, 2002 are true, accurate, and complete in all material respects at the Effective Time. 6. To the knowledge of Dynegy, none of the Enron Common Stock or Dynegy Stock to be exchanged for Newco Stock pursuant to the Mergers is "section 306 stock" within the meaning of section 306(c) of the Code. 7. The Transactions are not the result of the solicitation by a promoter, broker, or investment house. 8. To the knowledge of Dynegy, no Transferor of Property to Newco in the Transactions will retain any rights in the Property so transferred. 9. Newco will not assume any indebtedness of any Transferor in connection with the Transactions. To the knowledge of Dynegy, none of the Property will be received by Newco subject to any indebtedness in the Transactions. 10. There is no plan or intention on the part of Newco to redeem or otherwise reacquire any of the stock of Newco to be issued in the Transactions other than the payment of cash in lieu of fractional shares in the Mergers. -2- 11. To the knowledge of Dynegy, (i) no Transferor has a binding commitment, and there is no plan or intention on the part of any Transferor, to engage in a Disposition of any shares of Newco Stock to be received by such Transferor in the Transactions and (ii) immediately after the Mergers and each issuance of Newco Stock pursuant to the Chevron Transfers, each Transferor will have the ability to exercise complete dominion and control over all of the shares of Newco Stock received by such Transferor in the Transactions, including, without limitation, all voting rights with respect thereto. 12. Taking into account any issuance of additional shares of Newco Stock, any issuance of Newco Stock for services, the exercise of any Newco stock rights, warrants, or subscriptions, any public offering of Newco Stock, and, to the knowledge of Dynegy, the Disposition of any of the Newco Stock to be received in the Transactions, the Transferors will be in Control of Newco, regardless of whether any Newco Stock issuable pursuant to the Chevron Agreements after the Effective Date is treated as outstanding. For purposes of this paragraph, "Control" means ownership of stock possessing at least eighty percent (80%) of the total combined voting power of all classes of stock entitled to vote and at least eighty percent (80%) of the total number of shares of each other class of stock. 13. The consideration to be issued to the Transferors (i) in the Mergers was the result of arm's-length negotiations between the managements of Dynegy and Enron and (ii) in the Chevron Transfers was the result of arm's-length negotiations between the managements of Dynegy and Chevron. Each holder of Property to be exchanged or paid for Newco Stock pursuant to the Transactions will receive Newco Stock (and, if applicable, cash in lieu of fractional shares) approximately equal to the fair market value of the Property exchanged therefor. 14. Newco will remain in existence following the Mergers and any Chevron Transfer. There is no plan or intention by Newco to liquidate Dynegy or Enron, to cause Dynegy or Enron to merge with or into any other entity, to effect a conversion of Dynegy or Enron or to otherwise dispose of any of the Enron Common Stock and Dynegy Stock transferred to it pursuant to the Mergers. 15. Each of Dynegy, Enron and Newco, and, to the knowledge of Dynegy, each Transferor, will pay its or his or her own expenses, if any, incurred in connection with the Transactions. 16. Newco will not be an investment company within the meaning of section 351(e)(1) of the Code and Treas. Reg. Section 1.351-1(c)(1)(ii). 17. Prior to the Mergers, each of Dynegy Merger Sub and Enron Merger Sub will be a direct, wholly owned subsidiary of Newco. Each of Dynegy Merger Sub and Enron Merger Sub is or will be a transitory corporation formed for the sole purpose of participating in the Mergers. 18. No Newco Stock to be issued in, or in connection with, the Transactions will be placed in escrow or will be issued under a contingent stock arrangement or other similar arrangement. -3- 19. The Transactions are being effected for bona fide business reasons. 20. No Newco Stock will be issued for services rendered to or for the benefit of Newco or any affiliate thereof in connection with the Transactions. No Newco Stock will be issued for indebtedness of Newco that is not evidenced by a security or for interest on indebtedness of Newco. 21. Newco Stock will be the only capital stock of Newco issued and outstanding for federal income tax purposes. There will be no nonvoting class of capital stock of Newco issued and outstanding for federal income tax purposes. 22. There will be no indebtedness between Newco and any Transferor at the Effective Time or at the time of any Chevron Transfer and there will be no indebtedness created in favor of any Transferor as a result of the Transactions. 23. All of the transfers by the Transferors made pursuant to the Transactions will occur under the plan described in the Merger Agreement and the Chevron Agreements, in which the rights of the parties are defined. 24. The payment of cash in lieu of fractional shares of Newco, if any, in the Mergers is solely for the purpose of avoiding the expense and inconvenience to Newco of issuing fractional shares and does not represent separately bargained-for consideration. 25. None of the compensation received or to be received by any shareholder-employee of Dynegy or Enron will be separate consideration for, or allocable to, any of their Dynegy Stock or Enron Common Stock. None of the Newco Stock received by any such shareholder-employee in the Mergers will be separate consideration for, or allocable to, any employment agreement or other compensatory arrangement. The compensation paid to any shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services. 26. The undersigned officer is authorized to make all of the statements set forth herein on behalf of Dynegy. I understand that the representations above will be relied upon by Baker Botts L.L.P. and Vinson & Elkins L.L.P. as a basis for their respective opinions, and that such opinions will be conditioned upon the initial and continuing accuracy of these representations. Dated: ________, 2002 DYNEGY, INC. By: ---------------------------- Name: ---------------------------- Title: ---------------------------- -4- EXHIBIT 8.2(c) [Chevron U.S.A. Inc. Letterhead] ________, 2002 Baker Botts L.L.P. 910 Louisiana Houston, Texas 77002 Vinson & Elkins L.L.P 1001 Fannin Houston, Texas 77002 Dear Sirs: In connection with the proposed merger (the "Merger") of Sorin, Inc., a wholly owned subsidiary of Stanford, Inc. ("Newco"),1 with and into Dynegy Inc. ("Dynegy"), where Dynegy survives the Merger, and where Chevron U.S.A. Inc. ("Chevron") will receive Newco common stock in exchange for Dynegy stock, we represent that we do not have any plan, intention, obligation or other commitment to sell, exchange, or otherwise dispose of, whether taxable or nontaxable, for federal income tax purposes the shares of stock of Newco received in those transactions. We understand that Baker Botts L.L.P. and Vinson & Elkins L.L.P. will rely on this Certificate in rendering their opinions as to the transaction and we will promptly and timely inform them if, after signing this Certificate, we have reason to believe that any of the facts described herein or any of the representations made in this Certificate are untrue, incorrect or incomplete in any respect. CHEVRON U.S.A. INC., a Pennsylvania corporation By:_________________________________ Title:______________________________ - ------------------ (1) For purposes of this certificate, capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Agreement and Plan of Merger Agreement dated November 7, 2001 providing for the Merger and/or the Form S-4 filed with the SEC on _______, 2002. EXHIBIT 8.2(d) [ChevronTexaco Corp. Letterhead] ________, 2002 Baker Botts L.L.P. 910 Louisiana Houston, Texas 77002 Vinson & Elkins L.L.P 1001 Fannin Houston, Texas 77002 Dear Sirs: In connection with (1) the proposed merger (the "Merger") of Sorin, Inc., a wholly owned subsidiary of Stanford, Inc. ("Newco"),1 with and into Dynegy Inc. ("Dynegy"), where Dynegy survives the Merger, and where ChevronTexaco Corp. ("Chevron") will receive Newco common stock in exchange for Dynegy stock and (2) the proposed purchase by Chevron of shares of Newco common stock and warrants pursuant to the Subscription Agreement by and between Chevron and Newco dated November 7, 2001 and the Series A, B and C Warrants attached thereto as exhibits, we represent that we do not have, nor will we have at the time of any purchase described in clause (2) above, any plan, intention, obligation or other commitment to sell, exchange, or otherwise dispose of, whether taxable or nontaxable, for federal income tax purposes the shares of stock of Newco received in those transactions. We understand that Baker Botts L.L.P. and Vinson & Elkins L.L.P. will rely on this Certificate in rendering their opinions as to the transaction and we will promptly and timely inform them if, after signing this Certificate, we have reason to believe that any of the facts described herein or any of the representations made in this Certificate are untrue, incorrect or incomplete in any respect. CHEVRONTEXACO CORP., a Delaware corporation By:_________________________________ Title:______________________________ - ------------------ (1) For purposes of this certificate, capitalized terms used and not otherwise defined herein shall have the meaning ascribed thereto in the Agreement and Plan of Merger Agreement dated November 7, 2001 providing for the Merger and/or the Form S-4 filed with the SEC on _______, 2002. EX-99.3 5 h92082ex99-3.txt AGRMNT DYNEGY INC ENRON CORP & CHEVRONTEXACO CORP EXHIBIT 99.3 AGREEMENT Reference is made to Section 7.17 of that certain Agreement and Plan of Merger, dated the date hereof (the "Agreement"), by and among 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, Badin, Inc., an Illinois corporation and wholly owned subsidiary of Newco, and Enron Corp., an Oregon corporation ("Enron"). The undersigned parties understand and agree that Dynegy, Enron and ChevronTexaco Corporation, a Delaware corporation ("Chevron") shall consult with each other with respect to any proposed amendments to the Agreement contemplated in connection with Section 7.17 of the Agreement. The parties also agree that the agreement to cooperate set forth in the last sentence of Section 7.17 is not intended to, and should not be construed to, require any of Dynegy, Chevron, or any of their respective affiliates to agree to any terms and provisions of any amendment to the Agreement or any other agreements contemplated thereby, in the event that any of them shall determine in good faith that so to do would have materially adverse consequences of a financial performance, accounting, tax or legal nature for each of them or their respective affiliates in the context of the Agreement and the transactions contemplated thereby. In addition, the parties intend that neither Chevron, nor any of its affiliates, shall be required by such agreement to cooperate to so agree in the event that it shall so determine that so to do would have such material adverse consequences for them in the context of their investment in Dynegy and the resulting company in the merger as provided for in the Agreement. Subject to the foregoing limitations, Chevron agrees to cooperate with Dynegy and Enron in connection with actions by Dynegy and Enron pursuant to such Section 7.17. IN WITNESS WHEREOF, the undersigned parties have signed this Agreement as of this 9th day of November, 2001. DYNEGY INC. By: /s/ KENNETH E. RANDOLPH -------------------------------------------- Name: Kenneth E. Randolph -------------------------------------------- Title: Executive Vice President and General Counsel -------------------------------------------- ENRON CORP. By: /s/ GREG WHALLEY -------------------------------------------- Name: Greg Whalley -------------------------------------------- Title: President and Chief Operating Officer -------------------------------------------- CHEVRONTEXACO CORPORATION By: /s/ DAVID R. STEVENSON -------------------------------------------- Name: David R. Stevenson -------------------------------------------- Title: Attorney-in-Fact -------------------------------------------- EX-99.4 6 h92082ex99-4.txt SHAREHOLDER AGREEMENT - DYNEGY INC. EXHIBIT 99.4 SHAREHOLDER AGREEMENT SHAREHOLDER AGREEMENT, dated as of November 9, 2001, by and among Dynegy Inc., an Illinois corporation ("DYNEGY"), Enron Corp., an Oregon corporation ("ENRON"), and Chevron U.S.A. Inc., a Pennsylvania corporation ("SHAREHOLDER"). WHEREAS, concurrently herewith, Dynegy, Enron and certain other entities are entering into an Agreement and Plan of Merger (as amended or supplemented from time to time, the "MERGER AGREEMENT;" capitalized terms used without definition herein having the meanings ascribed thereto in the Merger Agreement); WHEREAS, as of November 6, 2001, Shareholder owns and/or has the power to vote, as applicable, the number and type of Shares (as defined in Section 5) set forth in Schedule I hereto; WHEREAS, the Board of Directors of Dynegy has, prior to the execution of this Agreement, approved and adopted the Merger Agreement, and such approvals and adoption have not been withdrawn; WHEREAS, approval of the Merger Agreement by Dynegy's shareholders is a condition to the consummation of the Mergers; and WHEREAS, as a condition to its entering into the Merger Agreement, Enron has required that Shareholder agree, and Shareholder has so agreed, to enter into this Agreement. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: Section 1. Agreement to Vote. (a) Unless the Dynegy Board of Directors shall have withdrawn its recommendation in favor of the Mergers, Shareholder hereby agrees to attend, in person or by proxy, the meeting of Dynegy shareholders at which the matters contemplated by the Merger Agreement or this Agreement are to be presented to a vote of shareholders of Dynegy, and to vote (or cause to be voted) all Shares and any other voting securities of Dynegy that Shareholder, directly or indirectly, owns or has the right to vote or direct the voting of (including any such securities acquired hereafter but excluding any Shares or other securities Shareholder has the right to acquire but has not acquired) (collectively, the "COVERED SHARES") for approval and adoption of the following: (i) the Merger Agreement and (ii) any related action reasonably required in furtherance thereof. Unless the Dynegy Board of Directors shall have withdrawn its recommendation in favor of the Mergers, Shareholder hereby further agrees that until the Termination Date (as defined in Section 1(b)), it shall, from time to time, in connection with any consent solicitation relating to the Merger Agreement, timely execute and deliver (or cause to be timely executed and delivered) a written consent with respect to any Covered Shares in favor of the approval and adoption of the Merger Agreement and any action required in furtherance thereof. (b) From and after the date hereof until the Termination Date, unless the Dynegy Board of Directors shall have withdrawn its recommendation of the Mergers, Shareholder hereby agrees to vote (or cause to be voted) any Covered Shares against any Dynegy Acquisition Proposal and any related action reasonably required in furtherance thereof, at any meeting of shareholders of Dynegy (including any adjournments or postponements thereof) called to consider and vote on any Dynegy Acquisition Proposal. Shareholder further agrees that, until the Termination Date, in connection with any consent solicitation relating to a Dynegy Acquisition Proposal, Shareholder will timely execute and deliver (or cause to be timely executed and delivered) a written consent with respect to any Covered Shares against any Dynegy Acquisition Proposal as contemplated by the immediately preceding sentence. For purposes hereof, the term "TERMINATION DATE" shall mean the first to occur of (a) the termination of the Merger Agreement and (b) the date of consummation of the Mergers. (c) To the extent inconsistent with the foregoing provisions of this Section 1 or the other provisions of this Agreement, Shareholder hereby (i) revokes any and all previous proxies with respect to any Covered Shares, (ii) waives any provisions of the Shareholder Agreement dated June 14, 1999 among Dynegy (f/k/a Energy Convergence Holding Company), Illinova Corporation, Dynegy Holdings Inc. (f/k/a Dynegy Inc.), a Delaware corporation and Shareholder (the "SHAREHOLDER AGREEMENT") with respect to actions contemplated by the Merger Agreement, and (iii) waives any provisions of the Stockholder Agreement dated the date hereof among Dynegy, Stanford, Inc., a Delaware corporation, Enron and Shareholder (the "STOCKHOLDER AGREEMENT") with respect to actions contemplated by the Merger Agreement. (d) From the date hereof until the Termination Date, Shareholder shall not (other than through, or resulting from (i) its current ownership in Dynegy, (ii) the transactions contemplated by the Merger Agreement, (iii) the transaction contemplated by the Series B Preferred Stock Subscription Agreement, dated November 9, 2001, by and between ChevronTexaco Corporation and the Class B Common Stock Subscription Agreement, dated November 9, 2001, between ChevronTexaco Corporation and Stanford, Inc., or (iv) the proper exercise of the preemptive rights of stockholder under Article VI of the Shareholders Agreement) directly or indirectly, acquire, offer or propose to acquire, solicit an offer to sell, become a "participant" in a "solicitation" of proxies, as those terms are defined in Rule 14a-11 and 14a-1, respectively, under the Exchange Act, in respect of any voting securities of Enron or Dynegy, as applicable, that may be outstanding and entitled to vote relating to any of the foregoing, or otherwise agree to acquire by purchase or otherwise (or permit any person or entity that directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, Shareholder to undertake any of such actions) any voting securities of Enron or Dynegy, as applicable; provided that nothing hereunder shall prevent Shareholder from making a Qualified Offer for Dynegy voting securities (as defined in the Shareholder Agreement) in the circumstances contemplated by Section 3.1(b) of the Shareholder Agreement. (e) Nothing herein contained shall (i) restrict, limit or prohibit any individuals who may represent Shareholder on Dynegy's Board of Directors from exercising (in his or her capacity as a director or officer) his or her fiduciary duties to the shareholders of Dynegy under applicable law or (ii) require any individual, in his or her capacity as an officer of Dynegy, to take any action in contravention of, or omit to take any action pursuant to, or otherwise take or refrain from taking any actions that are inconsistent with, instructions or directions of the Board of Directors of 2 Dynegy undertaken in the exercise of its fiduciary duties, provided that nothing in this Section 1(e) shall relieve or be deemed to relieve Shareholder from its obligations under Sections 1 or 2. Section 2. Disposition of Shares. From and after the date hereof until the Termination Date, Shareholder hereby agrees that it will not directly or indirectly sell, pledge, encumber, grant any proxy or enter into any voting or similar agreement with respect to, transfer or otherwise dispose of (collectively, "TRANSFER"), or agree or contract to Transfer, any Covered Shares (or any interest therein) with respect to which Shareholder, directly or indirectly, controls the right to Transfer; provided, however, that Shareholder may Transfer Covered Shares to an Affiliate (as defined below) of Shareholder provided that such Affiliate agrees to be subject to the terms and conditions set forth in this Agreement. For purposes of this Agreement, "AFFILIATE" shall mean any corporation, partnership, limited liability company or other entity (each a "PERSON") that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person, and includes any Person acting in concert with another Person. Section 3. Other Covenants and Agreements. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be reasonably necessary or appropriate to effectuate, carry out and comply with all of their obligations under this Agreement. Without limiting the generality of the foregoing, no party shall enter into any agreement or arrangement (or alter, amend or terminate any existing agreement or arrangement) or take any other action (or fail to take any other action) if such action (or failure) would materially impair the ability of any party to effectuate, carry out or comply with all the terms of this Agreement. Enron hereby agrees to cooperate with Shareholder in connection with any filings required to be made by Shareholder in connection with the Mergers and the transactions contemplated thereby. Section 4. Representations and Warranties of Enron. Enron represents and warrants to Shareholder as follows: (a) each of this Agreement and the Merger Agreement has been approved by the Board of Directors of Enron, representing all necessary corporate action on the part of Enron, except for the approval of Enron's shareholders contemplated by the Merger Agreement, (b) each of this Agreement and the Merger Agreement has been duly executed and delivered by a duly authorized officer of Enron, and (c) each of this Agreement and the Merger Agreement constitutes a valid and binding agreement of Enron, enforceable against Enron, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other laws relating to or affecting the rights of creditors, and general principles of equity. Section 5. Representations and Warranties of Shareholder. Shareholder represents and warrants to Enron as follows: (a) Shareholder has the corporate power and authority to execute and deliver this Agreement, (b) this Agreement has been duly executed and delivered by Shareholder, (c) this Agreement constitutes the valid and binding agreement of Shareholder, except as such enforceability may be subject to the effects of bankruptcy, insolvency, reorganization, moratorium, or other laws relating to or affecting the rights of creditors, and general principles of equity, (d) Shareholder has the full power and authority to vote, or execute a 3 consent with respect to, all Covered Shares as contemplated hereby, (e) the securities of Dynegy listed next to the name of Shareholder on Schedule I hereto are the only securities of Dynegy owned by Shareholder and over which Shareholder has the power to vote (or direct the voting) (collectively, the "SHARES"), (f) except as provided in the Shareholder Agreement and the Stockholder Agreement, Shareholder is the lawful owner of the Shares listed on Schedule I as owned by it, free and clear of all liens, charges, encumbrances and commitments of every kind, other than this Agreement, and has the power to vote (including by an irrevocable power to vote or execution of a consent) such Shares without any actions on the part of any other party, and (g) the execution and delivery by Shareholder of this Agreement does not violate or breach any law, contract, instrument, agreement or arrangement to which Shareholder is a party or by which Shareholder is bound, except to the extent such violation or breach does not prevent or delay performance of such Shareholder's obligations hereunder. Section 6. Effectiveness. It is a condition precedent to the effectiveness of this Agreement that the Merger Agreement shall have been duly executed and delivered by the parties thereto. Any amendment or change to the Merger Agreement that (i) changes the Merger Ratio, (ii) adds any cash or other consideration to be paid to holders of Enron Common Stock, (iii) changes the termination date of the Merger Agreement, (iv) allows the Closing Date to occur on or prior to a date that is at least 6 months after the date Shareholder purchases the Series B Convertible Preferred Stock of Dynegy to be issued under the Dynegy Subscription Agreement, or (v) materially adversely affects the Shareholder or its interests in Dynegy or Stanford, will nullify the effectiveness of this Agreement and this Agreement shall terminate immediately. Section 7. Miscellaneous. (a) Notices, Etc. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or three days after being mailed by courier service that guarantees overnight delivery, in each case to the applicable addresses set forth below: If to Enron: Enron Corp. 1300 Smith Street Houston, Texas 77002 Attention: General Counsel Telecopy: (713) 853-6161 with copy to: Vinson & Elkins, L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor III, Esq. Scott N. Wulfe, Esq. Telecopy: (713) 758-2346 4 If to the Shareholder: Chevron U.S.A. Inc. 1301 McKinney St. Houston, TX 77010 Attention: President of Chevron U.S.A. Inc. Telecopy: (713) 754-5554 Fax: (713) 754-5777 with copies to: Harvey D. Hinman, Esq. Vice President and General Counsel ChevronTexaco Corporation 575 Market Street San Francisco, CA 94105 Tel: (415) 894-3232 Fax: (415) 894-6017 and: Terry Michael Kee, Esq. and Rodney R. Peck, Esq. Pillsbury Winthrop LLP 50 Fremont Street Post Office Box 7880 San Francisco, CA 94120-7880 Tel: (415) 983-1000 Fax: (415) 983-1200 and: Dynegy Inc. 1000 Louisiana Street Suite 6700 Houston, TX 77002 Attention: Kenneth Randolph Tel: (713) 507-6400 Fax: (713) 507-6806 5 and: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Telecopy: (713) 229-1522 and: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 711 Louisiana Street, 19th Floor Houston, TX 77002 Attention: Robert Allen Telecopy: (713) 236-0822 or to such other address as such party shall have designated by notice so given to each other party. (b) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by Enron, Dynegy and Shareholder. (c) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including without limitation any corporate successor by merger or otherwise, or any party succeeding to the ownership of (or power to vote) any Covered Shares. (d) Entire Agreement. This Agreement (together with the Merger Agreement) embodies the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement and the Merger Agreement. (e) Severability. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other party or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law, provided that in such event the parties shall negotiate in good faith in an attempt to agree to another provision (in lieu of the term or application held to be invalid or unenforceable) that will be valid and enforceable and will carry out the parties' intentions hereunder. (f) Specific Performance. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, 6 apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. (g) Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (h) No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. (i) Third Party Beneficiaries. This Agreement is not intended to be for the benefit of and shall not be enforceable by any person or entity who or which is not a party hereto. (j) Waiver of Jury Trial. Each party hereto hereby waives any right to a trial by jury in connection with any action, suit, or proceeding, which arises in connection with this Agreement. (k) Governing Law. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Illinois to the fullest extent possible. (l) Name, Captions, Gender. The name assigned this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms. (m) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. (n) Expenses. Enron, Dynegy, and Shareholder each shall bear its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. 7 IN WITNESS WHEREOF, the parties have duly executed this Shareholder Agreement as of the date first above written. DYNEGY INC. By: /s/ HUGH A. TARPLEY ----------------------------- Name: Hugh A. Tarpley Title: Executive Vice President ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. ----------------------------- Name: Raymond M. Bowen, Jr. Title: Executive Vice President - Finance and Treasurer CHEVRON U.S.A. INC. By: /s/ RICHARD P. COHAGAN ----------------------------- Name: Richard P. Cohagan Title: Attorney-in-Fact 8 SCHEDULE I SHARES DYNEGY CLASS B COMMON STOCK 86,599,914 9 EX-99.5 7 h92082ex99-5.txt STOCKHOLDER AGREEMENT - CHARLES L. WATSON EXHIBIT 99.5 SHAREHOLDER AGREEMENT SHAREHOLDER AGREEMENT, dated as of November 9, 2001, by and between Enron Corp., an Oregon corporation ("ENRON"), and Charles L. Watson ("SHAREHOLDER"). WHEREAS, concurrently herewith, Dynegy Inc. ("DYNEGY"), Enron and certain other entities are entering into an Agreement and Plan of Merger (as amended or supplemented from time to time, the "MERGER AGREEMENT;" capitalized terms used without definition herein having the meanings ascribed thereto in the Merger Agreement); WHEREAS, as of September 30, 2001, Shareholder owns and/or has the power to vote, as applicable, the number and type of Shares (as defined in Section 5) set forth in Schedule I hereto; WHEREAS, the Board of Directors of Dynegy has, prior to the execution of this Agreement, approved and adopted the Merger Agreement, and such approvals and adoption have not been withdrawn; WHEREAS, approval of the Merger Agreement by Dynegy's shareholders is a condition to the consummation of the Mergers; and WHEREAS, as a condition to its entering into the Merger Agreement, Enron has required that Shareholder agrees, and Shareholder has so agreed, to enter into this Agreement. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, the parties hereto agree as follows: Section 1. Agreement to Vote. (a) Unless the Dynegy Board of Directors shall have withdrawn its recommendation in favor of the Mergers, Shareholder hereby agrees to attend the meeting of Dynegy shareholders at which the matters contemplated by the Merger Agreement or this Agreement are to be presented to a vote of shareholders of Dynegy, in person or by proxy, and to vote (or cause to be voted) all Shares and any other voting securities of Dynegy that Shareholder, directly or indirectly, owns or has the right to vote or direct the voting of (including any such securities acquired hereafter but excluding any Shares or other securities Shareholder has the right to acquire but has not acquired) (collectively, the "COVERED SHARES") for approval and adoption of the following: (i) the Merger Agreement and (ii) any related action reasonably required in furtherance thereof. Unless the Dynegy Board of Directors shall have withdrawn its recommendation in favor of the Mergers, Shareholder hereby further agrees that until the Termination Date (as defined in Section 1(b)), he shall, from time to time, in connection with any consent solicitation relating to the Merger Agreement, timely execute and deliver (or cause to be timely executed and delivered) a written consent with respect to any Covered Shares in favor of the approval and adoption of the Merger Agreement and any action required in furtherance thereof. (b) From and after the date hereof until the Termination Date, unless the Dynegy Board of Directors shall have withdrawn its recommendation of the Mergers, Shareholder hereby agrees to vote (or cause to be voted) any Covered Shares against any Dynegy Acquisition Proposal and any related action reasonably required in furtherance thereof, at any meeting of shareholders of Dynegy (including any adjournments or postponements thereof) called to consider and vote on any Dynegy Acquisition Proposal. Shareholder further agrees that, until the Termination Date, in connection with any consent solicitation relating to a Dynegy Acquisition Proposal, Shareholder will timely execute and deliver (or cause to be timely executed and delivered) a written consent with respect to any Covered Shares against any Dynegy Acquisition Proposal as contemplated by the immediately preceding sentence. For purposes hereof, the term "TERMINATION DATE" shall mean the first to occur of (a) the termination of the Merger Agreement and (b) the date of consummation of the Mergers. (c) Shareholder hereby revokes any and all previous proxies with respect to any Covered Shares. (d) Nothing herein contained shall (i) restrict, limit or prohibit Shareholder, who is a director and officer of Dynegy, from exercising (in his capacity as a director or officer) his fiduciary duties to the shareholders of Dynegy under applicable law, or (ii) require Shareholder, in his capacity as an officer of Dynegy, to take any action in contravention of, or omit to take any action pursuant to, or otherwise take or refrain from taking any actions which are inconsistent with, instructions or directions of the Board of Directors of Dynegy undertaken in the exercise of his fiduciary duties, provided that nothing in this Section 1(d) shall relieve or be deemed to relieve Shareholder from his obligations under Sections 1 or 2. Section 2. Disposition of Shares. From and after the date hereof until the Termination Date, Shareholder hereby agrees that he will not, directly or indirectly, sell, pledge, encumber, grant any proxy or enter into any voting or similar agreement with respect to, transfer or otherwise dispose of (collectively, "TRANSFER"), or agree or contract to Transfer, any Covered Shares (or any interest therein) with respect to which Shareholder, directly or indirectly, controls the right to Transfer; provided, however, that Shareholder may Transfer his respective Covered Shares to an Affiliate (as defined below) of Shareholder provided that such Affiliate agrees to be subject to the terms and conditions set forth in this Agreement. For purposes of this Agreement, "AFFILIATE" shall mean any corporation, partnership, limited liability company or other entity that Shareholder directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Shareholder. Section 3. Other Covenants and Agreements. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be reasonably necessary or appropriate to effectuate, carry out and comply with all of their obligations under this Agreement. Without limiting the generality of the foregoing, neither party shall enter into any agreement or arrangement (or alter, amend or terminate any existing agreement or arrangement) or take any other action (or fail to take any other action) if such action (or failure) would materially impair the ability of any party to effectuate, carry out or comply with all the terms of this Agreement. Enron hereby agrees to cooperate with Shareholder in connection with any filings required to be made by Shareholder in connection with the Mergers and the transactions contemplated thereby. 2 Section 4. Representations and Warranties of Enron. Enron represents and warrants to Shareholder as follows: (a) each of this Agreement and the Merger Agreement has been approved by the Board of Directors of Enron, representing all necessary corporate action on the part of Enron, except for the approval of Enron's shareholders contemplated by the Merger Agreement, (b) each of this Agreement and the Merger Agreement has been duly executed and delivered by a duly authorized officer of Enron, and (c) each of this Agreement and the Merger Agreement constitutes a valid and binding agreement of Enron, enforceable against Enron. Section 5. Representations and Warranties of Shareholder. Shareholder represents and warrants to Enron as follows: (a) Shareholder has the requisite competence and authority to execute and deliver this Agreement, (b) this Agreement has been duly executed and delivered by Shareholder, (c) this Agreement constitutes the valid and binding agreement of such Shareholder, (d) Shareholder has the full power and authority to vote, or execute a consent, with respect to, all Covered Shares as contemplated hereby, (e) the securities of Dynegy listed next to the name of Shareholder on Schedule I hereto are the only securities of Dynegy owned by Shareholder and over which Shareholder has the power to vote (or direct the voting) (collectively, the "SHARES"), (f) Shareholder is the lawful owner of the Shares listed on Schedule I as owned by him, free and clear of all liens, charges, encumbrances and commitments of every kind, other than this Agreement, and has the power to vote (including by an irrevocable power to vote or execution of a consent) such Shares without any actions on the part of any other party, and (g) the execution and delivery by Shareholder of this Agreement does not violate or breach any law, contract, instrument, agreement or arrangement to which Shareholder is a party or by which Shareholder is bound, except to the extent such violation or breach does not prevent or delay performance of such Shareholder's obligations hereunder. Section 6. Effectiveness. It is a condition precedent to the effectiveness of this Agreement that the Merger Agreement shall have been duly executed and delivered by the parties thereto. Any amendment or change to the Merger Agreement that (i) changes the Merger Ratio, (ii) adds any cash or other consideration to be paid to holders of Enron Common Stock, (iii) changes the termination date of the Merger Agreement, or (iv) materially adversely affects the Shareholder, will nullify the effectiveness of this Agreement and this Agreement shall terminate immediately. Section 7. Miscellaneous. (a) Notices, Etc. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), when delivered by telecopy and confirmed by return telecopy, or three days after being mailed by courier service that guarantees overnight delivery, in each case to the applicable addresses set forth below: 3 If to Enron: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Telecopy: (713) 853-6161 with copy to: Vinson & Elkins, L.L.P. 101 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor III, Esq. Scott N. Wulfe, Esq. Telecopy: (713) 758-2346 If to the Shareholder: Charles L. Watson 1000 Louisiana Street Suite 6700 Houston, TX 77002 Telecopy: (713) 507-6400 and: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Telecopy: (713) 229-1522 and: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 711 Louisiana Street, 19th Floor Houston, TX 77002 Attention: Robert Allen Telecopy: (713) 236-0822 or to such other address as such party shall have designated by notice so given to each other party. (b) Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by Enron and Shareholder. 4 (c) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective heirs, successors and assigns, including without limitation any corporate successor by merger or otherwise, or any party succeeding to the ownership of (or power to vote) any Covered Shares. (d) Entire Agreement. This Agreement (together with the Merger Agreement) embodies the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement and the Merger Agreement. (e) Severability. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other party or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law, provided that in such event the parties shall negotiate in good faith in an attempt to agree to another provision (in lieu of the term or application held to be invalid or unenforceable) that will be valid and enforceable and will carry out the parties' intentions hereunder. (f) Specific Performance. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in his or its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. (g) Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. (h) No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with his or its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of his or its right to exercise any such or other right, power or remedy or to demand such compliance. (i) Third Party Beneficiaries. This Agreement is not intended to be for the benefit of and shall not be enforceable by any person or entity who or which is not a party hereto. (j) Jurisdiction. Each party (a) consents to submit himself or itself to the personal jurisdiction of any federal court located in the State of Texas or any Texas state court if any 5 action, suit or proceeding arises in connection with this Agreement and (b) agrees that he or it will not attempt to defeat or deny such personal jurisdiction by motion or other request for leave from any such court. Each party hereto hereby waives any right to a trial by jury in connection with any such action. (k) Governing Law. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Illinois to the fullest extent possible. (l) Name, Captions, Gender. The name assigned this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms. (m) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. (n) Expenses. Enron and Shareholder shall bear his or its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. 6 IN WITNESS WHEREOF, the parties have duly executed this Shareholder Agreement as of the date first above written. ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. ------------------------------------------ Name: Raymond M. Bowen, Jr. ---------------------------------------- Title: Executive Vice President - Finance and Treasurer --------------------------------------- SHAREHOLDER /s/ CHARLES L. WATSON --------------------------------------------- Charles L. Watson 7 SCHEDULE I SHARES Dynegy Class A Common Stock 8,504,816 8 EX-99.6 8 h92082ex99-6.txt STOCKHOLDER AGREEMENT - STANFORD, INC. EXHIBIT 99.6 STOCKHOLDER AGREEMENT THIS STOCKHOLDER AGREEMENT, dated as of November 9, 2001 (the "AGREEMENT"), is made by and among Stanford, Inc., a Delaware corporation ("STANFORD"), Dynegy Inc., an Illinois corporation ("DYNEGY"), Enron Corp., an Oregon corporation ("ENRON"), and Chevron U.S.A. Inc., a Pennsylvania corporation (the "STOCKHOLDER"). WHEREAS, Stockholder owns a significant percentage of the outstanding capital stock of Dynegy; WHEREAS, Stanford, Enron, Dynegy and certain other entities have entered into an Agreement and Plan of Merger dated as of the date hereof (the "MERGER AGREEMENT"), that provides for, among other things, the merger of a subsidiary of Stanford with and into Dynegy (the "MERGER"), pursuant to which shares of Stanford's Class B Common Stock, no par value $.01 per share ("CLASS B SHARES"), shall be issued to Stockholder in exchange for its shares of Dynegy Class B Common Stock, subject to the terms and conditions of the Merger Agreement; WHEREAS, on the closing date of the Merger, ChevronTexaco Corporation, an Affiliate of Stockholder ("CHEVRONTEXACO"), may purchase additional shares of Stanford Class B Shares pursuant to the terms of a Subscription Agreement dated as of the date hereof (the "SUBSCRIPTION AGREEMENT") by and between Stanford and ChevronTexaco; and WHEREAS, as an inducement to Stanford, Enron and Dynegy to enter into the Merger Agreement, Stockholder agreed to enter into this Agreement to provide for certain agreements and obligations of the parties hereto prior to and following the closing of the Merger. NOW, THEREFORE, in consideration of the premises and the mutual and independent covenants hereinafter set forth and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement, each of the following capitalized terms is defined as follows: "AFFILIATE" shall mean a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person, and includes any Person acting in concert with another Person. "AUCTION" shall mean a sale process for 100% of the total combined voting power of the outstanding voting securities of Stanford conducted by an investment banking firm of national reputation selected by Stanford and reasonably acceptable to Stockholder. An "Auction" may include either (i) a broad or narrow solicitation of interest and may or may not involve multiple rounds of bidding as determined by Stanford's Board of Directors or a committee thereof or (ii) any recapitalization, combination, reverse merger or other similar transaction. "BLOCKING EVENT" shall occur if either (a) all of the directors elected to Stanford's Board of Directors pursuant to the terms of the Class B Shares present at the meeting where a Covered Transaction is considered vote against a Covered Transaction and such Covered Transaction is otherwise approved by at least a majority of the directors elected to Stanford's Board of Directors then in office, or (b) any of the Class B Shares are voted against a Covered Transaction and such Covered Transaction is otherwise approved by at least two-thirds of those shares entitled to vote on the transaction (other than the Class B Shares and other than shares that are beneficially owned by members of Stanford's Board of Directors and the executive officers of Stanford or any Subsidiary of Stanford). Notwithstanding the foregoing, no "Blocking Event" shall be deemed to occur with respect to (a) any Covered Transaction which is a substantially similar transaction as a Covered Transaction previously acted upon, the intent of the parties being that repetitive submissions of substantially similar proposals shall not result in additional Blocking Events having occurred or (b) any event that would otherwise constitute a Blocking Event pursuant to clause (a) or (b) of the preceding sentence with respect to which a majority of the directors elected to Stanford's Board of Directors then in office (other than the directors elected by the holders of the Class B Shares) determines that such event shall not be deemed to be a Blocking Event. "BUYOUT EVENT" shall occur upon the earlier of (a) the occurrence of a second Blocking Event within a period of 24 consecutive months following the occurrence of a prior Blocking Event or (b) the occurrence of a third Blocking Event (regardless of the period of time between Blocking Events). "CLASS A SHARES" shall mean shares of Stanford's Class A Common Stock, par value $.01 per share. "CLOSING" shall mean the closing of the transactions contemplated by the Merger Agreement. "COVERED TRANSACTION" shall mean an event specified in Article III, Section 7(b) (excluding clause (i) and (ii) thereof) of the Amended and Restated Bylaws of Stanford. "EFFECTIVE DATE" shall mean the effective date of the Merger. "EXCHANGE ACT" shall mean the Securities and Exchange Act of 1934, as amended. "GOVERNMENTAL AUTHORITY" shall mean any governmental or regulatory authority or agency. "GOVERNMENTAL ORDER" shall mean any rule, regulation, order, writ or decree of a Governmental Authority. "PARENT" shall mean any Person of which Stockholder is a "subsidiary company" as defined in PUHCA. 2 "PERSON" shall mean a natural person, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a Governmental Authority. "PUBLIC SALE" shall mean (a) an underwritten public offering of Class B Shares (or the Class A Shares into which they are convertible) pursuant to an effective registration statement under the Securities Act or (b) a bona fide public sale of Class B Shares (or the Class A Shares into which they are convertible) in an open market transaction through a broker, dealer or market maker under Rule 144 (or any successor rule thereto) of the Securities Act. "PUHCA" shall mean the Public Utility Holding Company Act of 1935, as amended, including any regulations promulgated thereunder or any successor statutes thereto. "PUHCA EXEMPTION" shall mean an exemption under Section 3(a)(3) of PUHCA from the registration and other requirements of PUHCA. "QUALIFIED OFFER" shall mean a written offer by Stockholder or any Affiliate thereof to acquire all, but not less than all, of the outstanding voting securities of Stanford for consideration consisting solely of cash or freely tradable securities listed on a national securities exchange or the NASDAQ National Market (or successors thereto), which offer is accompanied by a fairness opinion relating to such offer from an investment banking firm of national reputation. "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights Agreement dated as of the date hereof between Stockholder and Stanford. "SEC" shall mean the Securities and Exchange Commission or any successor organization. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "THIRD PARTY OFFER" shall mean a bona fide cash offer from any Person to acquire all or any part of the Class B Shares (or the Class A Shares into which they are convertible). "THIRD PARTY OFFEROR" shall mean a Person who makes a Third Party Offer. "TRANSFER" shall mean: (a) when used as a noun, any direct or indirect transfer, sale, assignment, conveyance, pledge, hypothecation, encumbrance or other disposition; and (b) when used as a verb, to directly or indirectly transfer, sell, assign, convey, pledge, hypothecate, encumber or otherwise dispose of; provided that "Transfer" shall not include any such transfer to a "Permitted Transferee" (as defined in Stanford's Restated Certificate of Incorporation) provided that such Permitted Transferee agrees in writing to become a party to this Agreement and to be bound by the provisions hereof; provided, further, that "Transfer" shall include a change of control of any Person who holds, directly or indirectly, Class B Shares (but shall not include a change of control with respect to ChevronTexaco). 3 "VOTING AGREEMENT" shall mean the Shareholder Agreement dated as of the date hereof between Stockholder and Enron. "WIDELY DISBURSED PUBLIC SALE" shall mean a Public Sale in which no purchaser and its affiliates (a) acquires Class B Shares (or the Class A Shares or other securities into which the Class B Shares are convertible) representing more than 3% of the total combined voting power of all voting securities of Stanford then outstanding or (b) acquire any shares to the extent that such acquisition will increase such purchaser's and its Affiliates' combined voting power to more than 5% of the total combined voting power of all voting securities of Stanford then outstanding. ARTICLE II AGREEMENTS RELATING TO PUHCA AND ICC CERTIFICATION 2.1 Covenants of Stockholder and Stanford. Stockholder and Stanford covenant and agree that: (a) In furtherance of the application previously filed by Stockholder for a PUHCA exemption, Stockholder shall amend its application with the SEC as may be reasonably necessary or appropriate to reflect the changed circumstances arising from the transaction contemplated by the Merger Agreement and the related transactions by and among the Stockholder and/or its affiliates and Stanford and/or Dynegy. In the event that after Closing (as defined in the Merger Agreement), the SEC denies the PUHCA exemption application (as the same may be amended in connection with the transactions contemplated by the Merger Agreement) made under Section 2.1(a) of the Shareholder Agreement, dated as of June 14, 1999, by and among Dynegy (f/k/a Energy Convergence Holding Company), Illinova Corporation, an Illinois corporation, Dynegy Holdings Inc., a Delaware corporation (f/k/a Dynegy Inc.), and Stockholder, or revokes or revises in a manner adverse to Stockholder an exemption previously granted, and no action Stockholder is required to take, or will agree to take, under this Section 2.1 will enable Stockholder to obtain an exemption or to restore the exemption previously granted, Stanford shall have the sole responsibility to take and will take the necessary actions to avoid Stockholder becoming a holding company required to register under PUHCA including, without limitation, one or more of the following: joining or becoming subject to an independent system operator or a separate transmission company, joining or contributing assets to a regional transmission organization, functionally separating its lines of business, or divesting utility assets or public utility companies, in any such event only to the extent necessary to allow perfection of an exemption or for Stockholder to avoid the requirement that Stockholder register as a holding company pursuant to PUHCA. In such instances, Stockholder shall cooperate with Stanford in its efforts to obtain perfection of an exemption from the registration requirements of PUHCA for Stockholder, but will not be required to take any action materially affecting Stockholder's ownership interest or minority Stockholder protection rights (including governance and voting rights) pertaining to Stanford, or Stockholder's ability to acquire "foreign utility companies" under Section 33 of PUHCA. 4 (b) Notwithstanding any other provision of this Section 2.1, in the event that Stockholder acquires (other than through Stanford) a direct or indirect interest in any public utility company or acquires voting stock in Stanford in addition to the stock to be acquired under the Merger Agreement and the Subscription Agreement: (i) Stanford shall not be required to undertake any action to remedy the legal consequences under PUHCA of any such acquisition, and (ii) Stockholder shall have the sole responsibility to take (if it elects to do so) the necessary actions to avoid Stockholder becoming a holding company required to register under PUHCA including, without limitation, divestiture of the additional interests acquired by Stockholder and modification of Stockholder's minority Stockholder protection rights (including governance and voting rights) in any of Stockholder's direct or indirect interests in a public utility company. (c) Stanford agrees that it will not (nor allow any subsidiary to) enter into transactions or to take other action that would put the exemptions from the registration requirements of PUHCA held by Stanford or Stockholder at risk or restrict Stockholder's ability to invest in or acquire interests in "foreign utility companies" as defined by section 33(a)(3) of PUHCA. (d) Stanford, Enron and Dynegy shall furnish such information and provide such assistance, as Stockholder may reasonably request for purposes of implementing the provisions of this Section 2.1. ARTICLE III LIMITATIONS ON ACQUISITIONS AND TRANSFERS 3.1 Limitations on Certain Acquisitions by Stockholder. Stanford and Stockholder covenant and agree that: (a) Stockholder may freely acquire, or permit any Affiliate of Stockholder to acquire, by purchase or otherwise, any securities of Stanford or become affiliated with any Person who owns securities of Stanford, so long as Stockholder and its Affiliates do not collectively beneficially own (including any securities of other Persons with whom Stockholder or its Affiliates are affiliated) securities representing more than 40% of the total combined voting power of the outstanding voting securities of Stanford. (b) From the date hereof until the first anniversary of the Closing, Stockholder shall not, directly or indirectly, acquire, offer or propose to acquire, solicit an offer to sell, become a "participant" in a "solicitation" of proxies, as those terms are defined in Rule 14a-11 and 14a-1, respectively, under the Exchange Act, in respect of any voting securities of Stanford that may be outstanding and entitled to vote relating to any of the foregoing, or otherwise agree to acquire by purchase or otherwise (or permit any Affiliate of Stockholder to undertake any of such actions) any securities of Stanford in excess of 40% of the total combined voting power of the outstanding voting securities of Stanford; provided, however, that Stockholder may (i) make a Qualified Offer in accordance with Section 3.1(d) if, and only if, any Person or group of Persons (other than an Affiliate of 5 Stockholder) acquires, offers, solicits an offer to sell, or otherwise seeks or agrees to acquire by purchase or otherwise beneficial ownership (as such term is defined in Rule 14d-1 of the Exchange Act) of any securities of Stanford representing 15% or more of the total combined voting power of the outstanding voting securities of Stanford or (ii) exercise its preemptive rights pursuant to Article VI hereof. (c) From and after the first anniversary of the Closing, Stockholder shall not, directly or indirectly, acquire, offer or propose to acquire, solicit an offer to sell, become a "participant" in a "solicitation" of proxies, as those terms are defined in Rule 14a-11 and 14a-1, respectively, under the Exchange Act, in respect of any voting securities of Stanford that may be outstanding and entitled to vote relating to any of the foregoing, or otherwise agree to acquire by purchase or otherwise (or permit any Affiliate of Stockholder to undertake any of such actions) any securities of Stanford in excess of 40% of the total combined voting power of the outstanding voting securities of Stanford; provided, however, that Stockholder shall be entitled to make a Qualified Offer in accordance with Section 3.1(d). (d) (i) In connection with any Qualified Offer, Stockholder shall deliver the Qualified Offer in writing to Stanford. In the event that Stanford does not accept such offer in writing within 30 days after receipt, such offer shall be deemed withdrawn and Stockholder shall elect for Stanford to either: (A) conduct an Auction in which Stockholder may participate but shall have no special priority or other rights vis-a-vis other bidders, or (B) conduct an Auction in which Stockholder shall not participate but at the conclusion thereof Stockholder shall have the right to acquire all of the outstanding voting securities of Stanford at a purchase price per share equal to 105% of the purchase price per share set forth in the bid selected by Stanford's Board of Directors and in such event, Stanford's Board of Directors shall approve promptly and in any case within 10 days of Stockholder's request in writing made within 10 days of the conclusion of any such Auction (written notice of such conclusion to be given immediately by Stanford to Stockholder) entering into a definitive agreement with Stockholder for such a transaction containing customary terms and conditions, and Stanford shall, within 2 days of the approval of its Board of Directors of such an agreement, execute and deliver the same to Stockholder; such terms and conditions shall include a termination fee of 5 percent of the aggregate value of Stanford as evidenced by the per share value payable by Stockholder under the agreement and a right of Stanford to terminate the transaction and pay such termination fee to Stockholder if Stanford's Board of Directors determines that it is necessary for Stanford to so terminate the agreement in order for the Board to properly discharge its fiduciary duties. In the event of any such termination by Stanford, Stockholder may, in its discretion, proceed with a tender or exchange offer for all of the common stock of Stanford which Stockholder does not own at such price as it shall choose irrespective of any other provisions of this Agreement and shall be free to pursue any other rights and remedies which it may then have against Stanford arising from such termination; Stockholder shall not be obligated to 6 tender its shares to such other bidder nor to vote in favor of any other transaction in the event of such termination. (ii) Any Auction shall be subject to the following provisions: (A) The Auction shall be completed within 120 days after Stanford receives the Qualified Offer and the corresponding sale shall close within 60 days after completion of the Auction. (B) If Stanford does not receive an offer acceptable to its Board of Directors in an Auction conducted pursuant to Section 3.1(d)(i)(B) within 120 days after Stanford receives a Qualified Offer, Stockholder may either (I) proceed with its Qualified Offer (which may take the form of a tender offer or exchange offer) and close such purchase within 60 days thereafter, or (II) reinitiate the process by submitting a new Qualified Offer. (C) In the event that Stockholder is not the successful bidder in an Auction conducted pursuant to Sections 3.1(d)(i)(A) or (B) or does not elect to purchase in the Auction, Stockholder agrees that it shall vote its Class B Shares in favor of the successful bidder's transaction and not exercise dissenter's rights, shall tender its shares (in the event of a tender offer), and otherwise shall reasonably cooperate in consummating the transaction. (D) Stanford and Stockholder agree that the purchase price set forth in a Qualified Offer is highly confidential and, as such, Stanford and Stockholder (and each of their Affiliates) shall not, to the extent legally permissible, disclose such purchase price to any Person without the prior written consent of the other party. (E) To the extent that a successful bidder proposes a purchase price that is not solely for cash, the stock and cash components of such bid shall be substantially equivalent in value (on a per share basis) and the bid shall provide for sufficient cash (or be on such other terms) such that Stockholder may receive solely cash for its Class B Shares. (F) In any Auction, Stanford may be a bidder. 3.2 Transfer Restrictions. Stanford and Stockholder covenant and agree that commencing upon the Closing and for a period of one year thereafter (the "RESTRICTED PERIOD"), Stockholder shall not Transfer any Class B Shares except in a transaction pursuant to Section 3.1(d) hereof, Article IV hereof or a Governmental Order. Following the Restricted Period, Stockholder shall not Transfer or propose to Transfer any Class B Shares except in a transaction pursuant to Article III, Article IV or a Governmental Order. 7 (a) Widely Disbursed Public Sale. Following the Restricted Period, Stockholder may Transfer any Class B Shares in one or more Widely Disbursed Public Sales. (b) Other Transfers. Following the Restricted Period, Stockholder may Transfer part or all of its Class B Shares in accordance with this Section 3.2(b) and Stanford shall first be given the opportunity, in the following manner, to purchase (or cause a Person or group designated by Stanford (a "STANFORD DESIGNEE") to purchase) all, but not less than all, of such offered Class B Shares: (i) Proposed Transfer in the Absence of a Third Party Offer. If, from time to time, at any time when Stockholder is not in receipt of a Third Party Offer, Stockholder desires to Transfer some or all of the Class B Shares other than pursuant to a Widely Disbursed Public Sale, Stockholder shall deliver a written notice (the "OFFER NOTICE") to Stanford of such intention and stating the number of Class B Shares that Stockholder proposes to Transfer and the cash purchase price per share for such Transfer. Stanford (or a Stanford Designee) shall have the right for thirty (30) days from the receipt of the Offer Notice, exercisable by written notice in accordance with Section 8.4 hereof, to elect to purchase (or to designate the Stanford Designee to purchase) all, but not less than all, of the Class B Shares specified in the Offer Notice for cash at a purchase price per share as set forth therein. (A) If Stanford (or a Stanford Designee) does not provide Stockholder written notice of its election to purchase within thirty (30) days from receipt of the Offer Notice, Stockholder may, but is not obligated to, Transfer all, but not less than all, of the Class B Shares as specified in the Offer Notice at the cash purchase price per share set forth therein (or at a higher price), provided that such Transfer must be completed within 180 days after Stockholder delivers the Offer Notice. (B) If Stanford exercises its right to purchase the Class B Shares specified in the Offer Notice, the closing of the purchase of such Class B Shares shall take place within 180 days after Stockholder delivers the Offer Notice at a time and place reasonably specified by Stanford (or a Stanford Designee). At the closing, Stanford (or a Stanford Designee) shall deliver to Stockholder cash or immediately available funds in an amount equal to the total purchase price of the Class B Shares set forth in the Offer Notice and Stockholder (and its Affiliates) shall deliver to Stanford (or a Stanford Designee) certificates representing the Class B Shares, duly endorsed in blank or accompanied by stock powers duly executed and otherwise in form acceptable for transfer of the shares on the books of Stanford, free and clear of liens, claims or other encumbrances of any nature. If, for any reason other than a delay caused by Stockholder, Stanford (or a Stanford Designee) fails to complete the purchase of the 8 Class B Shares in accordance with this clause within 180 days after Stockholder delivers the Offer Notice, then Stockholder (and its Affiliates) may, but is not obligated to, Transfer the Class B Shares at such price as it shall deem appropriate, provided that Stockholder shall complete such Transfer within 180 days thereafter. Stockholder and Stanford expressly agree that, with respect to the first failure of Stanford to complete the purchase of the Class B Shares as required by this clause (B), Stockholder shall have no remedies other than (1) the rights set forth in the immediately preceding sentence and (2) a right to recover from Stanford on demand Stockholder's reasonable out of pocket expenses related to the proposed sale; provided, however that such limitation on Stockholder's remedies shall only be applicable if Stanford exercised its right to purchase under this clause (B) in good faith and with the written advice of a nationally-recognized investment banking firm or financial institution that sufficient financing would be available for such transaction. (ii) Transfer Pursuant to a Third Party Offer. At any time Stockholder receives and desires to accept an unsolicited Third Party Offer, Stockholder shall deliver a written notice (the "THIRD PARTY OFFER NOTICE") to Stanford of such intention and stating the identity of the Third Party Offeror, the number of Class B Shares that Stockholder proposes to Transfer and the purchase price per share for such Transfer. Following, receipt of the Third Party Offer Notice, Stanford's board of directors shall determine, in its sole discretion, whether the sale to the Third Party Offeror is acceptable and shall deliver a written notice to Stockholder stating whether the sale to the Third Party Offeror is acceptable within thirty (30) days from the receipt of the Third Party Offer Notice. (A) If Stanford advises Stockholder that the sale to the Third Party Offeror is acceptable, then Stockholder may proceed with the Transfer of Class B Shares in accordance with the Third Party Offer Notice (or at a higher price). (B) If Stanford advises Stockholder that the sale to the Third Party Offeror is not acceptable, then Stockholder shall have the right to require Stanford to purchase (or to designate a Stanford Designee to purchase) all, but not less than all, of the Class B Shares specified in the Third Party Offer Notice for cash at a purchase price equal to 105% of the purchase price per share as set forth in the Third Party Offer Notice. If, for any reason other than a delay caused by Stockholder, Stanford (or a Stanford Designee) fails to complete the purchase within 180 days from its receipt of the Third Party Offer Notice, Stockholder may, but is not obligated to, Transfer the Class B Shares specified in the Third Party Offer Notice at such price as it shall deem appropriate, provided that Stockholder shall complete such Transfer within 180 days thereafter. Stockholder and Stanford expressly agree that, with respect to the first 9 such failure of Stanford to complete the purchase of the Class B Shares as required by this clause (B), Stockholder shall have no remedies other than (1) the rights set forth in the immediately preceding sentence and (2) a right to recover from Stanford on demand Stockholder's reasonable out of pocket expenses related to the proposed sale; provided, however that such limitation on Stockholder's remedies shall only be applicable if Stanford exercised its right to purchase under this clause (B) in good faith and with the written advice of a nationally-recognized investment banking firm or financial institution that sufficient financing would be available for such transaction. 3.3 Time Periods. Whenever a provision of Article III or IV provides that an action is to be taken within a specified period of time, such period shall be increased to the extent reasonable to accommodate obtaining any required approvals from any Governmental Authorities. 3.4 Additional Stockholder Covenants. Stockholder shall not seek, directly or indirectly, to place representatives on the Board of Directors of Stanford or seek the removal of any member of the Board of Directors of Stanford except pursuant to the terms of the Class B Shares set forth in the Restated Certificate of Incorporation of Stanford. 3.5 Shares Subject to the Agreement. Except as otherwise provided for herein, all Class B Shares now or hereafter owned by Stockholder or its Affiliates shall be subject to the terms of this Agreement. 3.6 References to Class B Shares. With respect to any Transfer, a reference to Class B Shares herein shall be deemed to include the Class A Shares or other securities issuable upon conversion of the Class B Shares in accordance with Stanford's Restated Certificate of Incorporation upon the Transfer of such Class A Shares or other securities to a third party. 3.7 Legend and Stop Transfer Order. To assist in effectuating the provisions of this Agreement, Stockholder hereby consents: (a) to the placement of the following legend on all certificates certifying ownership of the Class B Shares until such Class B Shares have been sold, transferred or disposed of pursuant to the requirements of Article III hereof: The shares represented by this certificate are subject to the provisions of a Stockholder Agreement by and among Stanford, Inc., Dynegy Inc. and Chevron U.S.A. Inc. (and certain other parties) and may not be sold, transferred, pledged, hypothecated or otherwise disposed of except in accordance therewith. A copy of said Agreement is on file at the office of the Secretary of Stanford; and 10 (b) to the entry of a stop transfer order with the transfer agent or agents of Stanford securities against the transfer of Class B Shares except in compliance with the requirements of this Agreement, or, if Stanford is its own transfer agent with respect to any Class B Shares, to the refusal by Stanford to transfer any such securities except in compliance with the requirements of this Agreement. ARTICLE IV STANFORD'S BUYOUT RIGHTS 4.1 Buyout Rights. Subject to the limitations hereinafter set forth, upon the occurrence of a Buyout Event, Stockholder's blocking rights under this Agreement with respect to a Covered Transaction and pursuant to Article III, Section 7 of Stanford's Amended and Restated Bylaws shall, subject to reinstatement under clause (a)(iii) hereunder, terminate and Stockholder shall, within 180 days after the occurrence of a Buyout Event (or such longer period as may be required to avoid disgorgement of short swing profits under Section 16 of the Exchange Act with respect to Class B Shares owned at the time of the Buyout Event), at its option either: (a) Sell (and cause its Affiliates to sell) all of the Class B Shares (1) in a Widely Disbursed Public Sale or (2) to a third party in a private sale, provided that any such private sale shall be subject to the following provisions: (i) As promptly as practicable, Stockholder shall deliver written notice to Stanford of any proposed buyer under clause (2) of this Section 4.1(a) and the purchase price per share and other material terms of such proposed sale. (ii) If, within 30 days after receipt of Stockholder's notice, Stanford's board of directors delivers written notice to Stockholder that a proposed buyer or terms are not acceptable, in its sole discretion, then Stockholder shall have the right to require Stanford to purchase (or find an acceptable buyer to purchase) all of the Class B Shares at a purchase price equal to 105% of the purchase price agreed to between Stockholder and the third party under clause (2) of this Section 4.1(a). (iii) If, for any reason other than a delay caused solely by Stockholder, Stanford (or any acceptable buyer appointed by Stanford) fails to purchase the Class B Shares within 180 days after the date of the Buyout Event, then Stockholder (and its Affiliates) shall be free to Transfer the Class B Shares at such price as it shall deem appropriate, provided that Stockholder shall complete such Transfer within 180 days thereafter, provided, that if Stockholder chooses not to sell the Class B Shares after such failure, then notwithstanding any of the provisions of this Section 4.1, the Blocking Event triggering the Buyout Event shall not be deemed to be a Blocking Event and Stockholder's blocking rights under Article III, Section 7 of Stanford's Amended and Restated Bylaws shall thereupon be reinstated. Stockholder and Stanford expressly agree that, with 11 respect to the first failure of Stanford to complete the purchase of the Class B Shares as required by this clause (iii), Stockholder shall have no remedies other than (1) the rights set forth in the immediately preceding sentence and (2) a right to recover from Stanford on demand Stockholder's reasonable out of pocket expenses related to the proposed sale; provided, however that such limitation on Stockholder's remedies shall only be applicable if Stanford exercised its right to purchase under this clause (iii) in good faith and with the written advice of a nationally-recognized investment banking firm or financial institution that sufficient financing would be available for such transaction. (b) Elect to retain the Class B Shares, by delivering a written election to Stanford, provided that such Class B Shares and the directors elected by such Class B Shares shall no longer be entitled to any blocking rights under Article III, Section 7 of Stanford's Amended and Restated Bylaws. ARTICLE V CERTAIN AGREEMENTS RELATING TO THE MERGER AGREEMENT AND STANFORD 5.1 Sales of Class B Common Stock. Stanford covenants and agrees that it shall not issue or agree to issue to any Person other than Stockholder or its Affiliates any Class B Shares (or any security convertible or exchangeable into such Class B Shares or any option, warrant or other right to acquire such Class B Shares) without the prior written consent of Stockholder. 5.2 Restraints on Stockholders Ownership. Stanford covenants and agrees that its shall not adopt a stockholder rights plan, "poison pill" or similar device that prevents Stockholder from exercising its rights under Section 3.1(c) or Article IV. 5.3 Representatives on Stanford's Board of Directors. Dynegy and Stanford covenant and agree that they shall cause the three directors nominated by Stockholder to be appointed to Stanford's Board of Directors pursuant to Section 3.1 of the Merger Agreement. 5.4 Waiver of Conditions in Merger Agreement; Amendments. The officers of Dynegy and Stanford shall not waive any material condition to closing set forth in the Merger Agreement or enter into any material amendments thereof without the further approval of a majority of the Dynegy Board of Directors and, in addition, a majority of the Class B Directors of Dynegy (as defined in the Amended and Restated Articles of Incorporation of Dynegy). ARTICLE VI PREEMPTIVE RIGHTS 6.1 Employee Benefit Plans. In the event that Stanford issues any equity securities pursuant to stock option, restricted stock or other employee benefit plans, within 30 days following the end of each fiscal quarter Stanford shall notify Stockholder in writing of all such issuances. Within 30 days after the receipt of such notification, Stockholder may notify Stanford 12 of its intent to purchase its "proportionate share" of such securities, in which event Stanford shall issue such equity securities to Stockholder in exchange for the purchase price. Notwithstanding the foregoing, in the event that Stanford is subject to a stock split, reverse split, merger, share exchange or other transaction in which the rights of Stockholder may be adversely impacted in the event it is not able to purchase its proportionate share in a timely fashion, the notice required by this Section shall be given in sufficient time for Stockholder to elect to purchase equity securities and participate in such transaction. 6.2 Other Issuances. In the event that Stanford issues any equity securities other than as contemplated by the Merger Agreement and as described in Section 6.1 hereof, promptly, but in all events within 30 days following each such issuance, Stanford shall notify Stockholder in writing of such issuance. Within 30 days after the receipt of such notification, Stockholder may notify Stanford in writing of its intent to purchase its proportionate share of such securities, in which event Stanford shall issue such equity securities to Stockholder in exchange for the purchase price. 6.3 Intended Issuances. Notwithstanding the provisions of Section 6.2, in order to enable Stanford to efficiently structure financings and other securities issuances, to the extent that Stanford notifies Stockholder in writing of the material terms of an intended issuance of any equity securities, as promptly as practicable thereafter Stockholder shall notify Stanford in writing of its election to purchase its proportionate share of such securities, in which case Stanford shall issue such equity securities to Stockholder in exchange for the purchase price at the time of the issuance to others. In the event that the material terms of the intended issuance change prior to issuance, Stanford shall promptly give Stockholder written notice thereof, and as promptly as practicable thereafter Stockholder shall reconfirm (or reverse) its prior election in writing. 6.4 Purchase Price. The purchase price for equity securities issued pursuant to Section 6.1 or 6.2 shall equal: (a) in the event that the securities are issued in an arms' length transaction based upon the market price of Stanford's securities, at the price of such issuance, (b) if clause (a) does not apply, at the mean closing price on the New York Stock Exchange (or other primary market for the relevant securities) over the twenty (20) trading days most immediately preceding the issuance, (c) if neither clause (a) or (b) applies, at the fair market value thereof as determined for purposes of complying with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if a notification is required pursuant to such Act, and (d) otherwise at the fair market value thereof, in cash, as determined in good faith by the Board of Directors of Stanford. 6.5 Proportionate Share. For purposes of the issuance of securities to Stockholder pursuant to this Article VI, Stockholder's "proportionate share" shall be that number of shares or interests which preserves Stockholder's proportionate interest in the equity value of Stanford at the same level as prior to the issuance that triggered Stockholder's rights. 6.6 Nature of Securities. To the extent that Stockholder is entitled to purchase Class A Common Shares pursuant to this Article VI, it instead shall be issued Class B Common Shares 13 on a one-for-one basis. To the extent that Stockholder is entitled to purchase any other voting securities, Stanford and Stockholder shall negotiate in good faith and agree upon the nature of the securities and, if applicable, the restrictions on or privileges of, such securities so that the purposes of this Agreement are effected. Stockholder shall have no preemptive rights with respect to securities that do not participate in the earnings of Stanford or, absent a payment or other default, in the election of directors of Stanford. 6.7 Presumption. In order to facilitate future reviews of the books and records of Stanford, there shall be an irrefutable presumption that this Article VI has been fully complied with by Stanford: (a) absent a filing by Stockholder with the SEC (for instance, on a Schedule 13D) within 180 days following the end of any fiscal year of a document stating its belief that it was not issued the securities that it was entitled to during such fiscal year, with respect to all issuances during such year, and (b) absent the institution of litigation against Stanford by Stockholder prior thereto, 180 days following the last date on which there has been any Class B Shares outstanding, with respect to all issuances. ARTICLE VII EFFECTIVENESS; TERMINATION 7.1 Effectiveness and Term. The provisions of this Agreement shall be effective and terminate as follows: (a) The provisions of Articles I, II and VIII hereof shall be effective as of the date hereof and shall terminate on the date following the Effective Date on which Stockholder and its Affiliates own less than 10% of the total combined voting power of all voting securities of Stanford; and (b) The remaining provisions (other than Articles I, II and VIII) of this Agreement shall be effective at the Effective Date and shall terminate on the date Stockholder and its Affiliates cease to own at least 15% of the total combined voting power of all voting securities of Stanford. Notwithstanding the foregoing, if the Merger Agreement is terminated in accordance with its terms, the provisions of this Agreement shall be null and void and of no further force or effect and this Agreement shall be deemed terminated; provided, however, that no termination of this Agreement shall in any way relieve any party from any liability arising as a result of any breach of this Agreement by such party prior to the effective date of such termination. 7.2 Issuance of New Certificates. Upon a termination of the provisions of this Agreement contemplated by Section 7.1(b), all Class B Shares subject to this Agreement shall be relieved from the terms and conditions contained herein, and the stock certificates of Stanford representing such Class B Shares may be surrendered to Stanford for cancellation and issuance of a new certificate without the legend required pursuant to Section 3.7. Such new certificates shall be issued and delivered to Stockholder as soon as practicable and the stop transfer order provided for in Section 3.7 shall be rescinded immediately. 14 ARTICLE VIII GENERAL PROVISIONS 8.1 Intent and Interpretation. Each of parties hereto stipulates and acknowledges that Stanford has made, prior to the date hereof, a careful evaluation of Stockholder, its investment objectives with regard to the Class B Shares and its lack of intent to obtain control of Stanford by its acquisition thereof, and the compatibility of such objectives with the objectives of Stanford; that such factors were critical to Stanford in the decision to consummate the Merger and thereby issue a large block of voting securities to Stockholder; that, absent the restrictions in this Agreement, ownership of the Class B Shares would present an unusual opportunity for Stockholder to gain effective control of Stanford; that Stanford might have reached a different decision with regard to the Merger and the resulting issuance of the Class B Shares to a group of related persons had such persons been other than Stockholder; therefore, that the restrictions set forth in this Agreement are a material part of the consideration received by Stanford for the issuance of the Class B Shares in the Merger, and that the primary intent of such restrictions is to insure that such block of securities does not come to rest in the hands or under the control of any single holder or group of holders other than Stockholder and that the size of such block of securities is not, except as otherwise herein provided, increased over a prescribed amount, without the consent of Stanford. Stockholder acknowledges and agrees that such purpose and intent are reasonable and that the restrictions set forth in this Agreement are reasonable in view of such purpose and intent. Further, Stockholder and Stanford agree that, should any disagreement arise in the interpretation of any such restrictions as applied to any set of facts, such disagreement shall be resolved by interpreting and applying each restriction in the manner that will most nearly effectuate the purpose and intent of such restrictions as herein stated. 8.2 Specific Enforcement. Each of the parties hereto acknowledges and agrees that the other parties hereto would be irreparably damaged and that money damages are not an adequate remedy in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached because, among other reasons, each such provision relates to potential control of Stanford. It is accordingly agreed that each party hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to specifically enforce this Agreement and the terms and provisions hereof in any court of the United States or any state thereof, in addition to any other remedy to which such party may be entitled, at law or in equity. It is further agreed that none of the parties hereto shall raise the defense that there is an adequate remedy at law. 8.3 Severability. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by applicable law, provided that in such event the parties shall negotiate in good faith in an attempt to agree to another provision (in lieu of the term or application held to be invalid or unenforceable) that will be valid and enforceable and will carry out the parties' intentions hereunder. 15 8.4 Notices, Etc. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed given (i) when made, if made by hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one business day after being deposited with a next-day courier, postage prepaid, or (iii) three business days after being sent certified or registered mail, return receipt requested, postage prepaid, in each case to the applicable addresses set forth below (or to such other address as such party may designate in writing from time to time): If to Stanford, Dynegy or Enron: Dynegy Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Attention: President Telecopy: (713) 507-6808 with copies (which shall not constitute notice) to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 711 Louisiana; Suite 1900 South Houston, Texas 77002 Attention: Robert B. Allen Telecopy (713) 236-0822 If to Stockholder: Chevron U.S.A. Inc. 1301 McKinney Houston, TX 77010 Attention: President Telecopy: (713) 754-5777 16 with a copy to: ChevronTexaco Corporation 575 Market Street San Francisco, CA 94105 Attention: General Counsel Telecopy: (415) 894-6017 and to: Pillsbury Winthrop LLP 50 Fremont Street P.O. Box 7880 San Francisco, CA 94120-7880 Attention: Terry M. Kee, Esq. and Rodney R. Peck, Esq. Telecopy: (415) 983-1200 or to such other address as such party shall have designated by notice so given to each other party. 8.5 Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by all of the parties hereto (or their successors). 8.6 Entire Agreement. This Agreement (together with the Merger Agreement, the Registration Rights Agreement, the Voting Agreement, the Subscription Agreement and the Restated Certificate of Incorporation and Amended and Restated Bylaws of Stanford) embodies the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement, the Merger Agreement, the Registration Rights Agreement, the Voting Agreement and the Subscription Agreement. 8.7 Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. 8.8 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such 17 party of his or her right to exercise any such or other right, power or remedy or to demand such compliance. 8.9 No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of and shall not be enforceable by any person or entity who or which is not a party hereto. 8.10 Consent to Jurisdiction. Each party (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of Delaware or any Delaware state court if any action, suit or proceeding arises in connection with this Agreement, and (b) agrees that it will not attempt to defeat or deny such personal jurisdiction by motion or other request for leave from any such court. 8.11 Governing Law. This Agreement shall be construed, interpreted, and governed in accordance with the laws of Delaware, without reference to rules relating to conflicts of law. 8.12 Name, Captions, Gender. The name assigned this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine or neuter forms. 8.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, of the parties hereto. 8.14 Expenses. Except as expressly provided herein, each of the parties hereto shall each bear its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. 8.15 Successors and Assigns. Stockholder shall not assign this Agreement without the written consent of Stanford, except to an Affiliate of Stockholder as contemplated herein; Stanford may assign this Agreement only to any successor to substantially all of its business as a result of a merger, consolidation or sale by Stanford. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the successors and assigns of the parties hereto. REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. 18 IN WITNESS WHEREOF, the parties hereto have duly and validly executed this Stockholder Agreement as of the day and year first above written. STANFORD INC. By: /s/ HUGH A. TARPLEY -------------------------------------- Name: Hugh A. Tarpley ------------------------------------ Title: Executive Vice President ----------------------------------- DYNEGY INC. By: /s/ HUGH A. TARPLEY -------------------------------------- Name: Hugh A. Tarpley ------------------------------------ Title: Executive Vice President ----------------------------------- CHEVRON U.S.A. INC. By: /s/ RICHARD P. COHAGAN -------------------------------------- Name: Richard P. Cohagan ------------------------------------ Title: Attorney-in-Fact ----------------------------------- ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. -------------------------------------- Name: Raymond M. Bowen, Jr. ------------------------------------ Title: Executive Vice President - Finance and Treasurer ----------------------------------- 19 EX-99.7 9 h92082ex99-7.txt SUBSCRIPTION AGREEMENT EXHIBIT 99.7 NORTHERN NATURAL GAS COMPANY SUBSCRIPTION AGREEMENT NOVEMBER 9, 2001 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS....................................................................1 1.1 Definitions; Interpretation....................................................1 ARTICLE II ISSUANCE AND SALE OF THE SECURITIES............................................5 2.1 Authorization of the Securities................................................5 2.2 Issuance, Sale and Delivery of the Securities..................................5 ARTICLE III CLOSING........................................................................6 3.1 Closing........................................................................6 3.2 Payment for and Delivery of Securities.........................................6 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................6 4.1 Existence; Qualification; Subsidiaries.........................................6 4.2 Authorization and Enforceability; Issuance of Preferred Shares.................6 4.3 Capitalization.................................................................7 4.4 Private Sale; Voting Agreements................................................7 4.5 Financial Statements; Disclosure...............................................7 4.6 Litigation.....................................................................8 4.7 Third-Party Approvals..........................................................8 4.8 No Undisclosed Liabilities.....................................................8 4.9 Agreements.....................................................................8 4.10 Environmental Matters..........................................................8 4.11 Transactions With Affiliates...................................................9 4.12 Taxes..........................................................................9 4.13 Certain Fees..................................................................10 ARTICLE V REPRESENTATIONS AND WARRANTIES OF ENRON.......................................10 5.1 Existence; Qualification; Subsidiaries........................................10 5.2 Authorization and Enforceability; Issuance of Enron Common Stock..............11 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER...............................11 6.1 Existence.....................................................................11 6.2 Authorization and Enforceability..............................................11 6.3 Governmental Approvals........................................................11 6.4 Third-Party Approvals.........................................................12 6.5 Investment Intent of Purchaser................................................12
i 6.6 Status of Preferred Shares....................................................12 6.7 Certain Fees..................................................................12 6.8 Sophistication and Financial Condition of Purchaser; Information..............12 ARTICLE VII CONDITIONS PRECEDENT..........................................................13 7.1 Conditions Precedent for the Purchaser........................................13 7.2 Closing Deliveries to the Company.............................................14 7.3 Conditions Precedent for the Company..........................................14 ARTICLE VIII COVENANTS OF THE COMPANY AND ENRON............................................15 8.1 Affirmative Covenants.........................................................15 8.2 Negative Covenants............................................................16 8.3 Information Rights............................................................17 8.4 Sale of Preferred Shares of the Company.......................................18 8.5 Use of Proceeds...............................................................18 ARTICLE IX SURVIVAL......................................................................19 9.1 Survival......................................................................19 ARTICLE X INDEMNIFICATION...............................................................19 10.1 Indemnification by the Company................................................19 10.2 Indemnification by the Purchaser..............................................19 10.3 Indemnification Procedure.....................................................20 ARTICLE XI GENERAL PROVISIONS............................................................21 11.1 Successors and Assigns........................................................21 11.2 Entire Agreement..............................................................21 11.3 Notices.......................................................................21 11.4 Termination...................................................................22 11.5 Effect of Termination.........................................................22 11.6 Expenses......................................................................22 11.7 Confidentiality and Public Announcements......................................22 11.8 Amendment and Waiver..........................................................23 11.9 Counterparts..................................................................23 11.10 Headings......................................................................23 11.11 Specific Performance..........................................................23 11.12 Remedies Cumulative...........................................................23 11.13 Governing Law.................................................................23 11.14 No Third Party Beneficiaries..................................................23 11.15 Severability..................................................................24
ii Schedule 4.1 Equity Interests Schedule 4.3 Capitalization Schedule 4.8 Undisclosed Liabilities Schedule 8.2 Sales of Assets Exhibit A Certificate of Designations Exhibit B Financial Statements Exhibit C Registration Rights Agreement Exhibit D Forms of Promissory Notes iii SUBSCRIPTION AGREEMENT SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of November 9, 2001, by and among Enron Corp., an Oregon corporation ("Enron"), Northern Natural Gas Company, a Delaware corporation (the "Company") and Dynegy Inc., an Illinois corporation (the "Purchaser"). WHEREAS, the Company has authorized the sale and issuance of an aggregate of 1,000 shares of the Preferred Stock; and WHEREAS, the Purchaser desires to purchase from the Company, and the Company desires to issue to the Purchaser, upon the terms and conditions set forth herein, shares of Preferred Stock. NOW THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS; INTERPRETATION. For purposes of this Agreement, the following terms have the indicated meanings: "Affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question; provided, that none of Purchaser and its Affiliates shall be deemed to be an Affiliate of the Company. For purposes of this definition of Affiliate, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or general partnership or member interests, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control any other Person in which it or any of its Affiliates owns, directly or indirectly, a majority of the ownership interests. "Board of Directors" means the Company's board of directors. "Capital Expenditures" has the meaning ascribed such term under GAAP. "Cash Management Program" has the meaning set forth in Section 4.11. "Certificate of Designations" means the Certificate of Designations of the Company containing the rights and preferences of the Preferred Stock adopted by the Board of Directors and attached hereto as Exhibit A. "Closing" has the meaning set forth in Section 3.1. "Closing Date" has the meaning set forth in Section 3.1. 1 "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" means the common stock of the Company, $.01 par value per share, and any securities into which such Common Stock is hereafter converted or exchanged. "Company" has the meaning set forth in the recitals hereof. "Contingent Obligation" shall mean, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend, letter of credit or other similar obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the Ordinary Course of Business) co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that Person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet, income or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation shall be equal to the amount of the obligation, or portion thereof, so guaranteed or otherwise supported. "Current Balance Sheet" means the consolidated balance sheet of the Company dated as of September 30, 2001. "Debt" shall mean, with respect to any Person, the aggregate amount of, without duplication, (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services; (iv) all capitalized lease obligations; (v) all obligations or liabilities of others secured by a lien on any asset owned by such person whether or not such obligation or liability is assumed, to the extent of the lesser of such obligation or liability or the book value of such asset; (vi) all Contingent Obligations of such Person; and (vii) any other obligations or liabilities which are required by generally accepted accounting principles to be shown as debt on a balance sheet, other than trade payables and liabilities pursuant to the Tax Allocation Agreement. "Environmental Laws" has the meaning set forth in Section 4.10(a). "Exchange Agreement" means the Exchange Agreement dated the date hereof by and between Purchaser and Enron. "Financial Statements" means the audited consolidated financial statements of the Company for the two most recent fiscal years and the unaudited consolidated balance sheet dated September 30, 2001, all of which are attached as Exhibit B hereto. 2 "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "Enron Common Stock" means the common stock, no par value, of Enron. "Governmental Agency" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body. "Hart-Scott-Rodino" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Hazardous Materials" has the meaning set forth in Section 4.10(b). "Intercompany Note Receivable" has the meaning set forth in Section 8.2(a). "Investment" as applied to any Person means (a) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest of any other Person and (b) any capital contribution by such Person to any other Person. "Liability" means any liability or obligation (whether absolute or contingent, liquidated or unliquidated or due or to become due). "Lien" means any lien, mortgage, pledge, security interest, restriction, charge or other encumbrance. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise) or results of operations of the Company. "Material Adverse Effect" means any material adverse effect on (a) the business, condition (financial or otherwise) or results of operations of the Company or (b) the transactions contemplated hereby or by the Related Documents. "Merger Agreement" means the Merger Agreement dated as of November 9, 2001, by and among Dynegy Inc., Stanford, Inc., Badin, Inc. and Sorin, Inc. and Enron. "Option Agreement" means the Option Agreement dated the date hereof among CGNN Holding Company, Inc., MCTJ Holding Co. LLC, Enron, Dynegy Holdings Inc. and Dynegy Inc. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency). "Permitted Liens" means (a) liens for taxes not yet due and taxes for which adequate provision is made in the Current Balance Sheet, (b) purchase money security interests in supplies and equipment, (c) statutory landlord liens and precautionary liens filed by lessors with respect to leased equipment, (d) encumbrances which are not substantial in amount, do not materially detract from the value of the property subject thereto and do not materially impair the 3 use of the property subject thereto or the operation of the Company's business, and (e) liens imposed by law arising in the Ordinary Course of Business such as materialmen's, mechanics', warehousemen's and other similar liens. "Permitted Refinancing Debt" shall mean any Debt of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Company or any of its Subsidiaries (other than intercompany Debt); provided that: (1) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of, plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of necessary fees and expenses incurred in connection therewith and any premiums paid on the Debt so extended, refinanced, renewed, replaced, defeased or refunded); and (2) such Permitted Refinancing Debt has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded. "Person" means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or other entity. "Preferred Shares" has the meaning set forth in Section 2.1. "Preferred Stock" means the Company's Series A Preferred Stock, par value $1.00 per share, having the rights and preferences set forth in the Certificate of Designations. "Purchase Option Agreement" means the Purchase Option Agreement dated the date hereof among CGNN Holding Company, Inc., MCTJ Holding Co. LLC, Enron, Dynegy Holdings Inc. and Dynegy Inc. "Purchase Price" has the meaning set forth in Section 3.2. "Registration Rights Agreement" means the Registration Rights Agreement dated the date hereof, by and between Enron and the Purchaser, in the form of Exhibit C attached hereto. "Related Documents" means the Certificate of Designations, the Purchase Option Agreement, the Option Agreement, the Exchange Agreement, the Registration Rights Agreement and certificates to be executed or adopted in connection herewith and therewith. "Required Initial Filing" means the initial filing by Enron with either the Federal Trade Commission or the Department of Justice under the Hart-Scott-Rodino Act in connection with the Option Agreement. "Returns" has the meaning set forth in Section 4.12. 4 "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary," when used with respect to any Person, shall mean any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by such Person. For purposes hereof, a Person shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person, directly or indirectly, is allocated a majority of partnership, limited liability company, association or other business entity gains or losses, or is or controls the managing director or general partner of such partnership, limited liability company, association or other business entity. "Tax Allocation Agreement" means the tax allocation agreement between Enron and the Company. "Weighted Average Life to Maturity" shall mean, when applied to any Debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Debt. ARTICLE II ISSUANCE AND SALE OF THE SECURITIES 2.1 AUTHORIZATION OF THE SECURITIES. The Company has authorized the issuance and sale to the Purchaser of an aggregate of 1,000 shares of the Preferred Stock (the "Preferred Shares"). 2.2 ISSUANCE, SALE AND DELIVERY OF THE SECURITIES. Pursuant to the terms and conditions set forth in this Agreement, on the Closing Date (as defined below), the Company agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from the Company, the Preferred Shares. 5 ARTICLE III CLOSING 3.1 CLOSING. Subject to the terms and conditions contained herein, the closing of the transactions contemplated hereby (the "Closing") shall take place three business days after the date that the Company has made the Required Initial Filing, at the offices of Baker Botts L.L.P., Houston, Texas or at such other time, place and/or date as shall be agreed upon by the parties hereto. The date upon which the Closing occurs is referred to herein as the "Closing Date". 3.2 PAYMENT FOR AND DELIVERY OF SECURITIES. At the Closing, the Company shall issue and deliver to the Purchaser certificates representing the Preferred Shares to be issued on the Closing Date, duly registered in the name of such Purchaser and bearing appropriate legends. Payment for such Preferred Shares shall be made by the Purchaser by wire transfer of immediately available funds to an account designated by the Company in writing in the amount of $1,500,000,000 (the aggregate amount to be delivered by the Purchaser to the Company, the "Purchase Price"). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to the Purchaser as follows: 4.1 EXISTENCE; QUALIFICATION; SUBSIDIARIES. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. The copies of the Certificate of Incorporation and By-Laws of the Company and all amendments thereto (i) have been previously delivered to the Purchaser and (ii) are true, correct and complete copies of such documents. The Company is licensed or qualified as a foreign corporation and is in good standing in all jurisdictions where it is required to be so licensed or qualified, to the extent such concepts are recognized in such jurisdictions. The Company has no Subsidiaries and, except for equity interests set forth on Schedule 4.1 that are not individually or in the aggregate material to the Company, owns no capital stock or other securities of, and has no other Investment in, any other Person. 4.2 AUTHORIZATION AND ENFORCEABILITY; ISSUANCE OF PREFERRED SHARES. (a) The Company has the full power and authority and has taken all required corporate and other action necessary to permit the Company to execute and deliver this Agreement and the Related Documents, to adopt the Certificate of Designations, and to carry out the terms hereof and thereof and to issue and deliver the Preferred Shares, and none of such actions will (i) violate any provision of the Company's Certificate of Incorporation or By-Laws or any applicable law, regulation, order, judgment or decree or rule of any stock exchange where the Common Stock is listed, or (ii) result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which the Company is a party or by which it is bound, which, in either case, is reasonably likely to have, individually or in the aggregate, a Material Adverse 6 Effect. This Agreement and each of the Related Documents constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. (b) The Preferred Shares have been duly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding and will be fully paid and nonassessable. (c) The issuance and delivery of the Preferred Shares is not subject to any preemptive right of any stockholder of the Company or to any right of first refusal or other similar right in favor of any Person which has not been waived. 4.3 CAPITALIZATION. As of the Closing Date after giving effect to the transactions contemplated hereby, the authorized capital stock of the Company shall be as set forth on Schedule 4.3 attached hereto. At the time of the Closing, (i) all of the outstanding capital stock of the Company will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder) and (ii) no outstanding capital stock or other equity securities of the Company will rank pari passu or senior in right of payment of dividends or redemption to the Preferred Stock. Except as set forth on Schedule 4.3, as of the Closing Date, the Company has not granted or issued any options, convertible securities, warrants, phantom stock, stock appreciation rights, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued shares of capital stock of the Company other than as contemplated in the Related Documents. 4.4 PRIVATE SALE; VOTING AGREEMENTS. The Company has not violated any applicable federal or state securities laws in connection with the offer, sale and issuance of any of its capital stock. When issued and delivered in accordance with this Agreement, the offer, sale and issuance of the Preferred Shares hereunder does not require registration under the Securities Act or any state securities laws. 4.5 FINANCIAL STATEMENTS; DISCLOSURE. The Financial Statements (including the related notes and schedules) fairly present in all material respects the financial position of the Company as of their dates, and each of the statements of operations, cash flows and changes in shareholders' equity included in the Financial Statements (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in shareholders' equity, as the case may be, of the Company for the periods set forth therein (subject, in the case of unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end audit adjustments which will not be material), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Except as and to the extent set forth on the Current Balance Sheet, including all notes thereto, as of the date of such balance sheet, the Company does not have any Liabilities or obligations of any nature (whether accrued, absolute, 7 contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of the Company or in the notes thereto prepared in accordance with generally accepted accounting principles consistently applied, other than Liabilities or obligations which do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. All reserves or adjustments required by generally accepted accounting principles to be reflected in the carrying value of the assets included in such balance sheet have been taken other than reserves or adjustments which do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. 4.6 LITIGATION. As of the date hereof, no claims, suits, proceedings or investigations are pending or, to the Company's knowledge, threatened against the Company or any officer or director thereof which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 4.7 THIRD-PARTY APPROVALS. Assuming the accuracy of the representations and warranties of the Purchaser contained in this Agreement and except for filings under the Hart-Scott-Rodino Act, the Company is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement or the Related Documents, or the consummation of the transactions contemplated hereby or thereby to occur on the Closing Date. 4.8 NO UNDISCLOSED LIABILITIES. The Company has no Liabilities except (i) as disclosed on Schedule 4.8 or in the Financial Statements, (ii) Liabilities incurred in the Ordinary Course of Business, and (iii) such other Liabilities that will not result, individually or in the aggregate, in a Material Adverse Effect. 4.9 AGREEMENTS. No event has occurred which, with notice or lapse of time, would constitute a default with respect to the Company, under any material agreement, arrangement or understanding to which the Company is a party, and, to the knowledge of the Company, no other Person is in default under any such agreement. 4.10 ENVIRONMENTAL MATTERS. (a) The Company has been and is in compliance with all applicable orders of any court, governmental authority or arbitration board or tribunal and any applicable law, ordinance, rule, regulation or other legal requirement (including common law) related to human health and the environment ("Environmental Laws") except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere with the conduct of any of its businesses in the manner now conducted or which interfere with continued compliance with any Environmental Law, except for any non-compliance or interference that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. (b) Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (i) no judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of the Company, 8 threatened against the Company that allege the violation of or seek to impose liability pursuant to any Environmental Law, and (ii) there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current (or, to the knowledge of the Company, former) businesses, assets or properties of the Company, including but not limited to on-site or off-site disposal, release or spill of any material, substance or waste classified, characterized or otherwise regulated as hazardous, toxic or otherwise harmful to human health or the environment under Environmental Laws, including petroleum or petroleum products or byproducts ("Hazardous Materials") which facts, conditions or circumstances violate Environmental Law or are reasonably likely to give rise to (x) costs, expenses, Liabilities or obligations for any cleanup, remediation, disposal or corrective action under any Environmental Law, (y) claims arising for personal injury, property damage or damage to natural resources, or (z) fines, penalties or injunctive relief. (c) The Company has not (i) received any notice of noncompliance with, violation of, or liability or potential liability under any Environmental Law or (ii) entered into any consent decree or order or is subject to any order of any court or governmental authority or tribunal under any Environmental Law or relating to the cleanup of any Hazardous Materials, except for any such matters as do not and are not reasonably likely to have a Material Adverse Effect. 4.11 TRANSACTIONS WITH AFFILIATES. The Company is not party to any agreement, arrangement or transaction with any officer, director or Affiliate of the Company, other than (i) corporate services and similar arrangements or transactions pursuant to which the Company obtains goods and services used in its Ordinary Course of Business for which the Company is charged expense allocations by Enron or its Affiliates consistent with past practices, (ii) transactions occurring pursuant to the Company's participation in the existing zero-balance cash management program of Enron (the "Cash Management Program"), (iii) the Tax Allocation Agreement, (iv) operational agreements between the Company and one or more of the Affiliates of Enron, such as interconnect agreements, transportation agreements and other agreements, related to the Company's facilities and services, and (v) arrangements relating to the employment and compensation of employees and expense reimbursal and advances for business purposes in the Ordinary Course of Business. 4.12 TAXES. (a) All tax returns, statements, reports, declarations, estimates and forms ("Returns") required to be filed by or with respect to the Company (including any Return required to be filed by an affiliated, consolidated, combined, unitary or similar group for a taxable year in which the Company was included in such group) on or prior to the date hereof have been properly filed on a timely basis with the appropriate governmental authorities, except to the extent that any failure to file does not and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, and all taxes due with such Returns have been duly paid, or deposited in full on a timely basis or adequately reserved for in accordance with GAAP, except to the extent that any failure to pay or deposit or make adequate provision for the payment of such taxes does not and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. Representations made in this Section 4.12 are made to the knowledge 9 of the Company to the extent that the representations relate to a corporation which was, but is not currently, a part of the Company's affiliated, consolidated, combined, unitary or similar group. (b) Except to the extent not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (i) no audits or other administrative proceedings or court proceedings are presently pending with regard to any taxes or Returns of the Company as to which any taxing authority has asserted in writing any claim; (ii) no governmental authority is now asserting in writing any deficiency or claim for taxes or any adjustment to taxes with respect to which the Company may be liable with respect to income and other material taxes which have not been fully paid or finally settled; (iii) the Company has no liability for taxes under Treas. Reg. ss. 1.1502-6 or any similar provision of state, local, or non-U.S. tax law, except for taxes of the affiliated group of corporations of which Enron is the common parent, within the meaning of Section 1504(a)(1) of the Code or any similar provision of state, local, or non-U.S. tax law; and (iv) the Company is not a party to, is bound by or has any obligation under any tax sharing, allocation or indemnity agreement or any similar agreement or arrangement, except for the Tax Allocation Agreement. (c) For purposes of this Agreement, "tax" or "taxes" means all net income, gross income, gross receipts, sales, use, ad valorem, transfer, accumulated earnings, personal holding company, excess profits, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, disability, capital stock, or windfall profits taxes, customs duties or other taxes, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority. 4.13 CERTAIN FEES. No fees or commissions will be payable by the Company to any broker, financial advisor, finder, investment banker, or bank with respect to the transactions contemplated by this Agreement, except that Enron has retained J. P. Morgan Securities Inc. and Salomon Smith Barney Inc. as its financial advisors. The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Persons for fees of a type contemplated in this section that may be due in connection with the transactions contemplated by this Agreement and which were incurred by the Company. The Company shall indemnify and hold harmless the Purchaser, its employees, officers, directors, agents and partners, and their respective affiliates (as such term is defined under Rule 405 promulgated under the Securities Act), from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect to any such claimed or existing fees. ARTICLE V REPRESENTATIONS AND WARRANTIES OF ENRON Enron hereby represents and warrants to the Purchaser as follows: 5.1 EXISTENCE; QUALIFICATION; SUBSIDIARIES. Enron is a corporation duly organized, validly existing and in good standing under the laws of the State of Oregon and has full corporate power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. The copies of the Certificate of Incorporation and By-Laws of the Company and all amendments thereto (i) have been previously delivered to the 10 Purchaser and (ii) are true, correct and complete copies of such documents. The Company is licensed or qualified as a foreign corporation and is in good standing in all jurisdictions where it is required to be so licensed or qualified, to the extent such concepts are recognized in such jurisdictions. The Company is an indirect subsidiary of Enron. 5.2 AUTHORIZATION AND ENFORCEABILITY; ISSUANCE OF ENRON COMMON STOCK. Enron has the full power and authority and has taken all required corporate and other action necessary to permit Enron to execute and deliver this Agreement and the Registration Rights Agreement and to carry out the terms hereof and thereof, and none of such actions will violate any provision of Enron's Articles of Incorporation or By-Laws or any applicable law, regulation, order, judgment or decree or rule of any stock exchange where the Enron Common Stock is listed, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which Enron is a party or by which it is bound. This Agreement and the Registration Rights Agreement each constitute a legal, valid and binding obligation of Enron, enforceable against Enron in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as follows: 6.1 EXISTENCE. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. 6.2 AUTHORIZATION AND ENFORCEABILITY. The Purchaser has the full power and authority and has taken all action necessary to permit the Purchaser to execute and deliver this Agreement and the Related Documents and to carry out the terms hereof and thereof, and none of such actions will violate any provision of the Purchaser's Certificate of Incorporation or any applicable law, regulation, order, judgment or decree or rule, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which the Purchaser is a party or by which it is bound. This Agreement and each of the Related Documents constitutes a legal, valid and binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. 6.3 GOVERNMENTAL APPROVALS. The Purchaser is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency in connection with the execution and delivery of this Agreement and the other documents and instruments to be executed by it pursuant hereto or the consummation of 11 the transactions contemplated hereby and thereby, except for such order, consent, approval, authorization, declaration or filing as which has been or will be obtained or made. 6.4 THIRD-PARTY APPROVALS. Assuming the accuracy of the representations and warranties of the Company contained in this Agreement, the Purchaser is not required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement or the Related Documents, or the consummation of the transactions contemplated hereby or thereby to occur on the Closing Date. 6.5 INVESTMENT INTENT OF PURCHASER. The Purchaser is acquiring the Preferred Shares for its own account for investment and not with a view to distribution. The Purchaser is acquiring the Preferred Shares with no past, present or future intention of violating the Securities Act in any material respect. 6.6 STATUS OF PREFERRED SHARES. The Purchaser has been informed by the Company that the Preferred Shares have not been and will not be registered under the Securities Act or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering. The Purchaser acknowledges that any certificate representing the Preferred Shares will bear a customary legend regarding restrictions on the transferability of such Preferred Shares. 6.7 CERTAIN FEES. No fees or commissions will be payable by the Purchaser to any broker, financial advisor, finder, investment banker, or bank with respect to the transactions contemplated by this Agreement, except that Purchaser has retained Lehman Brothers Inc. as its financial advisor. Except as otherwise set forth in this Agreement, the Company shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Persons for fees of a type contemplated in this section that may be due in connection with the transactions contemplated by this Agreement and which were incurred by the Purchaser. Except as otherwise set forth in this Agreement, the Purchaser shall indemnify and hold harmless the Company, its employees, officers, directors, agents and partners, and their respective affiliates (as such term is defined under Rule 405 promulgated under the Securities Act), from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect to any such claimed or existing fees. 6.8 SOPHISTICATION AND FINANCIAL CONDITION OF PURCHASER; INFORMATION. The Purchaser represents and warrants to the Company that it considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Preferred Shares. The Purchaser is able to bear the economic risk of this investment regarding the Company, is able to hold the Preferred Shares indefinitely and has a sufficient net worth to sustain a loss of its entire investment in the Company in the event such loss should occur. The Purchaser (a) has been furnished with such information about the Company and the Preferred Shares as it has requested, (b) has made its own independent inquiry and investigation into, and based thereon, has formed an independent judgment concerning the Company and the Preferred Shares, (c) is an "accredited" investor within the meaning of "accredited investor" under 12 Regulation D of the Securities Act, as currently in effect, and (d) is not acquiring the Preferred Shares with a view to distribution. ARTICLE VII CONDITIONS PRECEDENT 7.1 CONDITIONS PRECEDENT FOR THE PURCHASER. The obligation of the Purchaser to purchase the Preferred Shares and close the transactions contemplated hereby on the Closing Date is subject to the following conditions. (a) Representations, Warranties and Covenants of the Company. The representations and warranties of the Company and Enron contained herein and in any writing delivered pursuant hereto shall be true and correct when made and as of the time of the Required Initial Filing. All acts or covenants required hereunder to be performed by each of the Company and Enron prior to the Required Initial Filing shall have been fully performed by it. (b) Litigation. No action, suit, investigation or proceeding shall be pending or threatened as of the date of the Required Initial Filing before any court or Governmental Agency to restrain, prohibit, collect damages as a result of or otherwise challenge this Agreement or any Related Document or any transaction contemplated hereby or thereby. (c) No Material Adverse Change. No Material Adverse Change shall have occurred between September 30, 2001 and the date of the Required Initial Filing. (d) Hart-Scott-Rodino. The Company shall have made the Required Initial Filing. (e) No Termination of Merger Agreement. The Merger Agreement shall not have been terminated and shall not be terminable as of the Closing Date by any party thereto. (f) Cancellation of Intercompany Debt of the Company. There shall have been cancelled and forgiven the net amount of any Debt of the Company owing to Enron and its Affiliates. (g) Certificate of Designations. The Certificate of Designations shall have been filed with the Secretary of State of the State of Delaware. (h) Closing Deliveries. The following documents and items shall be delivered to the Purchaser at or prior to the date of the Required Initial Filing: (i) Evidence reasonably acceptable to the Purchaser of (A) the adoption by, and due filing with the appropriate Governmental Agencies by, the Company of the Certificate of Designations and (B) the vote of the Board of Directors and shareholders of the Company, as applicable, approving this Agreement and the Related Documents (including the Certificate of Designations) and the consummation of the transactions contemplated hereby and thereby; 13 (ii) Fully executed and delivered counterparts of the Registration Rights Agreement and the Exchange Agreement; and (iii) Certificate of a duly authorized officer of Enron dated as of the date of the Required Initial Filing: (A) stating that the conditions set forth in Sections 7.1(a), (b), (c), (e) and (f) have been satisfied as of the date of the Required Initial Filing; and (B) setting forth the resolutions of the Board of Directors authorizing the execution and delivery of this Agreement and the Related Documents (including the Certificate of Designations), and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions were duly adopted and have not been rescinded or amended. 7.2 CLOSING DELIVERIES TO THE COMPANY. The Purchaser will deliver to the Company the Purchase Price for the Preferred Shares to be acquired on the Closing Date by payment by wire transfer of immediately available funds to an account designated in writing by the Company. In addition, the following documents and items shall be delivered to the Company at or prior to the Required Initial Filing: (a) Evidence reasonably acceptable to the Company of the authorization by the Purchaser of this Agreement and the Related Documents to which the Purchaser is a party and the consummation of the transactions contemplated hereby and thereby; (b) Fully executed and delivered counterparts of the Registration Rights Agreement and the Exchange Agreement; and (c) Certificate of a duly authorized officer of the Purchaser dated as of the date of the Required Initial Filing: (i) stating that the conditions set forth in Sections 7.3(a), (b) and (c) have been satisfied as of the date of the Required Initial Filing; and (ii) setting forth the resolutions of the Purchaser authorizing the execution and delivery of this Agreement and the Related Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, and certifying that such resolutions were duly adopted and have not been rescinded or amended. 7.3 CONDITIONS PRECEDENT FOR THE COMPANY. The Company's obligation to issue and sell the Preferred Shares on the Closing Date to the Purchaser is subject to the satisfaction, on or prior to the date of the Required Initial Filing, of the following conditions: (a) Representations and Warranties. The representations and warranties of the Purchaser contained herein and in any writing delivered pursuant hereto shall be true and correct when made and as of the date of the Required Initial Filing. All acts and 14 covenants required hereunder to be performed or complied with by the Purchaser prior to the Required Initial Filing shall have been performed by it. (b) Litigation. No action, suit, investigation or proceeding shall be pending or threatened as of the date of the Required Initial Filing before any court or Governmental Agency to restrain, prohibit, collect damages as a result of or otherwise challenge this Agreement or any Related Document or any transaction contemplated hereby or thereby. (c) No Termination of Merger Agreement. The Merger Agreement shall not have been terminated and shall not be terminable as of the Closing Date by any party thereto. ARTICLE VIII COVENANTS OF THE COMPANY AND ENRON 8.1 AFFIRMATIVE COVENANTS. For the period between the execution of this Agreement and the Closing Date, the Company shall, and shall cause each Subsidiary to: (a) cause all properties owned by the Company or used or held for use in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Board of Directors may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, that the foregoing shall not prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the management of the Company, desirable in the conduct of its business and is not disadvantageous in any material respect to the holders of Preferred Shares; (b) preserve and keep in full force and effect the corporate existence, rights (charter and statutory), licenses and franchises of the Company; provided, that the Company shall not be required to preserve any such right, license or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company as a whole and that the loss thereof is not disadvantageous in any material respect to the holders of Preferred Shares; (c) maintain the books, accounts and records of the Company in accordance with GAAP; (d) comply with all material legal requirements and material contractual obligations applicable to the operations and business of the Company and its Subsidiaries and pay all applicable taxes as they become due and payable; and (e) permit representatives of the Purchaser and its agents (including their counsel, accountants and consultants) to have reasonable access during business hours to the Company's books, records, facilities, key personnel, officers, directors, customers, independent accountants and legal counsel to the extent that such access is not prohibited by FERC marketing affiliate rules. 15 8.2 NEGATIVE COVENANTS. For the period between the execution of this Agreement and the Closing Date, without the approval of the Purchaser, the Company will not: (a) Dividends. Directly or indirectly declare or pay, or permit any Subsidiary to declare or pay, any dividends, or make or permit any Subsidiary to make, any distributions upon any of its equity securities, other than (i) any dividend or other distribution resulting from the cancellation by the Company of Debt owed by Enron and its Affiliates to the Company (the "Intercompany Note Receivable") under the Cash Management Program; provided that such cancellation of Debt does not reduce the net amount of the Intercompany Note Receivable to an amount less than $240 million plus accrued and unpaid dividends on the Preferred Stock and (ii) dividends on the Preferred Stock. (b) Redemptions. Except as provided pursuant to the terms of the Preferred Stock, directly or indirectly redeem, purchase or otherwise acquire, any of the Company's or any Subsidiary's equity securities; (c) Issuances. Authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) of (x) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities issued in connection with the issuance of equity securities or containing profit participation features) or (y) any equity securities (or any securities convertible into or exchangeable for any equity securities, including any warrants or stock options); (d) Mergers. Merge or consolidate, or enter into an agreement providing for any merger or consolidation, with any Person if the holders of the Company's capital stock prior to the transaction will own less than 100% of the voting power of the Company's capital stock after the transaction; (e) Sale of Assets. Except as provided in Schedule 8.2, sell, lease or otherwise dispose of any assets of the Company, other than obsolete equipment or inventory and asset sales in the Ordinary Course of Business consistent with past practice not to exceed an aggregate of $20 million within any 12-month period; (f) Bankruptcy. Pursuant to or within the meaning of Title 11 of the United States Code or any similar federal, state or foreign law for the relief of debtors, commence a voluntary case, consent to the entry of an order for relief against it in an involuntary case, consent to the appointment of a receiver, trustee, assignee, liquidator or similar official of it or for all or substantially all of its property, or make a general assignment for the benefit of its creditors; (g) Charter Amendments. Make any amendment to or waive any provision of the Company's certificate of incorporation or bylaws, or file any resolution of the Board of Directors with the Secretary of State of Delaware, in either case which materially and adversely affects the holders of the Preferred Shares; (h) Investments and Loans. Make, or permit any Subsidiary to make, any Investment in any Person or any loans or advances to, or guarantees for the benefit of, any Person, other than (i) loans to any wholly owned Subsidiary, (ii) loans pursuant to the Cash 16 Management Program and (iii) Investments, loans, advances and guarantees made in the Ordinary Course of Business; (i) Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, Debt, other than (i) the Debt outstanding as of the date hereof, (ii) bank Debt incurred after the date hereof not exceeding $450 million in the aggregate on the terms contained in, or with an interest rate and prepayment provisions not substantially different from, the terms contained in, that Commitment Letter dated October 31, 2001, between the Company and certain banks and (iii) Permitted Refinancing Debt; (j) Capital Expenditures. Make, or permit the Company and its Subsidiaries, taken as a whole, to make Capital Expenditures (including, without limitation, payments with respect to capitalized leases), (i) during the period from the date hereof through December 31, 2001, totaling in excess of $40 million, (ii) during the year ending December 31, 2002, totaling in excess of $115 million and (iii) thereafter, in excess of annual budgeted amounts, except in each case for additional expenditures not ordinarily classified as Capital Expenditures that are required to be classified as Capital Expenditures by applicable regulatory requirements; and (k) Note Receivable. Allow the Intercompany Note Receivable to be less than $240 million plus accrued and unpaid dividends on the Preferred Stock. 8.3 INFORMATION RIGHTS. For so long as the Purchaser continues to hold at least one Preferred Share, the Company shall deliver to the Purchaser: (a) as soon as available but in any event within forty-five (45) days after the end of each quarterly accounting period in each fiscal year, (i) unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and (ii) unaudited consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarterly period, setting forth in each case comparisons to the Company's annual budget and to the corresponding period in the preceding fiscal year, and all such statements shall be prepared in accordance with GAAP (except as to the absence of notes and comparative balances with respect to unaudited financial statements); (b) within one hundred twenty (120) days after the end of each fiscal year, consolidated statements of income and cash flows of the Company for such fiscal year, and consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year, setting forth in each case comparisons to the Company's annual budget and to the preceding fiscal year, all prepared in accordance with GAAP certified by one of the "Big Five" independent certified public accountant firms and accompanied by a copy of such firm's annual management letter to the Board of Directors; (c) promptly upon receipt thereof, any additional reports, management letters or other written information concerning significant aspects of the operations or financial affairs of the Company and its Subsidiaries prepared for senior management or the Board of Directors (and not otherwise contained in other materials provided hereunder); 17 (d) prior to the beginning of each fiscal year but in any event no later than forty-five (45) days prior thereto, an annual budget prepared on a quarterly basis for the Company and its Subsidiaries for such fiscal year (displaying anticipated statements of income and cash flows and balance sheets), and promptly upon preparation thereof any other significant budgets prepared by the Company and any revisions of such annual or other budgets; (e) within ten (10) days after transmission thereof, copies of all financial statements, proxy statements, reports and any other general written communications which the Company sends to its stockholders or holders of its indebtedness and copies of all registration statements and all regular, special or periodic reports which it files, or any of its officers or directors file with respect to the Company, with the Securities and Exchange Commission or with any securities exchange on which any of its securities are then listed, and copies of all press releases and other statements made available generally by the Company to the public concerning material developments in the Company's and its Subsidiaries' businesses; and (f) with reasonable promptness, such other material information and financial data concerning the Company as any Person entitled to receive information under this Section 7.3 may reasonably request; provided, however, that the disclosure of such information or financial data does not violate applicable regulatory restrictions or unreasonably interfere with the operations of the Company. Each of the financial statements referred to in paragraphs (a) and (b) shall be true and correct in all material respects as of the dates and for the periods stated therein, subject in the case of the unaudited financial statements to changes resulting from normal year-end adjustments for recurring accruals. 8.4 SALE OF PREFERRED SHARES OF THE COMPANY. Each of the Company and Enron agree that if the option granted pursuant to the Option Agreement has become exercisable in accordance with the terms of the Option Agreement prior to the receipt of clearance on the Hart-Scott-Rodino Act filing made pursuant to Section 7.1(d), the Purchaser will have the option to (i) sell the Preferred Shares to any other Person in a transaction which complies with the Securities Act or (ii) notify the Company and Enron that the Purchaser desires to have the Company sold. Upon such notification, the Company and Enron agree to use their best efforts to effect, as soon as reasonably practicable, the sale of the Company in which all of the outstanding Preferred Stock is sold to a third party, redeemed or repurchased; provided, however, that the Purchaser will determine in its sole discretion the acceptable consideration for such sale. 8.5 USE OF PROCEEDS. The Company agrees that the Purchase Price and the proceeds from any Debt incurred by the Company in compliance with Section 8.2(i)(ii) hereof will be loaned to the indirect holder of all the capital stock of the Company, MCTJ Holding Co. LLC, which loans will be evidenced by promissory notes in the forms attached hereto as Exhibit D. 18 ARTICLE IX SURVIVAL 9.1 SURVIVAL. The representations and warranties of the parties hereto contained herein, or in any writing delivered pursuant hereto, shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, regardless of any investigation made by the Purchaser or on its behalf, and shall continue until the first anniversary of the Closing Date, except for the representations and warranties set forth in Sections 4.1, 4.2 and 4.3 hereof which shall survive indefinitely, and except for the representations and warranties set forth in Section 4.12 hereof which shall survive until the date that is ninety (90) days following the expiration of the applicable statute of limitations. ARTICLE X INDEMNIFICATION 10.1 INDEMNIFICATION BY THE COMPANY. In consideration of the Purchaser's execution and delivery of this Agreement and the acquisition of the Preferred Shares hereunder and in addition to all of the Company's other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Purchaser and all of its Affiliates, officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Purchaser Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, expenses (including, without limitation, costs of suit and attorneys' fees and expenses) in connection therewith (irrespective of whether any such Purchaser Indemnitee is a party to the action for which indemnification hereunder is sought (the "Indemnified Liabilities"), incurred by the Purchaser Indemnitees or any of them as a result of, or arising out of, relating to any breach of any representation, warranty, covenant or agreement made by the Company herein or in any Related Document; provided, that with respect to any such claim based upon a breach of a representation or warranty, a bona fide claim relating thereto has been made within the applicable survival period specified in Section 9.1. The Company shall reimburse the Purchaser Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 10.2 INDEMNIFICATION BY THE PURCHASER. In consideration of the Company's execution and delivery of this Agreement and issuance of the Preferred Shares hereunder and in addition to all of the Purchaser's other obligations under this Agreement, the Purchaser shall defend, protect, indemnify and hold harmless the Company and all of its Affiliates, officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Company Indemnitees") from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to any breach of any representation, warranty, covenant or agreement made by the Purchaser herein or in any Related Document; provided, that with respect to any such claim based upon a breach of a representation or warranty, a bona fide claim relating thereto has been made within the applicable survival period 19 specified in Section 9.1. The Purchaser shall reimburse the Company Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the extent that the foregoing undertaking by the Purchaser may be unenforceable for any reason, the Purchaser shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 10.3 INDEMNIFICATION PROCEDURE. (a) In the case of any claim asserted by a third party against a party entitled to indemnification under this Agreement (the "Indemnified Party"), (i) notice setting forth with reasonable specificity the facts and circumstances of which such Person has received notice shall be given by the Indemnified Party (such notice, an "Indemnification Claim Notice") to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and (ii) the Indemnified Party shall permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume the defense of any claim or any litigation resulting therefrom; provided, that (i) counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and the Indemnified Party may participate in such defense at such Indemnified Party's expense, and (ii) the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except to the extent that (x) such failure results in a lack of actual notice to the Indemnifying Party and (y) such Indemnifying Party is materially prejudiced as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such claim or litigation, shall consent to entry of any judgment or enter into any settlement that (x) provides for injunctive or other nonmonetary relief affecting the Indemnified Party or (y) does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such claim or litigation. (b) In the event that the Indemnifying Party does not assume and conduct the defense of any claim subject to indemnification hereunder in accordance with the provisions of Section 10.3(a) above, the Indemnified Party may take over and assume control over the defense, settlement, negotiations or litigation relating to any such claim at the sole cost of the Indemnifying Party; provided, that if the Indemnified Party does so take over and assume control, (x) the Indemnified Party shall not settle such claim or litigation without the written consent of the Indemnifying Party, such consent not to be unreasonably withheld, (y) the Indemnified Party shall be reimbursed by the Indemnifying Party for reasonable attorneys' fees and other expenses of defending such claim upon the presentation of itemized bills for such expenses to the Indemnifying Party, and (z) the Indemnifying Party will remain responsible for any Indemnified Liabilities that the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by such claim to the fullest extent provided in this Article IX. 20 ARTICLE XI GENERAL PROVISIONS 11.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, including each subsequent holder of Preferred Shares. Except as otherwise specifically provided herein or in the Related Documents, neither this Agreement nor the Preferred Shares shall be assignable by any party (whether by operation of law or otherwise) unless the following conditions are satisfied: (a) except for an assignment to an Affiliate, the other parties hereto consent in writing to the assignment, and (b) in the case of an assignment by Purchaser, Purchaser has concurrently assigned its rights under the Exchange Agreement and the Registration Rights Agreement to the assignee and the assignee shall have agreed, in a written instrument in form and substance satisfactory to Enron, to become bound to each such agreement as the successor party of Purchaser under such agreements. 11.2 ENTIRE AGREEMENT. This Agreement and the other writings referred to herein or delivered pursuant hereto constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior arrangements or understandings. 11.3 NOTICES. All notices, requests, consents and other communications provided for herein shall be in writing and shall be (i) delivered in person, (ii) transmitted by telecopy, (iii) sent by first-class, registered or certified mail, postage prepaid, or (iv) sent by reputable overnight courier service, fees prepaid, to the recipient at the address or telecopy number set forth below, or such other address or telecopy number as may hereafter be designated in writing by such recipient. Notices shall be deemed given upon personal delivery, seven days following deposit in the mail as set forth above, upon acknowledgment by the receiving telecopier or one day following deposit with an overnight courier service. If to the Company: Northern Natural Gas Company 1400 Smith Street Houston, Texas 77002 Telecopy: (713) 646-2738 Attention: General Counsel with a copy to (which shall not constitute notice to the Company): Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002 Telecopy: (512) 236-3205 Attention: Thomas P. Mason 21 If to the Purchaser: Dynegy Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Telecopy: 713-507-6808 Attention: General Counsel with a copy to (which shall not constitute notice to the Purchaser): Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, TX 77002-4995 Telecopy: (713) 229-1234 Attention: R. Joel Swanson 11.4 TERMINATION. This Agreement may be terminated at any time prior to the Required Initial Filing: (a) by the mutual written consent of the Company and the Purchaser; or (b) by either the Company or the Purchaser, if the Required Initial Filing shall not have occurred on or before November 10, 2002, unless extended by the mutual written agreement of the Company and the Purchaser; provided, however, that (x) the party seeking to terminate this Agreement under this clause (b) is not then in material breach of this Agreement and (y) the right to terminate this Agreement under this clause (b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Required Initial Filing to occur on or before such date. 11.5 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in Section 11.4, written notice thereof shall forthwith be given by the terminating party to the other party, and this Agreement shall thereupon terminate and become void and have no effect, no party shall have liability to any other party in respect of this Agreement, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 11.5, 11.6, 11.7, 11.11, 11.12, and 11.14 shall survive the termination of this Agreement; provided, that such termination shall not relieve any party of any liability for any willful breach of any covenant or agreement contained in this Agreement. 11.6 EXPENSES. Except as otherwise provided in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred. 11.7 CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS. Unless required by law or otherwise contemplated by this Agreement, the Company and the Purchaser shall (i) keep confidential and (ii) shall not communicate to other Persons (other than their respective employees, agents and advisors and other than lenders or prospective lenders of the Company) or make any public announcements in respect of this Agreement and matters discussed or disclosed 22 in connection herewith or therewith, without prior consent by the other party; in the event such consent is given, the parties shall cooperate as to the timing and contents of any such public announcement. 11.8 AMENDMENT AND WAIVER. No amendment of any provision of this Agreement shall be effective, unless the same shall be in writing and signed by the Company and the holders of at least a majority of the Preferred Shares issued to the Purchaser on the Closing Date. Except as otherwise expressly set forth herein, any failure of the Company to comply with any provision hereof may only be waived in writing by the holders of at least a majority of the Preferred Shares, and any failure of any holder of Preferred Shares to comply with any provision hereof may only be waived in writing by the Company. No such waiver shall operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No failure by any party to take any action against any breach of this Agreement or default by any other party shall constitute a waiver of such party's right to enforce any provision hereof or to take any such action. 11.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one agreement. 11.10 HEADINGS. The headings of the various sections of this Agreement have been inserted for reference only and shall not be deemed to be a part of this Agreement. 11.11 SPECIFIC PERFORMANCE. The Company, on the one hand, and the Purchaser, on the other hand, acknowledge that money damages would not be a sufficient remedy for any breach of this Agreement. It is accordingly agreed that the parties shall be entitled to specific performance and injunctive relief as remedies for any such breach, these remedies being in addition to any of the remedies to which they may be entitled at law or equity. 11.12 REMEDIES CUMULATIVE. Except as otherwise provided herein, the remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against any other party hereto. 11.13 GOVERNING LAW. THE CORPORATE LAW OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS. 11.14 NO THIRD PARTY BENEFICIARIES. Except as specifically set forth or referred to herein, nothing herein is intended or shall be construed to confer upon any Person other than the parties hereto and their successors or assigns, any rights or remedies under or by reason of this Agreement. 23 11.15 SEVERABILITY. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. * * * * 24 IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Agreement as of the date first above written. ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. ------------------------------ Name: Raymond M. Bowen, Jr. Title: Executive Vice President - Finance and Treasurer NORTHERN NATURAL GAS COMPANY By: /s/ DREW J. FOSSUM ------------------------------ Name: Drew J. Fossum Title: Vice President and General Counsel DYNEGY INC. By: /s/ HUGH A. TARPLEY ------------------------------ Name: Hugh A. Tarpley Title: Executive Vice President EX-99.8 10 h92082ex99-8.txt CERTIFICATE OF DESIGNATIONS - SERIES A PREFERRED EXHIBIT 99.8 CERTIFICATE OF DESIGNATIONS of the SERIES A PREFERRED STOCK of NORTHERN NATURAL GAS COMPANY Pursuant to Section 151 of the General Corporation Law of the State of Delaware NORTHERN NATURAL GAS COMPANY, a Delaware corporation (the "Corporation"), HEREBY CERTIFIES that resolutions were duly adopted by the Board of Directors of the Corporation in accordance with Section 151(g) of the General Corporation Law of the State of Delaware pursuant to the authority conferred upon the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation of the Corporation as follows: RESOLVED, that a series of the Corporation's Preferred Stock, par value $0.01 per share ("Preferred Stock"), designated as Series A Preferred Stock be and hereby is created and that the designation and number of shares thereof and the powers, preferences and rights thereof are as follows: SERIES A PREFERRED STOCK 1. Designation and Amount; No Fractional Shares. There shall be a series of Preferred Stock designated as "Series A Preferred Stock" (the "Series A Preferred Stock") and the authorized number of shares constituting such series shall be 1,000. The Series A Preferred Stock is issuable in whole shares only. 2. Dividends. Holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors or a duly authorized committee thereof out of funds of the Corporation legally available for payment of dividends, cumulative cash dividends at the rate of 6% per annum, compounded quarterly, per share on the initial liquidation preference of $1,500,000 per share (equivalent to $90,000 per annum per share of Series A Preferred Stock). Dividends on the Series A Preferred Stock shall be payable annually in arrears on January 31 of each year (each an "Annual Dividend Payment Date") commencing on January 31, 2003; provided, however, the Corporation may pay accrued dividends at any time that is not an Annual Dividend Payment Date at its election (the date of the first dividend payment that is not an Annual Dividend Payment Date is referred to herein as the "Initial Dividend Payment Date"). After the Initial Dividend Payment Date, dividends on the Series A Preferred Stock shall be payable quarterly in arrears commencing on the last day of the calendar quarter immediately following the Initial Dividend Payment Date (each such quarterly dividend payment date is referred to herein as a "Quarterly Dividend Payment Date" and, together with the Annual Dividend Payment Date, a "Dividend Payment Date"). If any date on which dividends would otherwise be payable is a Saturday, Sunday or a day on which banking institutions in the State of Texas are authorized or obligated by law or executive order to close, then the dividends otherwise payable on such date shall instead be payable on the next succeeding business day. Dividends on shares of the Series A Preferred Stock shall be fully cumulative and shall accumulate (whether or not declared and whether or not the Corporation has funds legally available for the payment of dividends), on a daily basis, without interest, from the previous Dividend Payment Date, except that the first dividend shall accrue, without interest, from the date of initial issuance of the Series A Preferred Stock. Dividends shall be payable, in arrears, to holders of record as they appear in the records of the Corporation at the close of business on the applicable record date, which shall be the 15th day of the calendar month in which the applicable Dividend Payment Date falls or such other date designated by the Board of Directors of the Corporation for the payment of dividends that is not more than 30 nor less than 10 days prior to such Dividend Payment Date. Any dividend payable on the Series A Preferred Stock for any dividend period that is shorter or longer than a full quarterly or annual period, as the case may be, shall be computed on the basis of the ratio of the actual number of days in such partial period to the actual number of days in such full quarterly or annual period. Additional dividends shall accrue with respect to any dividends (including dividends payable pursuant to this sentence) not paid by the Dividend Payment Date on which such dividend accrues; such additional dividends shall accrue whether or not declared, at a rate of 6% per annum compounded quarterly, and shall be payable in the same manner and at such times as provided in this Section 2 with respect to dividends on each outstanding share of Series A Preferred Stock. No dividends may be declared or paid or set apart for payment on any stock of the Corporation ranking on a parity with the Series A Preferred Stock with respect to the payment of dividends unless there shall also be or have been declared and paid or set apart for payment on the Series A Preferred Stock dividends for all dividend payment periods of the Series A Preferred Stock ending on or before the dividend payment date of such parity stock, ratably in proportion to the respective amounts of dividends (x) accumulated and unpaid or payable on such parity stock, on the one hand, and (y) accumulated and unpaid through the dividend payment period or periods of the Series A Preferred Stock next preceding such dividend payment date, on the other hand. Except as set forth in the preceding paragraph, unless full cumulative dividends on the Series A Preferred Stock have been paid through the most recently completed quarterly or annual dividend period, as the case may be, for the Series A Preferred Stock, no dividends may be paid or declared and set apart for payment or other distribution made upon the Common Stock or on any other stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends, nor may any of the Corporation's common stock, par value $1.00 per share ("Common Stock"), or any other stock of the Corporation ranking junior to or on a parity with the Series A Preferred Stock as to dividends be redeemed, purchased or otherwise acquired for any consideration (or any payment be made to or available for a sinking fund for the redemption of any shares of such stock; provided, however, that any moneys theretofore deposited in any sinking fund with respect to any such stock in compliance with the provisions of such sinking fund may thereafter be applied to the purchase or redemption of such stock in accordance with the terms of such sinking fund, regardless of whether at the time of such 2 application full cumulative dividends upon shares of the Series A Preferred Stock outstanding to the most recent Dividend Payment Date shall have been paid or declared and set apart for payment) by the Corporation; provided that any such junior or parity stock or Common Stock may be converted into or exchanged for stock of the Corporation ranking junior to the Series A Preferred Stock as to dividends. Notwithstanding anything to the contrary in this paragraph, the Corporation may at any time pay any dividend or other distribution resulting from the cancellation by the Corporation of Debt (as defined in Section 5) owed by Enron Corp. ("Enron") and its Affiliates (as defined in Section 5) to the Corporation (the "Intercompany Note Receivable") under the zero-balance cash management program of Enron (the "Cash Management Program"); provided, that such cancellation of Debt does not at any time reduce the amount of the Intercompany Note Receivable to a net amount less than the sum of (a) $240 million and (b) an amount equal to all dividends (whether or not declared) accrued and accumulated and unpaid on the shares of Series A Preferred Stock at such time. 3. Liquidation Preference. The shares of Series A Preferred Stock shall rank, as to rights to distributions upon liquidation, dissolution or winding up of the Corporation, prior to the shares of Common Stock and any other stock of the Corporation ranking junior to the Series A Preferred Stock as to rights upon liquidation, dissolution or winding up of the Corporation, so that in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders, an amount equal to $1,500,000 per share, plus an amount equal to all dividends (whether or not declared) accrued and accumulated and unpaid on the shares of Series A Preferred Stock to the date of payment, before any distribution of assets is made to holders of shares of Common Stock or any other class or series of stock of the Corporation that ranks junior to the Series A Preferred Stock as to rights to distributions upon liquidation, dissolution or winding up. The holders of the Series A Preferred Stock shall not be entitled to receive the preferential amounts as aforesaid until the liquidation preference of any other stock of the Corporation ranking senior to the Series A Preferred Stock as to rights to distributions upon liquidation, dissolution or winding up shall have been paid (or a sum set aside therefor sufficient to provide for payment) in full. After payment of the full amount of the preferential amounts as aforesaid, the holders of shares of Series A Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation, or proceeds thereof, distributable among the holders of shares of Series A Preferred Stock and any stock ranking on a parity with the Series A Preferred Stock as to rights to distributions on liquidation, dissolution or winding up of the Corporation shall be insufficient to pay in full the preferential amounts to which such stock would be entitled, then such assets, or the proceeds thereof, shall be distributable among such holders ratably in accordance with the respective amounts which would be payable on such shares if all amounts payable thereon were paid in full. For the purposes hereof, any sale of all or substantially all of the assets of the Corporation and any consolidation, merger or acquisition pursuant to which the holders of the outstanding capital stock of the Corporation immediately prior to such acquisition, consolidation or merger fail to hold capital stock representing 100% of the voting power of the Corporation or surviving entity immediately following such acquisition, consolidation or merger shall be deemed to be a liquidation, dissolution or winding up of the Corporation. 3 4. Voting Rights. The Series A Preferred Stock, except as provided herein or as otherwise from time to time required by law, shall have no voting rights. Whenever, at any time or times, two quarterly dividends, whether or not consecutive, on the outstanding shares of Series A Preferred Stock or on any stock ranking on a parity with the Series A Preferred Stock with respect to the payments of dividends shall be in arrears, the holders of the Series A Preferred Stock shall vote separately as a class upon all matters upon which holders of the Common Stock (and of any other securities which may similarly be entitled to vote with the holders of the Common Stock) are entitled to vote, other than with respect to the election of directors, and, when so voting, shall be entitled to one vote for each share of Series A Preferred Shock held, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation. The voting rights set forth in the previous sentence shall continue until all dividends accumulated on such shares of Preferred Stock on which voting rights have been conferred, including the Series A Preferred Stock, for the past dividend periods and the then current dividend period shall have been fully paid or declared and a sum sufficient for the payment thereof set aside for payment, whereupon such right shall terminate, subject to revesting in the event of each and every subsequent default of the character above mentioned. 5. Protective Provisions. So long as any shares of any Series A Preferred Stock remain outstanding, the Corporation shall not, without the affirmative vote of the holders of at least a majority of the shares of such Series A Preferred Stock: 5.1 Redemptions. Except as provided in Section 6, directly or indirectly redeem, purchase or otherwise acquire, any of the Corporation's or any Subsidiary's equity securities; 5.2 Issuances. Authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) of (x) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities issued in connection with the issuance of equity securities or containing profit participation features) or (y) any equity securities (or any securities convertible into or exchangeable for any equity securities, including any warrants or stock options); 5.3 Mergers. Merge or consolidate, or enter into an agreement providing for any merger or consolidation, with any Person if the holders of the Corporation's capital stock prior to the transaction will own less than 100% of the voting power of the surviving corporation's capital stock after the transaction; 5.4 Sale of Assets. Except as provided in Schedule 5.4, sell, lease or otherwise dispose of any assets of the Corporation, other than obsolete equipment or inventory and other than assets sales in the ordinary course of business consistent with past practice not to exceed an aggregate of $20 million within any 12-month period; 4 5.5 Bankruptcy. Pursuant to or within the meaning of Title 11 of the United States Code or any similar federal, state or foreign law for the relief of debtors, commence a voluntary case, consent to the entry of an order for relief against it in an involuntary case, consent to the appointment of a receiver, trustee, assignee, liquidator or similar official of it or for all or substantially all of its property, or make a general assignment for the benefit of its creditors; 5.6 Charter Amendments. Make any amendment to or waive any provision of the Corporation's certificate of incorporation or bylaws, or file any resolution of the Board with the Secretary of State of Delaware, in either case which materially and adversely affects the holders of the Preferred Shares and except for any amendment to the certificate of incorporation of the Corporation that are intended to make the Corporation bankruptcy remote; 5.7 Investments and Loans. Make, or permit any Subsidiary to make, any Investment in any Person or any loans or advances to, or guarantees for the benefit of, any person, other than (i) loans to any wholly owned Subsidiary, (ii) loans of a maximum amount of $1,950 million to MCTJ Holding Co. LLC, (iii) loans pursuant to the Cash Management Program and (iv) Investments, loans, advances and guarantees made in the Ordinary Course of Business; 5.8 Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, Debt, other than (i) the Debt outstanding as of the date hereof, (ii) bank Debt incurred after the date hereof not exceeding $450 million in the aggregate on the terms contained in, or with an interest rate and prepayment provisions not substantially different from, the terms contained in, that Commitment Letter dated October 31, 2001, between the Corporation and certain banks and (iii) Permitted Refinancing Debt; 5.9 Capital Expenditures. Make, or permit the Corporation and its Subsidiaries, taken as a whole, to make Capital Expenditures (including, without limitation, payments with respect to capitalized leases), (i) during the period from the date hereof through December 31, 2001, totaling in excess of $40 million, (ii) during the year ending December 31, 2002, totaling in excess of $115 million and (iii) thereafter, in excess of annual budgeted amounts, except in each case for additional expenditures not ordinarily classified as Capital Expenditures that are required to be classified as Capital Expenditures by applicable regulatory requirements; and 5.11 Note Receivable. Allow the Intercompany Note Receivable to be less than the sum of (a) $240 million and (b) an amount equal to all dividends 5 (whether or not declared) accrued and accumulated and unpaid on the shares of Series A Preferred Stock at any time. For the purposes of this Section 5, (a) "Affiliate" shall mean, with respect to any person, any other person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the person in question; provided, that none of Dynegy Inc. ("Dynegy") and its Affiliates shall be deemed to be an Affiliate of the Corporation. For purposes of this definition of Affiliate, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities or general partnership or member interests, by contract or otherwise. Without limiting the generality of the foregoing, a person shall be deemed to control any other person in which it or any of its Affiliates owns, directly or indirectly, a majority of the ownership interests. (b) "Capital Expenditures" has the meaning ascribed to such term under United States generally accepted accounting principles as in effect from time to time, consistently applied. (c) "Contingent Obligation" shall mean, as applied to any person, any direct or indirect liability, contingent or otherwise, of that person with respect to any indebtedness, lease, dividend, letter of credit or other similar obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business) co-made or discounted or sold with recourse by that person, or in respect of which that person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet, income or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation shall be equal to the amount of the obligation, or portion thereof, so guaranteed or otherwise supported. (d) "Debt" shall mean, with respect to any person, the aggregate amount, without duplication, of (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services; (iv) all capitalized lease obligations; (v) all obligations or liabilities of others secured by a lien on any asset owned by such person whether or not such obligation or liability is assumed, to the extent of the lesser of such obligation or liability or the book value of such asset; (vi) all Contingent Obligations of such person; and (vii) any other obligations or liabilities which are required by generally accepted accounting principles to be shown as debt on a balance sheet, other than trade payables and liabilities pursuant to the tax allocation agreement between Enron and the Corporation. 6 (e) "Investment" as applied to any Person means (a) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest of any other Person and (b) any capital contribution by such Person to any other Person. (f) "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency). (g) "Permitted Refinancing Debt" shall mean any Debt of the Corporation or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of the Corporation or any of its Subsidiaries (other than intercompany Debt); provided that: (1) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of, plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of necessary fees and expenses incurred in connection therewith and any premiums paid on the Debt so extended, refinanced, renewed, replaced, defeased or refunded); and (2) such Permitted Refinancing Debt has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded. (h) "Person" means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or other entity. (i) "Subsidiary," when used with respect to any person, shall mean any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such person or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by such person. For purposes hereof, a person shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such person, directly or indirectly, is allocated a majority of partnership, limited liability company, association or other business entity gains or losses, or is or controls the managing director or general partner of such partnership, limited liability company, association or other business entity. (j) "Weighted Average Life to Maturity" shall mean, when applied to any Debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect 7 thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Debt. 6. Redemption. The shares of Series A Preferred Stock shall be redeemable at the option of the Corporation in accordance with this Section 6: 6.1 Per share redemption payment. If one of the events set forth in Section 6.5 gives rise to an option on the part of the Corporation to redeem all, but not less than all, of the outstanding shares of Series A Preferred Stock, then at such time as the shares are redeemed the Corporation may redeem, to the extent it has legally available funds therefor, all, but not less than all, shares of Series A Preferred Stock outstanding at a redemption price per share equal to the original liquidation preference amount of $1,500,000 per share (the "Redemption Price"); provided, that on the date of redemption the Board of Directors, or duly authorized committee thereof, declares and pays accrued and accumulated and unpaid dividends on all outstanding shares of Series A Preferred Stock. 6.2 Notice of Redemption. If the Corporation exercises its option to redeem all, but not less than all, of the outstanding shares of Series A Preferred Stock, pursuant to this Section 6 then at such time as the Corporation shall redeem such shares, notice of such redemption shall be given by certified mail, return receipt requested, to each holder of record of the shares to be redeemed, at such holder's address as the same appears on the stock register of the Corporation at least 30 days prior to the redemption date. The notice shall state: 6.2.1. the redemption date; 6.2.2. the place or places in Houston, Texas where certificates for such shares are to be surrendered for payment of the Redemption Price; and 6.2.3. that dividends on the shares to be redeemed will cease to accrue on such redemption date. 6.3 Effect of notice of redemption. If Notice of Redemption is delivered as set forth above, then from and after the redemption date (unless the Corporation fails to pay the Redemption Price on the redemption date) dividends on the Series A Preferred Stock so called for redemption shall cease to accrue, and said shares shall no longer be deemed to be outstanding, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the Redemption Price) shall cease. Upon surrender in accordance with said notice of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board shall so require and the notice shall so 8 state), such shares shall be redeemed by the Corporation at the Redemption Price aforesaid. 6.4 Authorized but unissued shares. Any shares of Series A Preferred Stock that shall at any time have been redeemed or purchased by the Corporation shall, after such redemption, have the status of authorized but unissued shares or Preferred Stock, without designation as to series until such shares are once more designated as part of a particular series by the Board. 6.5 Events giving rise to an option to redeem. 6.5.1. Redemption option lasting six months. The Corporation will have the option to redeem all, but not less than all, of the outstanding Series A Preferred Stock for a period of six months from the date of any of the following events: 6.5.1.1. The Merger Agreement has been terminated pursuant to Section 9.1 thereof; 6.5.1.2. The Merger Agreement has been terminated pursuant to Section 9.2(a) thereof; 6.5.1.3. The Merger Agreement has been terminated pursuant to Section 9.2(d) thereof; or 6.5.1.4. The third anniversary of the date that the Merger Agreement has been terminated pursuant to Section 9.2(b), 9.3(c), 9.4(a) or 9.4(b) thereof. 6.5.2. Redemption option lasting one year. The Corporation will have the option to redeem all, but not less than all, of the outstanding Series A Preferred Stock for a period of one year from the date of any of the following events: 6.5.2.1. The Merger Agreement has been terminated pursuant to Section 9.2(c); 6.5.2.2. Enron notifies Dynegy that it is terminating the Merger Agreement pursuant to Section 9.3(a) of the Merger Agreement; 6.5.2.3. The Merger Agreement has been terminated pursuant to Section 9.3(b); or 6.5.2.4. The Merger Agreement has been terminated pursuant to Section 9.4(c). 9 For the purposes of this Section 6, "Merger Agreement" shall mean that certain Agreement and Plan of Merger among Dynegy, Stanford, Inc., Sorin, Inc., Badin, Inc. and Enron dated as of November 7, 2001. 7. Rank. Any stock of any class or classes or series of the Corporation shall be deemed to rank: 7.1 prior to shares of the Series A Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, or both, if the holders of stock of such class or classes or series shall be entitled by the terms thereof to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of shares of the Series A Preferred Stock; 7.2 on a parity with shares of the Series A Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, or both, whether or not the dividend rates, dividend payment dates, or liquidation prices per share thereof are different from those of the Series A Preferred Stock, if the holders of stock of such class or classes or series shall be entitled by the terms thereof to the receipt of dividends or of amounts distributed upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority of one over the other as between the holders of such stock and the holders of shares of Series A Preferred Stock; and 7.3 junior to shares of the Series A Preferred Stock, either as to dividends or upon liquidation, dissolution or winding up, or both, if such class or classes or series shall be Common Stock or if the holders of the Series A Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of stock of such class or classes or series. 10 IN WITNESS WHEREOF, said Northern Natural Gas Company has caused this Certificate to be signed by Drew J. Fossum, its Vice President and General Counsel, on November 7, 2001. NORTHERN NATURAL GAS COMPANY /s/ DREW J. FOSSUM ------------------------------ Name: Drew J. Fossum Title: Vice President and General Counsel EX-99.9 11 h92082ex99-9.txt CERTIFICATE OF CORRECTION - SERIES A PREFERRED EXHIBIT 99.9 CERTIFICATE OF CORRECTION OF CERTIFICATE OF DESIGNATIONS OF SERIES A PREFERRED STOCK OF NORTHERN NATURAL GAS COMPANY Northern Natural Gas Company, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Company"), does hereby certify: 1. The name of the corporation is Northern Natural Gas Company. 2. A Certificate of Designations of Series A Preferred Stock of the Company was filed with the Secretary of State of Delaware on November 8, 2001 and that said Certificate requires correction as permitted by Section 103 of the General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate to be corrected is as follows: (i) the date of the Agreement and Plan of Merger referenced in Section 6 thereof was incorrectly stated as November 7, 2001, when it should have been November 9, 2001; and (ii) the Certificate did not include the Schedule 5.4 referenced in Section 5 thereof. 4. The last paragraph of Section 6 is corrected to read as follows: "For the purposes of this Section 6, "Merger Agreement" shall mean that certain Agreement and Plan of Merger among Dynegy, Stanford, Inc., Sorin, Inc., Badin, Inc. and Enron dated as of November 9, 2001." 5. There is attached to the Certificate a Schedule 5.4 in the form attached hereto. IN WITNESS WHEREOF, the undersigned has executed this Certificate on behalf of the Company on the 9th day of November, 2001. NORTHERN NATURAL GAS COMPANY By: /s/ DREW J. FOSSUM ----------------------------- Name: Drew J. Fossum Title: Vice President and General Counsel SCHEDULE 5.4 Excepted Sales, Leases or Other Dispositions of Assets 1. MOPS (approximately 100 miles of 24" pipe and other pipeline facilities extending from a point near Tivoli, Texas and offshore 2. Beaver-Hugoton (approximately 500 miles of 8" to 30" pipe and approximately 77 compressor units and related facilities in or near the Hugoton Basin in Texas, Oklahoma and southwestern Kansas) 3. East Leg ( 9.9 miles of 24" and other Facilities in Walworth and Waukesha Counties, Wisconsin) 4. Kermit to Eunice (approximately 40 miles of 16" pipe and related facilities in Lea County, New Mexico) 5. Skellytown (approximately 10.4 miles of 24" and 12" pipe and related facilities in Carson County, Texas) EX-99.10 12 h92082ex99-10.txt EXCHANGE AGREEMENT EXHIBIT 99.10 EXCHANGE AGREEMENT This EXCHANGE AGREEMENT (this "Agreement"), dated on November 9, 2001, is by and between Dynegy Inc., an Illinois corporation ("Dynegy"), and Enron Corp., an Oregon corporation ("Enron"). A. Merger Agreement. Concurrently with the execution of this Agreement, Dynegy, Stanford, Inc., a Delaware corporation, Badin, Inc., an Oregon corporation, Sorin, Inc., an Illinois corporation, and Enron entered into an Agreement and Plan of Merger (the "Merger Agreement"). NOW THEREFORE, in consideration of the mutual agreements contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. In this Agreement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below (and grammatical variations of such terms shall have corresponding meanings): "Authorization" shall mean any and all permits, licenses, authorizations, orders, certificates, registrations or other approvals granted by any Governmental Authority. "Certificate of Designations" means the Certificate of Designations of the NNGC Preferred Stock. "Dynegy Acquisition Proposal" shall have the meaning assigned to such term in the Merger Agreement. "Dynegy Exchange Event" means a termination of the Merger Agreement pursuant to any of (i) Section 9.2(b) thereof after a public announcement of an Enron Acquisition Proposal whether or not the Enron Acquisition Proposal is still pending or has been consummated, (ii) Section 9.3(c) thereof or (iii) Section 9.4(b) thereof. "Dynegy Exchange Option" has the meaning specified in Section 2.1 hereof. "Enron Acquisition Proposal" shall have the meaning assigned to such term in the Merger Agreement. "Enron Common Stock" means the common stock, no par value, of Enron. "Enron Exchange Event" means a termination of the Merger Agreement pursuant to any of (i) Section 9.2(c) after a public announcement of a Dynegy Acquisition Proposal whether or not the Dynegy Acquisition Proposal is still pending or has been consummated, (ii) Section 9.3(b) thereof or (iii) Section 9.4(c) thereof. "Enron Exchange Option" has the meaning specified in Section 2.2 hereof. "Enron Merger Ratio" has the meaning specified in Section 4.1 of the Merger Agreement. "Exchange Option Ratio" has the meaning specified in Section 2.3 hereof. "NNGC" means Northern Natural Gas Corporation, a Delaware corporation. "NNGC Preferred Stock" means the Series A Preferred Stock, par value $.01 per share, of NNGC. "Governmental Agency" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body. "Governmental Authority" shall mean any Governmental Agency (other than a court) of the United States, any foreign country, or any domestic or foreign state, and any political subdivision thereof, and shall include any multinational authority having governmental or quasi-governmental powers. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Law" shall mean all laws, statutes and ordinances of the United States, any state of the United States, any foreign country, any foreign state and any political subdivision thereof, including all decisions of courts having the effect of law in each such jurisdiction. "Material Adverse Effect" shall have the meaning ascribed to such term in the Merger Agreement. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "Option" shall have the meaning ascribed to such term in the Option Agreement. "Option Agreement" means the Option Agreement, dated as of the date hereof, among CGNN Holding Company, Inc., a Delaware corporation, MCTJ Holding Co. LLC, a Delaware limited liability company, Enron and Dynegy Holdings, Inc., a Delaware corporation. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date hereof, between Enron and Dynegy. "Regulation" shall mean any rule or regulation of any Governmental Authority having the effect of Law or of any rule or regulation of any self-regulatory organization. Section 1.2. Interpretations Not Affected by Headings. The division of this Agreement into articles, sections and other portions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. Unless otherwise indicated, all references to an "Article" or "Section" followed by a number refer to the specified Article or Section of this Agreement. The terms "this Agreement," "hereof," "herein" and "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. 2 Section 1.3. Rules of Construction. Unless otherwise specifically indicated or the context otherwise requires, (a) all references to "dollars" or "$" mean United States dollars, (b) words importing the singular shall include the plural and vice versa and words importing any gender shall include all genders, and (c) "include," "includes" and "including" shall be deemed to be followed by the words "without limitation." ARTICLE II EXCHANGE OPTIONS Section 2.1. Dynegy Exchange Event. Upon the terms and subject to the conditions of this Agreement, Dynegy shall have the option (the "Dynegy Exchange Option") to exchange all, but not less than all, of its NNGC Preferred Stock for shares of Enron Common Stock, exercisable at any time during the period of 90 days commencing on the date of the occurrence of a Dynegy Exchange Event by giving written notice of such exercise to Enron. Section 2.2. Enron Exchange Event. Upon the terms and subject to the conditions of this Agreement, Enron shall have the option (the "Enron Exchange Option") to require Dynegy to exchange all, but not less than all, of its NNGC Preferred Stock for shares of Enron Common Stock, exercisable at any time during the period of 15 days commencing on the date of the occurrence of a Enron Exchange Event by giving written notice of such exercise to Dynegy. Section 2.3. Exchange Option Ratio. Upon exercise of either the Dynegy Exchange Option or the Enron Exchange Option, each share of NNGC Preferred Stock shall be exchanged for a number of shares of Enron Common Stock determined by multiplying (a) the quotient obtained by dividing $1,500,000 plus all accrued and unpaid dividends thereon (whether or not declared and whether or not NNGC has funds legally available for the payment of dividends) by $8.86 by (b) a fraction, the numerator of which is the Enron Merger Ratio as in effect on the date of the Merger Agreement and the denominator of which is the Enron Merger Ratio in effect at the time of the termination of the Merger Agreement (the "Exchange Option Ratio"). Section 2.4. Notice; Closing Location. If Dynegy wishes to exercise the Dynegy Exchange Option, it shall send a written notice (the date of which being herein referred to as the "Dynegy Notice Date") to Enron specifying a date (as it may be extended from time to time, the "Dynegy Closing Date") not earlier than three Business Days nor later than 10 Business Days from the Dynegy Notice Date for the closing of the exchange pursuant to the Dynegy Exchange Option (the "Dynegy Closing"). The Dynegy Closing will take place at the offices of Vinson & Elkins, L.L.P., 1001 Fannin Street, Houston, Texas 77002. Section 2.5. Notice; Closing Location. If Enron wishes to exercise the Enron Exchange Option, it shall send a written notice (the date of which being herein referred to as the "Enron Notice Date") to Dynegy specifying a date (as it may be extended from time to time, the "Enron Closing Date") not earlier than three Business Days nor later than 10 Business Days from the Enron Notice Date for the closing of the exchange pursuant to the Enron Exchange Option (the "Enron Closing"). The Enron Closing will take place at the offices of Vinson & Elkins, L.L.P., 1001 Fannin Street, Houston, Texas 77002. Section 2.6. Extension. If either a Dynegy Closing or a Enron Closing (each, a "Closing") cannot be effected by reason of the application of any Law, Regulation or Order, the Dynegy Closing Date or Enron Closing Date, as the case may be, shall be extended to not later 3 than the tenth Business Day following the expiration or termination of the restriction imposed by such Law, Regulation or Order. Without limiting the foregoing, if prior notification to, or Authorization of, any Governmental Authority is required in connection with the exercise of the Dynegy Exchange Option or the Enron Exchange Option, as the case may be, by virtue of the application of such Law, Regulation or Order, Dynegy and Enron shall promptly file the required notice or application for Authorization and Dynegy and Enron shall expeditiously process the same. Section 2.7. Exchange of Certificates. At any Closing, upon the satisfaction of the conditions set forth in Article VI, Dynegy shall deliver the certificates representing the shares of NNGC Preferred Stock to Enron, duly endorsed by the registered holder thereof either in blank or to Enron, and Enron shall issue to Dynegy, the shares of Enron Common Stock issuable pursuant to Section 2.3. The shares of Enron Common Stock to be issued shall be evidenced by certificates registered in the name of Dynegy. Section 2.8. Transfer of Dynegy Exchange Option. If at any time Dynegy has the right to exercise the Dynegy Exchange Option and the conditions specified in Section 6.1 have not been satisfied, Dynegy will have the right to assign its rights under this Agreement to any third party, provided that (i) such assignee assumes all of Dynegy's obligations under this Agreement and (ii) Dynegy shall have concurrently with such assignment transferred all of Dynegy's NNGC Preferred Stock to such assignee. Section 2.9. Make-Whole Right. In the event that Dynegy is prevented from receiving Enron Common Stock following an exercise of either the Dynegy Exchange Option or the Enron Exchange Option, as the case may be, by reason of the failure, after the good faith efforts of both Enron and Dynegy, to satisfy the conditions for the issuance of Enron Common Stock to Dynegy specified in Section 6.1 hereof, Enron shall, as promptly as practicable, take all such action as may be necessary to: (i) create a class of preferred stock of Enron (the "Enron Preferred Stock") that (A) would be non-voting, (B) would convert to Enron Common Stock upon a transfer of the Enron Preferred Stock to any party or parties as to which the conditions specified in Section 6.1 would be satisfied with respect to the Enron Common Stock to be received by any such party, (C) would not vote, separately as a class, with respect to any merger, share exchange or other business combination, (D) would participate pari passu with the Enron Common Stock with respect to dividends and upon liquidation and (E) would otherwise have such terms as would allow the Enron Preferred Stock to have, as nearly as possible taking into account legal and regulatory constraints, the same economic terms as the Enron Common Stock, (ii) issue such number of shares of Enron Preferred Stock to Dynegy in exchange for all of its NNGC Preferred Stock as would, taking into account the conversion ratio with respect to such shares of Enron Preferred Stock, provide for the issuance of an aggregate number of shares of Enron Common Stock as would equal the aggregate number of shares of Enron Common Stock that Dynegy would have been entitled to receive, based on the Exchange Option Ratio, had it received Enron Common Stock upon exercise of the Dynegy Exchange Option, 4 (iii) amend the Registration Rights Agreement to treat the Enron Preferred Stock as if it were Registrable Common Stock (as defined in the Registration Rights Agreement), and (iv) if necessary to allow for the conversion of the Enron Preferred Stock into Enron Common Stock in accordance with the stockholder approval requirements of the NYSE, submit to its stockholders for approval, with the favorable recommendation of the Board of Directors, the issuance of the Enron Common Stock issuable upon conversion of the Enron Preferred Stock; provided, however, that in the event that the conditions specified in Section 6.1 have not been satisfied after a period of 12 months following the date of the exercise of the Dynegy Exchange Right, Dynegy shall have the right to elect, by written notice to Enron, to either (i) withdraw its exercise of the Dynegy Exchange Right and thereafter exercise its rights under the Option Agreement or (ii) receive consideration from Enron (which may be, at the election of Enron, in the form of cash, assets or securities, or some combination thereof) that would have the same economic value as the Enron Common Stock that Dynegy would have received at the time of its exercise of the Dynegy Exchange Option if the Enron Common Stock had been issued to Dynegy as of the first anniversary date of such exercise and Dynegy had immediately sold such Enron Common Stock on the New York Stock Exchange or other national securities market (without discount to the then public trading price of Enron's Common Stock). In the event an Enron Acquisition Proposal is consummated, the surviving party shall be under the same obligation as Enron to substitute for shares of Enron Common Stock (or Enron Preferred Stock) the number of shares of acquiror common stock (or preferred stock of the acquiring company) that would have been received had Dynegy been able to receive the Enron Common Stock upon a Dynegy Exchange Option or an Enron Exchange Option, but for the failure to satisfy the conditions of Section 6.1. Section 2.10. Termination of Exchange Options. The Enron Exchange Option and the Dynegy Exchange Option shall terminate upon any of (i) the consummation of the Merger, (ii) the exercise of the Option or (iii) the redemption of all outstanding shares of NNGC Preferred Stock pursuant to the Certificate of Designation. ARTICLE III REPRESENTATIONS AND WARRANTIES OF ENRON Enron hereby represents and warrants to Dynegy as follows: Section 3.1. Existence. Enron is a corporation duly organized, validly existing and in good standing under the laws of the State of Oregon and has full corporate power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. Section 3.2. Authorization and Enforceability; Issuance of Enron Common Stock. (a) Enron has the full power and authority and has taken all required corporate and other action necessary to authorize and permit Enron to execute and deliver this Agreement and to carry out the terms hereof and to issue and deliver Enron Common Stock, and none of such actions will violate any provision of Enron's Articles of Incorporation or Bylaws or any 5 applicable law, regulation, order, judgment or decree or rule of any stock exchange where the Enron Common Stock is listed, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which Enron is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of Enron, enforceable against Enron in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. (b) The shares of Enron Common Stock that may be issued pursuant to this Agreement have been duly authorized and, when issued and delivered in accordance with this Agreement, will be validly issued and outstanding and will be fully paid and nonassessable. (c) The issuance and delivery of the shares of Enron Common Stock that may be issued pursuant to this Agreement are not subject to any preemptive right of any stockholder of Enron or to any right of first refusal or other similar right in favor of any person which has not been waived and will not require the approval of holders of Enron Common Stock or any other class of Enron capital stock. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DYNEGY Dynegy hereby represents and warrants to Enron as follows: Section 4.1. Existence. Dynegy is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. Section 4.2. Authorization and Enforceability. Dynegy has the full power and authority and has taken all action necessary to permit Dynegy to execute and deliver this Agreement and to carry out the terms hereof and thereof, and none of such actions will violate any provision of Dynegy's Certificate of Incorporation or Bylaws or any applicable law, regulation, order, judgment or decree or rule, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which Dynegy is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of Dynegy, enforceable against Dynegy in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. Section 4.3. Investment Intent of Dynegy. Dynegy is acquiring the Enron Common Stock for its own account for investment and not with a view to distribution. Section 4.4. Status of Shares. Dynegy has been informed by Enron that the shares of Enron Common Stock that may be issued pursuant to this Agreement have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering. Enron may place a restriction legend on the certificates representing the shares of Enron Common Stock reflecting the foregoing restrictions. 6 Section 4.5. Sophistication and Financial Condition; Information. Dynegy represents and warrants to Enron that it considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the shares of Enron Common Stock. Dynegy is able to bear the economic risk of this investment regarding Enron, is able to hold the shares of Enron Common Stock indefinitely and has a sufficient net worth to sustain a loss of its entire investment in Enron in the event such loss should occur. Dynegy (a) has been furnished with such information about Enron and the shares of Enron Common Stock as it has requested, (b) has made its own independent inquiry and investigation into, and based thereon, has formed an independent judgment concerning Enron and the shares of Enron Common Stock and (c) is an "accredited" investor within the meaning of Regulation D of the Securities Act, as currently in effect. ARTICLE V COVENANTS Section 5.1. Enron Reservation of Enron Stock. Enron shall at all times reserve and keep available out of its authorized but unissued shares of Enron Common Stock, solely for the purposes of issuance upon exchange of the NNGC Preferred Stock in accordance with this Agreement, such number of shares of Enron Common Stock as are issuable upon the exchange of all outstanding shares of the NNGC Preferred Stock pursuant to this Agreement. All shares of Enron Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. Enron shall take all such commercially reasonable actions as may be reasonably necessary to assure that all such shares of Enron Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Enron Common Stock may be listed (except for official notice of issuance which shall be immediately transmitted by Enron upon issuance). Section 5.2. Filings; Commercially Reasonable Best Efforts, Etc. (a) Subject to the terms and conditions herein provided, Enron and Dynegy shall: (i) make their respective required filings under the HSR Act (and shall share equally all filing fees incident thereto), which filings shall be made promptly, and thereafter shall promptly make any other required submissions under the HSR Act; (ii) make their respective filings, and obtain the consents, approvals, permits or authorizations, required to be made or obtained prior to the Closing with or from any governmental or regulatory authorities of the United States, the several states and non-U.S. jurisdictions (other than with respect to any applicable non-U.S. competition, antitrust or premerger notification laws (the "Non-U.S. Antitrust Laws")); (iii) use their commercially reasonable best efforts to cooperate with one another in (A) determining which filings are advisable to be made with, and which consents, approvals, permits or authorizations are required to be obtained from, governmental or regulatory authorities under the Non-U.S. Antitrust Laws in connection with the execution and delivery of this Agreement, and the consummation of the 7 transactions contemplated by this Agreement and the transactions contemplated hereby; and (B) timely making all such filings and timely seeking all such consents, approvals, permits or authorizations; (iv) promptly notify each other of any communication concerning this Agreement or the transactions contemplated hereby to that party from any governmental or regulatory authority and permit the other party to review in advance any proposed communication concerning this Agreement or the transactions contemplated hereby to any governmental or regulatory authority; (v) not agree to participate in any meeting or discussion with any governmental or regulatory authority in respect of any filings, investigation or other inquiry concerning this Agreement or the transactions contemplated hereby unless it consults with the other party in advance and, to the extent permitted by such governmental or regulatory authority, gives the other party the opportunity to attend and participate in such meeting or discussion; (vi) furnish the other party with copies of all correspondence, filings and communications (and memoranda setting forth the substance thereof) between them and their subsidiaries and their respective representatives on the one hand, and any government or regulatory authority or members or any such authority's staff on the other hand, with respect to this Agreement and the transactions contemplated hereby; and (vii) furnish the other party with such necessary information and reasonable assistance as such other party and its affiliates may reasonably request in connection with their preparation of necessary filings, registrations or submissions of information to any governmental or regulatory authorities, including, without limitation, any filings necessary or appropriate under the provisions of the HSR Act or any applicable Non-U.S. Antitrust Laws. (b) Without limiting Section 5.2(a), Enron and Dynegy shall: (i) each use commercially reasonable best efforts to avoid the entry of, or to have vacated, terminated or modified, any decree, order or judgment that would restrain, prevent or delay the consummation of the transactions contemplated by this Agreement; and (ii) each use commercially reasonable best efforts to take any and all steps necessary to obtain any consents or eliminate any impediments to the consummation of the transactions contemplated by this Agreement. (c) Nothing in this Agreement shall require either Dynegy or Enron to dispose of any of its assets or to limit its freedom of action with respect to any of its businesses, whether prior to or after the consummation of the transactions contemplated by this Agreement, or to commit or agree to any of the foregoing, to obtain any consents, approvals, permits or authorizations or to remove any impediments to the consummation of the transactions contemplated by this Agreement relating to competition, antitrust or premerger notification laws or to avoid the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding relating to competition, antitrust or premerger notification laws. 8 Section 5.3. Listing Application. Enron shall promptly prepare and submit to the New York Stock Exchange ("NYSE") a listing application covering the shares of Enron Common Stock issuable pursuant to the exercise of the Enron Exchange Option and the Dynegy Exchange Option and shall use commercially reasonable best efforts to obtain, prior to the exercise of the Enron Exchange Option or the Dynegy Exchange Option, approval for the listing of such shares of Enron Common Stock on the NYSE, subject to official notice of issuance. Section 5.4. Enron Acquisition Proposals. Enron shall not enter into any agreement in respect of a Enron Acquisition Proposal unless in such agreement the parties thereto expressly acknowledge and affirm the obligations of Enron under this Agreement and the surviving party in such transaction expressly assumes such obligations. ARTICLE VI CONDITIONS Section 6.1. Conditions to Enron's and Dynegy's Obligations. The obligations of Enron and Dynegy to complete the exchange of NNGC Common Stock for shares of Enron Common Stock upon the exercise of the Enron Exchange Option or the Dynegy Exchange Option shall be subject to the fulfillment of the following conditions: (a) (i) Any waiting period applicable to the consummation of the transactions contemplated by this Agreement under the HSR Act shall have expired or been terminated, (ii) if required by law, approval of the FERC with respect to the consummation of the transactions contemplated by this Agreement under Section 203 of the Federal Power Act shall have been granted, (iii) the Securities and Exchange Commission shall have taken all necessary action under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), and the exemptions of Enron and Dynegy from the provisions of the 1935 Act other than Section 9(a)(2) will not change as a result of the consummation of the transactions contemplated by this Agreement (provided that each party will be entitled to waive satisfaction of this condition with respect to the application of this condition to it), (iv) there shall not be pending or threatened in writing any claim, proceeding or action by an agency of the government of the United States, of the United Kingdom or of the European Union seeking to restrain, prohibit or rescind any transactions contemplated by this Agreement as an actual or threatened violation of the HSR Act, Non-U.S. Antitrust Laws or other antitrust, competition or premerger notification, trade regulation law, regulation or order, as applicable, or seeking to penalize a party for completing any such transaction which in any of such cases is, in the reasonable judgment of either Enron or Dynegy, reasonably likely to have a Material Adverse Effect on Enron or Dynegy, (v) in the event of any review by the U.K. Office of Fair Trading or, if applicable, the U.K. Secretary of State for Trade and Industry, indications reasonably satisfactory to each of Enron and Dynegy that the consummation of the transactions contemplated by this Agreement will not be referred to the Competition Commission shall have been received or, if the consummation of the transactions contemplated by this Agreement are referred to the Competition Commission, indications reasonably satisfactory to each of Enron and Dynegy that the consummation of the transactions contemplated by this Agreement can proceed, (vi) any mandatory waiting period under any applicable Non-U.S. Antitrust Laws (where the failure to 9 observe such waiting period referred to in this clause (vi) would, in the reasonable judgment of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Enron or Dynegy) shall have expired or been terminated, (vii) all consents, approvals, permits and authorizations referred to in Section 5.2(a)(ii) and (iii) shall have been obtained, and no such consent, approval, permit or authorization shall impose or contain terms or conditions that would, in the reasonable judgment of either Enron or Dynegy, be reasonably likely to have a Material Adverse Effect on Enron or Dynegy, and (viii) there shall not have been a final or preliminary administrative order denying approval of or prohibiting the transactions contemplated by this Agreement issued by a governmental authority with jurisdiction to enforce applicable Non-U.S. Antitrust Laws, which order is, in the reasonable judgment of either Enron or Dynegy, reasonably likely to have a Material Adverse Effect on Enron or Dynegy. (b) None of the parties hereto shall be subject to any decree, order or injunction of a court of competent jurisdiction that prohibits the consummation of the transactions contemplated hereby issued by a court of competent jurisdiction of (i) the United States or any state or other jurisdiction in the United States, (ii) the European Union or any member state thereof or Canada or (iii) any other jurisdiction (the "Other Non-U.S. Jurisdictions"); provided, however, that, prior to invoking this condition, each party shall have complied with Section 5.2, and with respect to other matters not covered by Section 5.2, shall have used its commercially reasonable best efforts to have any such decree, order or injunction lifted or vacated; and no statute, rule or regulation shall have been enacted by any governmental authority which prohibits or makes unlawful the consummation of the transactions contemplated by this Agreement; provided, further, that, with respect to any decree, order, injunction, statute, rule or regulation of any Other Non-U.S. Jurisdiction, noncompliance with such decree, order, injunction, statute, rule or regulation would, in the reasonable judgement of either Dynegy or Enron, be reasonably likely to have a Material Adverse Effect on Enron or Dynegy. (c) The shares of Enron Common Stock to be issued pursuant to the exercise of the Enron Exchange Option or the Dynegy Exchange Option shall have been authorized for listing on the NYSE, subject to official notice of issuance. ARTICLE VII GENERAL PROVISIONS Section 7.1. Notices. Except as otherwise provided herein, any notice required to be given hereunder shall be sufficient if in writing, and sent by facsimile transmission or by courier service (with proof of service), or hand delivery, addressed as follows: (a) if to Enron: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Facsimile: (713) 853-3129 10 with a copy to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: Thomas P. Mason, Esq. Facsimile: (713) 758-2346 (b) if to Dynegy: Dynegy Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Attention: General Counsel Facsimile: (713) 507-6808 with a copy to: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Facsimile: (713) 229-1522 or to such other address as any party shall specify by written notice so given, and such notice shall be deemed to have been delivered as of the date so telecommunicated, personally delivered or mailed. Section 7.2. Assignment; Binding Effect; Benefit. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) unless the following conditions are satisfied: (a) the other party hereto consents in writing to the assignment, and (b) in the case of an assignment by Dynegy, (i) such assignee assumes all of Dynegy's obligations under this Agreement and (ii) Dynegy shall have concurrently with such assignment transferred all of its NNGC Preferred Stock to such assignee. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. Section 7.3. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. 11 Section 7.4. Amendments. This Agreement may be amended by the parties hereto, by action taken or authorized by their Boards of Directors. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 7.5. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to its rules of conflicts of laws. Section 7.6. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. Section 7.7. Waivers. Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder. Section 7.8. Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. Section 7.9. Enforcement of Agreement. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity. Section 7.10. No Special Damages. IN NO EVENT SHALL ANY PARTY BE LIABLE IN RESPECT OF THIS AGREEMENT FOR EXEMPLARY, SPECIAL OR PUNITIVE DAMAGES. 12 IN WITNESS WHEREOF, the parties have executed this Agreement and caused the same to be duly delivered on their behalf on the day and year first written above. DYNEGY INC. By: /s/ HUGH A. TARPLEY --------------------------------------- Name: Hugh A. Tarpley Title: Executive Vice President ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. --------------------------------------- Name: Raymond M. Bowen, Jr. Title: Executive Vice President -- Finance and Treasurer EX-99.11 13 h92082ex99-11.txt OPTION AGREEMENT EXHIBIT 99.11 OPTION AGREEMENT This OPTION AGREEMENT (this "Agreement") dated as of November 9, 2001 is by and among CGNN Holding Company, Inc., a Delaware corporation (the "Grantor"), MCTJ Holding Co. LLC, a Delaware limited liability company (the "Company"), Enron Corp., an Oregon corporation ("Enron"), Dynegy Holdings Inc., a Delaware corporation (the "Grantee") and, solely for the provisions of Section 5.1 hereof, Dynegy Inc., an Illinois corporation ("Dynegy"). RECITALS A. Merger Agreement. Concurrently with the execution of this Agreement, Dynegy, Stanford, Inc., a Delaware corporation, Badin, Inc., an Illinois corporation, Sorin, Inc., an Oregon corporation, and Enron entered into an Agreement and Plan of Merger (the "Merger Agreement"). B. Membership Interest. Grantor is the sole member of, and owns all of the membership interests in, the Company. NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Capitalized Terms. Those capitalized terms used in this Agreement that are not defined in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 2. Option. 2.1. Grant of Option. Subject to the terms and conditions set forth herein, the Grantor hereby grants to the Grantee an irrevocable option (the "Option") to purchase all, but not less than all, of the outstanding membership interests in the Company (the "Option Interests") after the occurrence of an Exercise Event (as defined in Section 2.5) at the Exercise Price. 2.2. Purchase Price of Option. In consideration of the grant of the Option, immediately after the filing under the HSR Act required in connection with this Agreement, Grantee will pay $1 million to Grantor by wire transfer of immediately available funds. 2.3. Exercise Price. The exercise price (the "Exercise Price") of the Option shall be the total sum of (a) $23 million plus (b) $950 million less (c) the aggregate amount of outstanding principal indebtedness under the Bank Credit Facility and the Senior Notes and any Permitted Refinancing Debt related thereto on the Closing Date plus (d) if the amount of Estimated Working Capital exceeds $-0-, the amount of such excess, minus (d) if the amount of Estimated Working Capital is less than $-0-, the amount of such shortfall. 2.4. Option Term; Expiration of Option. The Option shall be exercisable at any time after the occurrence of an Exercise Event set forth in Section 2.5 and shall remain in full force and effect until the earliest of (a) the Effective Time as defined in Section 1.3 of the Merger Agreement, (b) the redemption of all outstanding shares of Series A Preferred Stock in accordance with its terms or (c) the exchange of Series A Preferred Stock for Enron Common Stock pursuant to the Exchange Agreement (the "Option Term"). If the Option has not been exercised prior to the expiration of the Option Term, the rights and obligations set forth in this Agreement shall expire and terminate. 2.5. Exercise Events. The Option will become exercisable upon the occurrence of the following events ("Exercise Events"): 2.5.1. Exercise at any time. The Option may be exercised at any time after: 2.5.1.1. the Merger Agreement has been terminated pursuant to Section 9.2(b); 2.5.1.2. the Merger Agreement has been terminated pursuant to Section 9.3(c); 2.5.1.3. the Merger Agreement has been terminated pursuant to Section 9.4(b); 2.5.1.4. Dynegy notifies Enron that it is terminating the Merger Agreement pursuant to Section 9.4(a) of the Merger Agreement (such notice constituting a representation by Dynegy to Enron that Dynegy is validly entitled to terminate the Merger Agreement under such Section 9.4(a)). 2.5.2. Exercise at any time beginning six months plus one day after termination of the Merger Agreement. The Option may be exercised at any time beginning six months plus one day after: 2.5.2.1. the Merger Agreement has been terminated pursuant to Section 9.1; 2.5.2.2. the Merger Agreement has been terminated pursuant to Section 9.2(a)); or 2.5.2.3. the Merger Agreement has been terminated pursuant to Section 9.2(d). -2- 2.5.3. Exercise at any time beginning one year plus one day after termination of the Merger Agreement. The Option may be exercised at any time beginning one year plus one day after: 2.5.3.1. the Merger Agreement has been terminated pursuant to Section 9.2(c); 2.5.3.2. Enron notifies Dynegy that it is terminating the Merger Agreement pursuant to Section 9.3(a) of the Merger Agreement (such notice constituting a representation by Enron to Dynegy that Enron is validly entitled to terminate the Merger Agreement under such Section 9.3(a); 2.5.3.3. the Merger Agreement has been terminated pursuant to Section 9.3(b); or 2.5.3.4. the Merger Agreement has been terminated pursuant to Section 9.4(c); 2.6. Working Capital Adjustment. 2.6.1. Calculation of Final Working Capital. Within 30 days of Closing, Grantee shall prepare and deliver to Grantor a statement the ("Final Working Capital Statement") setting forth the amount of Final Working Capital. Grantor shall have 30 days to review the Final Working Capital Statement and supporting documentation and shall have reasonable access to the books, records and personnel of Grantee and NNGC for purposes of verifying the accuracy of the calculation of Final Working Capital. Grantee's calculation of Final Working Capital shall be deemed final and biding unless Grantor raises an objection in writing within 30 days of its receipt thereof, specifying in reasonable detail the nature and extent of such objection. If Grantor raises an objection to the calculation of Final Working Capital within such 30-day period, and if Grantor and Grantee are unable to resolve such objection within 30 days of the date Grantee receives such objection, then the disputed matter shall be submitted for determination to an accounting firm of national reputation mutually agreeable to Grantor and Grantee. The determination of such accounting firm shall be final and binding for all purposes. The fees and expenses of such accounting firm shall be borne equally by Grantor and Grantee. 2.6.2. Settlement of Working Capital Adjustment. If Final Working Capital exceeds Estimated Working Capital, then Grantee will pay Grantor the amount of such excess. If Final Working Capital -3- is less than Estimated Working Capital, then Grantor will pay Grantee the amount of such shortfall. Any such payments will be made within five (5) Business Days of the determination of the adjustment by wire transfer of immediately available funds. 3. Exercise of Option; Conditions; Closing. 3.1. Notice; Closing Location. If the Grantee wishes to exercise the Option, it shall send a written notice (an "Exercise Notice") (the date of which being herein referred to as the "Notice Date") to the Grantor specifying a date (as it may be extended from time to time, the "Closing Date") not earlier than three (3) Business Days nor later than ten (10) Business Days from the Notice Date for the closing of the purchase and sale pursuant to the Option (the "Closing"). The Closing will take place at the offices of Baker Botts L.L.P., 910 Louisiana, Houston, Texas 77002. 3.2. Extension. If the Closing cannot be effected by reason of the application of any Law, Regulation or Order, the Closing Date shall be extended to the tenth Business Day following the expiration or termination of the restriction imposed by such Law, Regulation or Order. Without limiting the foregoing, if prior notification to, or Authorization of, any Governmental Agency is required in connection with the purchase of such Option Interests by virtue of the application of such Law, Regulation or Order, the Grantee and, if applicable, the Grantor and the Company shall promptly file the required notice or application for Authorization and the Grantee, with the cooperation of the Grantor and the Company, shall expeditiously process the same. 3.3. Conditions to Closing. It shall be a condition to Closing that: 3.3.1. HSR Clearance. The parties hereto shall have obtained clearance under the HSR Act to proceed with the transactions contemplated hereby. 3.3.2. Release of Guaranties. Unless waived by Enron, it shall be a condition to Closing that (a) either any guaranty by Enron or any Subsidiary of Enron (other than the Company and NNGC Holdings) of NNGC's indebtedness under the Bank Credit Facility be released or all indebtedness under the Bank Credit Facility be repaid effective as of the Closing and (b) any guaranty by Enron or any Subsidiary of Enron (other than NNGC Holdings) of the Company's indebtedness to NNGC be released effective as of the Closing. 3.3.3. Issuance of Series A Preferred Stock. The Series A Preferred Stock shall have been issued in accordance with the Subscription Agreement. 3.3.4. Affiliated Group. Unless waived by Grantee, it shall be a condition to Closing that at the Closing Date, each of NNGC Holdings and NNGC has at all times during its existence been -4- treated by Enron as a member of the affiliated group of corporations of which Enron is the common parent filing consolidated returns for federal income tax purposes. 3.3.5. Accuracy of Grantor, Representations and Warranties. Unless waived by Grantee, the representations and warranties set forth in Section 5.2 are true and correct as of the Closing Date. 3.3.6. Accuracy of Grantee Representations and Warranties. Unless waived by Grantor, the representations and warranties set forth in Section 5.1 are true and correct as of the Closing Date. 3.3.7. No Violation of Law [Grantee]. Unless waived by Grantee, the Closing shall not violate any Law, Regulation or Order applicable to Grantee or any of its Affiliates. 3.3.8. No Violation of Law [Grantor]. Unless waived by Grantor, the Closing shall not violate any Law, Regulation or Order applicable to Grantor or any of its Affiliates. 3.4. Payment and Delivery of Certificates. 3.4.1. Payment. At the Closing, the Grantee shall pay the Exercise Price to the Grantor in immediately available funds by wire transfer to a bank account designated by the Grantor. 3.4.2. Delivery. At the Closing, simultaneously with the delivery of immediately available funds as provided above, the Grantor shall deliver to the Grantee a certificate or certificates representing the Option Interests, which Option Interests shall be duly authorized, validly issued, fully paid and nonassessable and free and clear of all Liens, and the Grantee shall deliver to the Company its written agreement that the Grantee will not offer to sell or otherwise dispose of such Option Interests in violation of applicable Law. 3.5. Certificates. Certificates for the Option Interests delivered at the Closing shall be endorsed with a restrictive legend that shall read substantially as follows: THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS OF AN OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR. -5- 3.6. Unlegended Certificates. A new certificate or certificates evidencing the same membership interests in the Company will be issued to the Grantee in lieu of the certificate bearing the above legend, and such new certificate shall not bear such legend, insofar as it applies to the Securities Act, if the Grantee shall have delivered to the Company a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to the Company and its counsel, to the effect that such legend is not required for purposes of the Securities Act. 4. Covenants. 4.1. Section 338(h)(10) Election. Enron and Dynegy shall make timely and effective elections under Section 338(h)(10) of the Code, and any similar elections under any applicable state, local, foreign or other income tax law (collectively, the "Section 338(h)(10) Elections") with respect to Grantee's purchase for tax purposes of the common stock of NNGC Holdings and the deemed purchase(s) for tax purposes of the common stock of NNGC and any relevant subsidiaries of NNGC (collectively, the "Qualified Stock Purchases"). To facilitate such elections, at the Closing, Grantee shall deliver to Grantor an Internal Revenue Service Form 8023 and any similar forms under applicable state, local, foreign or other income tax law (the "Forms") with respect to the Qualified Stock Purchases, which Forms shall be properly executed by Dynegy and Enron at the Closing. Grantor and Grantee shall, at or prior to the Closing, agree to a schedule showing an allocation of the deemed purchase price for the assets of NNGC among the assets of NNGC and any relevant subsidiaries of NNGC, consistent with the principles of Section 338(h)(10) of the Code and the regulations thereunder (the "Allocation"). Grantee shall complete the Forms in a manner consistent with the Allocation, Dynegy shall cause such Forms to be timely filed with the appropriate taxing authorities and Grantee shall deliver a copy of such Forms to Enron as promptly as practicable after filing. If, after filing such Forms, any changes or supplements are required to the Forms, Grantee and Grantor shall promptly agree on such changes. Thereafter, Grantee and Grantor shall complete any required amendments or supplements to the Forms, Dynegy and Enron shall properly execute such amended Forms, Dynegy shall timely file the Forms, and any required supplements thereto, and Grantee shall deliver a copy of such Forms and supplements to Enron as soon as practicable after filing. Enron and Grantor shall provide such information as Grantee may reasonably request from Grantor in order to prepare the Forms and any required amendments or supplements thereto. 4.2. Maintenance of 100% ownership of Company membership interests, NNGC Holdings capital stock and NNGC common stock; no Liens. Enron and Grantor hereby covenant that through the Option Term Grantor will maintain ownership of 100% of the membership interests in the Company, and the Company will maintain ownership of 100% of the capital stock of NNGC Holdings and NNGC Holdings will maintain ownership of 100% of the common stock of NNGC, from the date hereof through the Closing Date. The Company, NNGC Holdings and NNGC hereby covenant not to issue any equity interests or any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any equity interest in the Company, NNGC Holdings or NNGC to any entity other than Grantor from the date hereof through the Closing Date. Grantor, the Company, Enron, NNGC Holdings and NNGC will not, directly or indirectly, offer for sale, contract to sell, sell, distribute, grant any option, right or warrant to purchase, suffer any Liens upon, pledge, hypothecate or otherwise dispose of any equity interest -6- in the Company, NNGC Holdings or NNGC (other than Liens, pledges or hypothecation of the NNGC Common Stock to secure Debt under the Bank Credit Facilities), any securities convertible into, or exercisable or exchangeable for, any equity interests in the Company, NNGC Holdings or NNGC, or any other rights to acquire any equity interest in the Company, NNGC Holdings or NNGC. 4.3. Continuing Services after the Closing. For a period beginning on the Closing Date and ending on the earlier to occur of (a) the date that is six months from the Closing Date, and (b) the Closing Date as defined in the Purchase Option Agreement, if requested by NNGC, Enron shall cause Enron Transportation Services Company to provide services (other than cash management services provided in the Cash Management Program) to NNGC on substantially the same terms as provided on the date hereof, and Grantee shall cause Grantor to compensate Enron and its Affiliates for such service at a rate not to exceed the cost incurred by the entity providing the service. The services will be provided pursuant to a mutually agreeable customary transition services agreement, which will contain customary indemnity provisions. 4.4. Termination of waiting period under HSR Act. Enron will, and will cause Grantor to, use their commercially reasonable best efforts to obtain early termination of the waiting period under the HSR Act for the exercise of the Option. 4.5. Forgiveness of debt owed by Enron. After the Exercise and prior to the Closing, the Company will cause NNGC to cancel and forgive all indebtedness owed to the Company or any of its Subsidiaries by Enron or its Affiliates (other than the Company and NNGC Holdings), other than a net amount of such debt equal to $240 million plus any dividends (whether or not declared) accrued and unpaid on the shares of Series A Preferred Stock at such time. The remaining outstanding indebtedness will be evidenced by a note of Enron to NNGC in substantially the form of Exhibit A. 4.6. No Assets or Operations. Neither the Company nor NNGC Holdings will acquire any assets, conduct any operations, or incur any liabilities from the date hereof through the Closing Date except for liabilities of the Company to NNGC in an amount up to $1,950 million. 4.7. Affirmative Covenants Related to the Company, NNGC Holdings and NNGC. Enron, Grantee and the Company covenant that for the period between the execution of this Agreement and the Closing Date, the Company, NNGC Holdings and NNGC shall, and shall cause each of its Subsidiaries to: 4.7.1. cause all properties owned by it or used or held for use in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Board of Directors may be necessary so that the business carried on in connection therewith may be properly and -7- advantageously conducted at all times; provided, that the foregoing shall not prevent it from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of its management, desirable in the conduct of its business; 4.7.2. preserve and keep in full force and effect its corporate existence, rights (charter and statutory), licenses and franchises; provided, that it shall not be required to preserve any such right, license or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of its business as a whole; 4.7.3. maintain its books, accounts and records in accordance with GAAP; 4.7.4. comply with all material legal requirements and material contractual obligations applicable to its operations and business and pay all applicable taxes as they become due and payable; and 4.7.5. permit representatives of the Grantee and its agents (including their counsel, accountants and consultants) to have reasonable access during business hours to its books, records, facilities, key personnel, officers, directors, customers, independent accountants and legal counsel to the extent that such access is not prohibited by FERC marketing affiliate rules. 4.8. Negative Covenants Related to the Company, NNGC Holdings and NNGC. For the period between the execution of this Agreement and the Closing Date, Enron, Grantor and the Company covenant that, without the approval of the Grantee, none of the Company, NNGC Holdings or NNGC will: 4.8.1. Dividends. Directly or indirectly declare or pay, or permit any Subsidiary to declare or pay, any dividends, or make or permit any Subsidiary to make, any distributions upon any of its equity securities, other than (i) any dividend or other distribution resulting from the cancellation by NNGC of Debt owed by Enron and its Affiliates to NNGC (the "Intercompany Note Receivable") under the Cash Management Program; provided that such cancellation of Debt does not reduce the net amount of the Intercompany Note Receivable to less than $240 million plus accrued and unpaid dividends on the Series A Preferred Stock and (ii) dividends on the Series A Preferred Stock; 4.8.2. Redemptions. Except as provided pursuant to the terms of the Series A Preferred Stock, directly or indirectly redeem, purchase or otherwise acquire, any of its equity securities; -8- 4.8.3. Issuances. Authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) of (x) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities issued in connection with the issuance of equity securities or containing profit participation features) or (y) any equity securities (or any securities convertible into or exchangeable for any equity securities, including any warrants or stock options); 4.8.4. Mergers. Merge or consolidate, or enter into an agreement providing for any merger or consolidation, with any Person if the holders of its capital stock prior to the transaction will own less than 100% of NNGC's capital stock after the transaction; 4.8.5. Sale of Assets. Except as provided in Schedule 4.8.5, sell, lease or otherwise dispose of any of its assets, other than obsolete equipment or inventory and asset sales in the Ordinary Course of Business consistent with past practice not to exceed an aggregate of $20 million within any 12-month period; 4.8.6. Bankruptcy. Pursuant to or within the meaning of Title 11 of the United States Code or any similar federal, state or foreign law for the relief of debtors, commence a voluntary case, consent to the entry of an order for relief against it in an involuntary case, consent to the appointment of a receiver, trustee, assignee, liquidator or similar official of it or for all or substantially all of its property, or make a general assignment for the benefit of its creditors; 4.8.7. Charter Amendments. Make any amendment to or waive any provision of its certificate of incorporation or bylaws, limited liability company agreement or other organizational documents, or file any resolution of the Board of Directors with the Secretary of State of Delaware, in either case which materially and adversely affects the holders of the Series A Preferred Stock; 4.8.8. Investments and Loans. Make any investment in any Person or any loans or advances to, or guarantees for the benefit of, any Affiliate, other than (i) loans to any wholly owned Subsidiary, (ii) loans of a maximum amount of $1,950 million from NNGC to the Company and (iii) loans pursuant to the Cash Management Program; 4.8.9. Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, Debt, other than (i) the Debt outstanding as of the date hereof, (ii) Debt incurred after the date hereof not exceeding $450 million in -9- the aggregate on the terms contained in or with interest rate and prepayment provisions not substantially different from, the terms contained in that Commitment Letter dated October 31, 2001 between NNGC and certain banks and (iii) Permitted Refinancing Debt; 4.8.10. Capital Expenditures. Make, or permit the NNGC and its Subsidiaries, taken as a whole, to make capital expenditures (including, without limitation, payments with respect to capitalized leases), (i) during the period from the date hereof through December 31, 2001, totaling in excess of $40 million, (ii) during the year ending December 31, 2002, totaling in excess of $115 million and (iii) thereafter, in excess of annual budgeted amounts, except in each case for additional expenditures not ordinarily classified as capital expenditures that are required to be classified as capital expenditures by applicable regulatory requirements; and 4.8.11. Note Receivable. Allow the Intercompany Note Receivable to be less than a net amount of $240 million plus accrued and unpaid dividends on the Series A Preferred Stock. 5. Representations and Warranties. 5.1. Representations and Warranties of Grantee. Grantee hereby represents and warrants to Enron, Grantor and the Company as follows: 5.1.1. Existence; Qualification; Subsidiaries. Grantee is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. 5.1.2. Authorization and Enforceability. Grantee has the full power and authority and has taken all action necessary to permit Grantee to execute and deliver this Agreement and to carry out the terms hereof, and none of such actions will violate any provision of the Grantee's Certificate of Incorporation or any applicable law, regulation, order, judgment or decree or rule, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which Grantee is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of Grantee, enforceable against Grantee in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the -10- enforcement of creditor's rights generally and (ii) general principles of equity. 5.1.3. Investment Intent of Grantee. Grantee is acquiring the Option and, if it exercises the Option, will acquire the Option Interests for its own account for investment and not with a view to distribution. 5.1.4. Sophistication and Financial Condition; Information. Grantee considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Option Interests. Grantee is able to bear the economic risk of this investment regarding the Company, is able to hold the Option Interests indefinitely and has a sufficient net worth to sustain a loss of its entire investment in the Company in the event such loss should occur. Grantee (a) has been furnished with such information about Enron, Grantor, the Company and the Option and Option Interests as it has requested, (b) has made its own independent inquiry and investigation into, and based thereon, has formed an independent judgment concerning the Company and the Option Interests and (c) is an "accredited" investor within the meaning of Regulation D of the Securities Act, as currently in effect. The Grantee acknowledges that any certificate representing the Option Interests will bear a customary legend regarding restrictions on the transferability of such Option Interests. 5.2. Representations and Warranties of Enron, NNGC Holdings, Grantor and the Company. Each of Enron, NNGC Holdings, Grantor and the Company hereby represents and warrants to Grantee as follows: 5.2.1. Existence; Qualification; Subsidiaries. Each of Enron, NNGC Holdings, Grantor and the Company is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of their state of incorporation or organization and have full corporate or limited liability company power and authority to conduct their business and own and operate their properties as now conducted, owned and operated. NNGC is licensed or qualified as a foreign corporation and is in good standing in all jurisdictions where it is required to be so licensed or qualified, to the extent such concepts are recognized in such jurisdictions. NNGC is an indirect subsidiary of Enron. 5.2.2. Authorization and Enforceability. Each of Enron, NNGC Holdings, Grantor and the Company have full power and authority and have taken all required corporate and other action -11- necessary to permit each to execute and deliver this Agreement and to carry out the terms hereof, and none of such actions will violate any provision of each of their constituent documents or any applicable law, regulation, order, judgment or decree or rule of any stock exchange where the Enron Common Stock is listed, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which any of them is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. 5.2.3. Ownership of Entire Equity Interest. 5.2.3.1. Grantor owns 100% of the membership interests of the Company. 5.2.3.2. The Company owns 100% of the capital stock of NNGC Holdings. 5.2.3.3. NNGC Holdings owns 100% of the common stock of NNGC. 5.2.4. Third-Party Approvals. Assuming the accuracy of the representations and warranties of the Grantee contained in this Agreement and except for filings under the HSR Act, none of Enron, NNGC Holdings, Grantor or the Company are required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby. 5.2.5. Affiliated Group. Each of NNGC Holdings and NNGC has at all times during its existence been treated as a member of the affiliated group of corporations of which Enron is the common parent filing consolidated returns for federal income tax purposes. 5.2.6. Disregarded Entity. The Company is and has at all times been a disregarded entity for federal income tax purposes. -12- 5.2.7. No Other Assets or Operations. The Company was formed on November 2, 2001. NNGC Holdings was formed on November 2, 2001. The Company's only assets are 1,000 shares of common stock of NNGC Holdings and $1,000 in cash. NNGC Holdings's only assets are 1,000 shares of common stock of NNGC and $1,000 in cash. Neither the Company nor NNGC Holdings has incurred any liabilities (other than the contemplated liability to NNGC of $1,950 million) or has conducted any operations since their respective dates of formation. 5.2.8. Capitalization. 5.2.8.1. Capitalization of the Company. As of the Closing Date after giving effect to the transactions contemplated hereby, there shall be 1,000 authorized units representing membership interests of the Company. At the time of the Closing, all of the outstanding membership interests of the Company will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder). As of the Closing Date, the Company has not granted or issued any options, convertible securities, warrants, phantom stock, stock appreciation rights, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued membership interests of the Company. 5.2.8.2. Capitalization of NNGC Holdings. As of the Closing Date after giving effect to the transactions contemplated hereby, the authorized capital stock of NNGC Holdings shall be 1,000 shares of common stock. At the time of the Closing, all of the outstanding capital stock of NNGC Holdings will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder). As of the Closing Date, NNGC Holdings has not granted or issued any options, convertible securities, warrants, phantom stock, stock appreciation rights, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens, rights of first offer, rights of first refusal, antidilution provisions or commitments of -13- any character relating to any issued or unissued shares of capital stock of NNGC Holdings. 5.2.8.3. Capitalization of NNGC. As of the Closing Date after giving effect to the transactions contemplated hereby, the authorized capital stock of NNGC shall be as set forth on Schedule 5.2.8.3 attached hereto. At the time of the Closing, (i) all of the outstanding capital stock of NNGC will be validly issued, fully paid and nonassessable and will have been issued in compliance with all applicable securities laws (including the provisions of the Securities Act and the rules and regulations promulgated thereunder) and (ii) no outstanding capital stock or other equity securities of NNGC will rank pari passu or senior in right of payment of dividends or redemption to the Series A Preferred Stock. Except as set forth on Schedule 5.2.8.3, as of the Closing Date, NNGC has not granted or issued any options, convertible securities, warrants, phantom stock, stock appreciation rights, calls, pledges, transfer restrictions (except restrictions imposed by federal and state securities laws), Liens (except Liens on the equity securities granted to secure Debt), rights of first offer, rights of first refusal, antidilution provisions or commitments of any character relating to any issued or unissued shares of capital stock of NNGC. 5.2.9. Financial Statements; Disclosure. The Financial Statements (including the related notes and schedules) fairly present in all material respects the financial position of NNGC as of their dates, and each of the statements of operations, cash flows and changes in shareholders' equity included in the Financial Statements (including any related notes and schedules) fairly presents in all material respects the results of operations, cash flows or changes in shareholders' equity, as the case may be, of NNGC for the periods set forth therein (subject, in the case of unaudited statements, to (x) such exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end audit adjustments which will not be material), in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except as may be noted therein. Except as and to the extent set forth on the Current Balance Sheet, including all notes thereto, as of the date of such balance sheet, NNGC does not have any Liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on, or reserved against in, a balance sheet of NNGC or in the notes thereto prepared in accordance with generally accepted -14- accounting principles consistently applied, other than Liabilities or obligations which do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. All reserves or adjustments required by generally accepted accounting principles to be reflected in the carrying value of the assets included in such balance sheet have been taken other than reserves or adjustments which do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. 5.2.10. Litigation. As of the date hereof, no claims, suits, proceedings or investigations are pending or, to the Company, NNGC Holdings or NNGC's knowledge, threatened against NNGC or any officer or director thereof which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.2.11. No Undisclosed Liabilities. NNGC has no Liabilities except (i) as disclosed on Schedule 5.2.11 or in the Financial Statements, (ii) Liabilities incurred in the Ordinary Course of Business, and (iii) such other Liabilities that will not result, individually or in the aggregate, in a Material Adverse Effect. 5.2.12. Agreements. No event has occurred which, with notice or lapse of time, would constitute a default with respect to NNGC, under any material agreement, arrangement or understanding to which NNGC is a party, and, to the knowledge of NNGC, no other Person is in default under any such agreement. 5.2.13. Environmental Matters. 5.2.13.1. NNGC has been and is in compliance with all applicable orders of any court, governmental authority or arbitration board or tribunal and any applicable law, ordinance, rule, regulation or other legal requirement (including common law) related to human health and the environment ("Environmental Laws") except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. There are no past or present facts, conditions or circumstances that interfere with the conduct of any of its businesses in the manner now conducted or which interfere with continued compliance with any Environmental Law, except for any non-compliance or interference that is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. -15- 5.2.13.2. Except for such matters as do not and are not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (i) no judicial or administrative proceedings or governmental investigations are pending or, to the knowledge of NNGC, threatened against NNGC that allege the violation of or seek to impose Liability pursuant to any Environmental Law, and (ii) there are no past or present facts, conditions or circumstances at, on or arising out of, or otherwise associated with, any current (or, to the knowledge of NNGC, former) businesses, assets or properties of NNGC, including but not limited to on-site or off-site disposal, release or spill of any material, substance or waste classified, characterized or otherwise regulated as hazardous, toxic or otherwise harmful to human health or the environment under Environmental Laws, including petroleum or petroleum products or byproducts ("Hazardous Materials") which facts, conditions or circumstances violate Environmental Law or are reasonably likely to give rise to (x) costs, expenses, Liabilities or obligations for any cleanup, remediation, disposal or corrective action under any Environmental Law, (y) claims arising for personal injury, property damage or damage to natural resources, or (z) fines, penalties or injunctive relief. 5.2.13.3. NNGC has not (i) received any notice of noncompliance with, violation of, or Liability or potential Liability under any Environmental Law or (ii) entered into any consent decree or order or is subject to any order of any court or governmental authority or tribunal under any Environmental Law or relating to the cleanup of any Hazardous Materials, except for any such matters as do not and are not reasonably likely to have a Material Adverse Effect. 5.2.14. Transactions With Affiliates. NNGC is not party to any agreement, arrangement or transaction with any officer, director or Affiliate of NNGC, other than (i) corporate services and similar arrangements or transactions pursuant to which NNGC obtains goods and services used in its Ordinary Course of Business for which NNGC is charged expense allocations by Enron consistent with past practices, (ii) transactions occurring pursuant to NNGC's participation in the existing cash management program of Enron (the "Cash Management Program"), (iii) the Tax Allocation Agreement, (iv) operational agreements between NNGC and one or more of the Affiliates of Enron, such as interconnect agreements, transportation -16- agreements and other agreements, related to NNGC's facilities and services, and (vi) arrangements relating to the employment and compensation of employees in the Ordinary Course of Business, expense reimbursal and advances for business purposes in accordance with the customary policies and procedures of NNGC. 5.2.15. Taxes. 5.2.15.1. All tax returns, statements, reports, declarations, estimates and forms ("Returns") required to be filed by or with respect to the Company, NNGC Holdings and NNGC (including any Return required to be filed by an affiliated, consolidated, combined, unitary or similar group for a taxable year in which the Company, NNGC Holdings and NNGC were included in such group) on or prior to the date hereof have been properly filed on a timely basis with the appropriate governmental authorities, except to the extent that any failure to file does not and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, and all taxes due with such Returns have been duly paid, or deposited in full on a timely basis or adequately reserved for in accordance with GAAP, except to the extent that any failure to pay or deposit or make adequate provision for the payment of such taxes does not and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. Representations made in this Section 5.2.15 are made to the knowledge of the Company, NNGC Holdings and NNGC to the extent that the representations relate to a corporation which was, but is not currently, a part of the Company, NNGC Holdings and NNGC's affiliated, consolidated, combined, unitary or similar group. 5.2.15.2. Except to the extent not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect, (i) no audits or other administrative proceedings or court proceedings are presently pending with regard to any taxes or Returns of the Company, NNGC Holdings or NNGC as to which any taxing authority has asserted in writing any claim; (ii) no governmental authority is now asserting in writing any deficiency or claim for taxes or any adjustment to taxes with respect to which the Company, NNGC Holdings or NNGC may be liable with respect to income and other material taxes which have not been fully paid or finally settled; (iii) the Company, NNGC Holdings and NNGC have no Liability for taxes -17- under Treas. Reg. Section 1.1502-6 or any similar provision of state, local, or non-U.S. tax law, except for taxes of the affiliated group of which Enron is the common parent, within the meaning of Section 1504(a)(1) of the Code or any similar provision of state, local, or non-U.S. tax law; and (iv) the Company, NNGC Holdings and NNGC are not a party to, is bound by or has any obligation under any tax sharing, allocation or indemnity agreement or any similar agreement or arrangement other than the Tax Allocation Agreement (which Tax Allocation Agreement shall be terminated as of the Closing). 5.2.15.3. For purposes of this Agreement, "tax" or "taxes" means all net income, gross income, gross receipts, sales, use, ad valorem, transfer, accumulated earnings, personal holding company, excess profits, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, disability, capital stock, or windfall profits taxes, customs duties or other taxes, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority. 5.2.16. Certain Fees. No fees or commissions will be payable by the Company, NNGC Holdings or NNGC to any broker, financial advisor, finder, investment banker, or bank with respect to the transactions contemplated by this Agreement, except that Enron has retained J. P. Morgan Securities Inc. and Salomon Smith Barney Inc. as its financial advisors. The Grantee shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of any Persons for fees of a type contemplated in this section that may be due in connection with the transactions contemplated by this Agreement and which were incurred by Enron or any of its Subsidiaries. The Company, NNGC Holdings and NNGC shall indemnify and hold harmless the Grantee, its employees, officers, directors, agents and partners, and their respective affiliates (as such term is defined under Rule 405 promulgated under the Securities Act), from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect to any such claimed or existing fees. 6. Guarantee by Enron of Grantor's and the Company's Obligations hereunder. Enron hereby unconditionally guarantees to Grantee the prompt, faithful and full performance of all of the covenants and obligations of Grantor, NNGC Holdings and the Company under the terms of this Agreement. -18- 7. Survival. The representations and warranties of the parties hereto contained herein, or in any writing delivered pursuant hereto, shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, regardless of any investigation made by the Grantee or on its behalf, and shall continue until the first anniversary of the Closing Date, except for the representations and warranties set forth in Sections 5.1 hereof which shall survive indefinitely, and except for the representations and warranties set forth in Section 5.2.15 hereof which shall survive until the date that is ninety (90) days following the expiration of one applicable statute of limitation. 8. Indemnification. 8.1. Indemnification by Enron and Grantor. In consideration of Grantee's execution and delivery of this Agreement and the acquisition of the Option hereunder and in addition to all of Enron's and Grantor's other obligations under this Agreement, Enron and Grantor shall defend, protect, indemnify and hold harmless Grantee and all of its Affiliates, officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Dynegy Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, expenses (including, without limitation, costs of suit and attorneys' fees and expenses) in connection therewith (irrespective of whether any such Dynegy Indemnitee is a party to the action for which indemnification hereunder is sought (the "Indemnified Liabilities"), incurred by the Dynegy Indemnitees or any of them as a result of, or arising out of, or relating to any breach of any representation, warranty, covenant or agreement made by Enron or Grantor herein; provided, that with respect to any such claim based upon a breach of a representation or warranty, a bona fide claim relating thereto has been made within the applicable survival period specified in Section 7. In addition, Enron shall indemnify Dynegy and its Affiliates, including NNGC, against any liability for taxes of the affiliated group of corporations filing a consolidated federal income tax return of which Enron is the common parent under Treas. Reg. Section 1.1502-6 (or similar principles of state, local or foreign law). Enron and Grantor shall reimburse the Dynegy Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the extent that the foregoing undertaking by Enron or Grantor may be unenforceable for any reason, Enron and Grantor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 8.2. Indemnification by the Grantee. In consideration of Enron and Grantor execution and delivery of this Agreement and issuance of the Option hereunder and in addition to all of the Grantee's other obligations under this Agreement, the Grantee shall defend, protect, indemnify and hold harmless Enron and Grantor and all of their Affiliates, officers, directors, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Enron Indemnitees") from and against any and all Indemnified Liabilities incurred by the Enron Indemnitees or any of them as a result of, or arising out of, or relating to any breach of any representation, warranty, covenant or agreement made by the Grantee herein; provided, that with respect to any such claim based upon a breach of a representation or warranty, a bona fide claim relating thereto has been made within the applicable survival period specified in Section 7.1. Grantee shall reimburse the Enron Indemnitees for the Indemnified Liabilities as such Indemnified Liabilities are incurred. To the -19- extent that the foregoing undertaking by Grantee may be unenforceable for any reason, the Grantee shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 8.3. Indemnification Procedure. 8.3.1. In the case of any claim asserted by a third party against a party entitled to indemnification under this Agreement (the "Indemnified Party"), (i) notice setting forth with reasonable specificity the facts and circumstances of which such Person has received notice shall be given by the Indemnified Party (such notice, an "Indemnification Claim Notice") to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and (ii) the Indemnified Party shall permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume the defense of any claim or any litigation resulting therefrom; provided, that (i) counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and the Indemnified Party may participate in such defense at such Indemnified Party's expense, and (ii) the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except to the extent that (x) such failure results in a lack of actual notice to the Indemnifying Party and (y) such Indemnifying Party is materially prejudiced as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such claim or litigation, shall consent to entry of any judgment or enter into any settlement that (x) provides for injunctive or other nonmonetary relief affecting the Indemnified Party or (y) does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such claim or litigation. 8.3.2. In the event that the Indemnifying Party does not assume and conduct the defense of any claim subject to indemnification hereunder in accordance with the provisions of Section 8.3.1 above, the Indemnified Party may take over and assume control over the defense, settlement, negotiations or litigation relating to any such claim at the sole cost of the Indemnifying Party; provided, that if the Indemnified Party does so take over and assume control, (x) the Indemnified Party shall not settle such claim or litigation without the written consent of the Indemnifying Party, such consent not to be unreasonably withheld, (y) the Indemnified Party shall be reimbursed by the -20- Indemnifying Party for reasonable attorneys' fees and other expenses of defending such claim upon the presentation of itemized bills for such expenses to the Indemnifying Party, and (z) the Indemnifying Party will remain responsible for any Indemnified Liabilities that the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by such claim to the fullest extent provided in this Section 8. 9. Miscellaneous. 9.1. Expenses. Except as otherwise provided in the Merger Agreement or as otherwise expressly provided herein, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and legal counsel. 9.2. Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 9.3. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. 9.4. Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Texas, regardless of the Laws that might otherwise govern under applicable principles of conflicts of law. 9.5. Descriptive Headings. The descriptive headings contained herein are for convenience or reference only, are not comprehensive, and shall not affect in any way the meaning or interpretation of this Agreement. 9.6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses or sent by electronic transmission to the telecopier number specified below: -21- If to the Company to: MCTJ Holding Co. LLC 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Facsimile (713) 853-3129 with an information copy, which shall not constitute notice to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor, III, Esq. Scott N. Wulfe, Esq. Facsimile: (713) 758-2346 If to the Grantor to: CGNN Holding Company, Inc. 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Facsimile (713) 853-3129 with an information copy, which shall not constitute notice to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor, III, Esq. Scott N. Wulfe, Esq. Facsimile: (713) 758-2346 If to Grantee to: Dynegy Holdings Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Attention: General Counsel Facsimile (713) 507-6808 -22- with an information copy, which shall not constitute notice to: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Facsimile: (713) 229-1522 9.7. Counterparts. This Agreement and any amendments hereto may be executed in counterparts, each of which shall be deemed an original and all of which taken together shall constitute but a single document. 9.8. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder or under the Option shall be sold, assigned or otherwise disposed of or transferred by either of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that the Grantee may assign this Agreement to an Affiliate or Subsidiary of the Grantee; provided, however, that no such assignment shall have the effect of releasing the Grantee from its obligations hereunder and the assignee shall be subject to all of the terms and conditions of this Agreement as if it were the Grantee. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 9.9. Further Assurances. In the event of any exercise of the Option by the Grantee, the Company and the Grantee shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. 9.10. Specific Performance. The parties hereto hereby acknowledge and agree that the failure of any party to this Agreement to perform its agreements and covenants hereunder will cause irreparable injury to the other party to this Agreement for which damages, even if available, will not be an adequate remedy. Accordingly, each of the parties hereto hereby consents to the granting of equitable relief (including specific performance and injunctive relief) by any court of competent jurisdiction to enforce any party's obligations hereunder. The parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. 9.11. Complete Agreement; No Third Party Beneficiary. This Agreement (including the Subscription Agreement, the Merger Agreement and the other documents and instruments referred to herein and therein) (i) constitutes the entire agreement and supersedes all prior agreements, conversations, negotiations and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. [Remainder of this page intentionally left blank.] -23- IN WITNESS WHEREOF, the parties hereto have caused this Option Agreement to be signed by their respective officers thereunto duly authorized, all as of the day and year first written above. ENRON CORP., an Oregon corporation By: /s/ RAYMOND M. BOWEN, JR. ------------------------------------ Name: Raymond M. Bowen, Jr. Title: Authorized Agent CGNN HOLDING COMPANY, INC., a Delaware corporation By: /s/ DREW J. FOSSUM ------------------------------------ Name: Drew J. Fossum Title: Authorized Agent MCTJ HOLDING CO. LLC, a Delaware limited liability company By: /s/ DREW J. FOSSUM ------------------------------------ Name: Drew J. Fossum Title: Authorized Agent DYNEGY HOLDINGS INC., a Delaware corporation By: /s/ HUGH A. TARPLEY ------------------------------------- Name: Hugh A. Tarpley Title: Authorized Agent Solely for the provisions of Section 5.1 hereof: DYNEGY INC., an Illinois corporation By: /s/ HUGH A. TARPLEY ------------------------------------- Name: Hugh A. Tarpley Title: Authorized Agent -24- ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Option Agreement shall have the meanings set forth below unless the context shall otherwise require: "Affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question; provided, that none of Dynegy and its Affiliates shall be deemed to be an Affiliate of Enron. For purposes of this definition of Affiliate, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or general partnership or member interests, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control any other Person in which it or any of its Affiliates owns, directly or indirectly, a majority of the ownership interests. "Agreement" shall mean this Option Agreement. "Authorization" shall mean any and all permits, licenses, authorizations, orders certificates, registrations or other approvals granted by any Governmental Agency. "Bank Credit Facility" shall mean one or more bank credit facilities providing credit availability to NNGC in an aggregate principal amount not to exceed $450 million on the terms contained in, or not substantially different from the terms contained in, that Commitment Letter dated October 31, 2001 between NNGC and certain banks. "Business Day" shall mean a day other than Saturday, Sunday or a federal holiday. "Cash Management Program" means Enron's existing zero balance cash management program. "Closing" shall have the meaning ascribed to such term in Section 2 herein. "Closing Date" shall have the meaning ascribed to such term in Section 2 herein. "Code" means the Internal Revenue Code of 1986, as amended. "Contingent Obligations" shall mean, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend, letter of credit or other similar obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business) co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that Person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain A-1 the solvency or any balance sheet, income or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation shall be equal to the amount of the obligation, or portion thereof, so guaranteed or otherwise supported. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Current Balance Sheet" means the consolidated balance sheet of NNGC dated as of September 30, 2001. "Debt" shall mean, with respect to any Person, the aggregate amount of, without duplication, (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services; (iv) all capitalized lease obligations; (v) all obligations or liabilities of others secured by a Lien on any asset owned by such person whether or not such obligation or Liability is assumed, to the extent of the lesser of such obligation or Liability or the book value of such asset; (vi) all Contingent Obligations of such person; and (vii) any other obligations or Liabilities which are required by generally accepted accounting principles to be shown as debt on a balance sheet, other than trade payables and Liabilities pursuant to the Tax Allocation Agreement. "Enron Common Stock" means the common stock, no par value, of Enron. "Estimated Working Capital" means Grantor's good faith estimate made within five Business Days of Closing of Working Capital on the Closing Date. "Exchange Agreement" means that certain Exchange Agreement by and among Dynegy and Enron executed concurrently herewith. "Exercise" means exercise of the Option. "Exercise Price" shall have the meaning ascribed to such term in Section 2 herein. "FERC" means the Federal Energy Regulatory Commission. "Final Working Capital" means the Working Capital on the close of business on the Closing Date as determined pursuant to Section 2.6. "Final Working Capital Statement" has the meaning set forth in Section 2.6. A-2 "Financial Statements" means the audited consolidated financial statements of NNGC for the two most recent fiscal years and the unaudited consolidated balance sheet dated September 30, 2001, all of which are attached as Exhibit B hereto. "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "Governmental Agency" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Law" shall mean all laws, statutes and ordinances of the United States, any state of the United States, any foreign country, any foreign state and any political subdivision thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Liability" means any liability or obligation (whether absolute or contingent, liquidated or unliquidated or due or to become due). "Lien" means any lien, mortgage, pledge, security interest, restriction, charge or other encumbrance. "Material Adverse Effect" means a material adverse effect on (a) the business condition (financial or otherwise) or results of operations of the Company and its Subsidiaries or (b) the transactions contemplated by this Agreement. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "NNGC" means Northern Natural Gas Company, a Delaware corporation and its subsidiaries. "NNGC Holdings" means NNGC Holding Company, Inc., a Delaware corporation and wholly owned Subsidiary of the Company. "Notice Date" shall have the meaning ascribed to such term in Section 2 herein. "Option Interests" has the meaning set forth in Section 2.1. "Order" shall mean any judgment, order or decree of any Court or Governmental Agency, federal, foreign, state or local, of competent jurisdiction. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency). "Permitted Refinancing Debt" shall mean any Debt of NNGC or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, A-3 replace, defease or refund other Debt of NNGC or any of its Subsidiaries (other than intercompany Debt); provided that: (1) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of, plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of necessary fees and expenses incurred in connection therewith and any premiums paid on the Debt so extended, refinanced, renewed, replaced, defeased or refunded); (2) such Permitted Refinancing Debt has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded; "Person" means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or other entity. "Regulation" shall mean any rule or regulation of any Governmental Agency having the effect of Law or of any rule or regulation of any self-regulatory organization, such as the NYSE. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred Stock" means the Series A Preferred Stock, par value $.01 per share, of NNGC. "Subscription Agreement" means that certain Subscription Agreement dated as of November 9, 2001, by and among Enron, NNGC and Dynegy. "Subsidiary," when used with respect to any Person, shall mean any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by such Person. For purposes hereof, such Person shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person, directly or indirectly, is allocated a majority of partnership, limited liability company, association or other business entity gains or losses, or is or controls the managing director or general partner of such partnership, limited liability company, association or other business entity. "Tax Allocation Agreement" means that certain undated existing tax allocation agreement between Enron and NNGC. A-4 "Weighted Average Life to Maturity" shall mean, when applied to any Debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Debt. "Working Capital" is equal to cash, plus (a) accounts receivable, plus (b) transportation and exchange gas receivable, less (c) accounts payable, less (d) transportation and exchange gas payable, less (e) accrued taxes, less (f) accrued interest. For purposes of clarity, Working Capital excludes the Intercompany Note Receivable in calculating the Exercise Price. A-5 EX-99.12 14 h92082ex99-12.txt PURCHASE OPTION AGREEMENT EXHIBIT 99.12 PURCHASE OPTION AGREEMENT This PURCHASE OPTION AGREEMENT (this "Agreement") dated as of November 9, 2001 is by and among CGNN Holding Company, Inc., a Delaware corporation (the "Grantee"), MCTJ Holding Co. LLC, a Delaware limited liability company (the "Company"), Northern Natural Gas Company, a Delaware corporation ("NNGC"), Enron Corp., an Oregon corporation ("Enron" and, together with Grantee, the "Enron Parties"), Dynegy Holdings, Inc., a Delaware corporation ("Dynegy Holdings"), and Dynegy Inc., an Illinois corporation ("Dynegy" and, together with Dynegy Holdings, "Grantor" or the "Dynegy Parties"). RECITALS A. Merger Agreement. Concurrently with the execution of this Agreement, Dynegy, Stanford, Inc., a Delaware corporation, Badin, Inc., an Illinois corporation, Sorin, Inc., an Oregon corporation, and Enron entered into an Agreement and Plan of Merger (the "Merger Agreement"). B. Equity Interest. The Company owns 100% of the capital stock of NNGC Holding Company, Inc., a Delaware corporation ("NNGC Holding"). NNGC Holding owns 100% of the common stock, par value $1.00 per share, of NNGC. Grantee is the sole member of, and owns all of the membership interests in, the Company. NOW THEREFORE, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. Capitalized Terms. Those capitalized terms used in this Agreement that are not defined in this Agreement are defined in Annex A hereto and are used herein with the meanings ascribed to them therein. 2. Purchase Option. 2.1. Grant of Purchase Option. Subject to the terms and conditions set forth herein, (a) Dynegy Holdings hereby grants to the Grantee an irrevocable option to purchase all, but not less than all, of the outstanding membership interests in the Company (the "Option Interests") and (b) Dynegy hereby grants to the Grantee an irrevocable option to purchase all, but not less than all, of the outstanding shares of Series A Preferred Stock (the "Preferred Shares"). The options of Dynegy and Dynegy Holdings are collectively referred to herein as the "Purchase Option." The Purchase Option must be exercised for all the Option Interests and all the Preferred Shares simultaneously. 2.2. Option Term. The Purchase Option shall be exercisable (a) until the later of (i) 180 days after the date hereof and (ii) 90 days after a Closing under the Option Agreement upon an exercise pursuant to Section 2.5.1.4 thereof or (b) until 90 days after a Closing under -1- the Option Agreement pursuant to Section 2.5.1.1, 2.5.1.2 or 2.5.1.3 thereof (the "Option Term"). If the Purchase Option has not been exercised prior to the expiration of the Option Term, then the rights and obligations set forth in this Agreement shall expire and terminate. 2.3. Exercise Price of Purchase Option. (a) The exercise price of the Purchase Option for the Option Interests (the "Option Interests Exercise Price") shall be the total sum of (i) $24 million, plus (ii) $950 million, minus (iii) the aggregate amount of outstanding principal indebtedness under the Bank Credit Facility and the Senior Notes and any Permitted Refinancing Debt related thereto on the Closing Date, plus (iv) the positive or negative change in Working Capital calculated from the Closing Date of the Option Agreement to the Estimated Working Capital based on the definition of Working Capital provided in this Agreement, minus (v) any increase in long-term debt (other than Debt referred to in (iii) above) between the closing under the Option Agreement and the Closing under this Agreement, plus (vi) any decrease in long-term Debt (other than Debt referred to in (iii) above) between the closing under the Option Agreement and the Closing under this Agreement, plus (vii) any accrued but unpaid dividends on the Series A Preferred Stock as of the Closing under the Option Agreement. (b) The exercise price of the Purchase Option for all the shares of the Series A Preferred Stock (the "Series A Exercise Price") shall be $1.5 billion. 2.4. Working Capital Adjustment. 2.4.1. Calculation of Final Working Capital. Within 30 days of Closing, Grantee shall prepare and deliver to Grantor a statement (the "Final Working Capital Statement") setting forth the amount of Final Working Capital. Grantor shall have 30 days to review the Final Working Capital Statement and supporting documentation and shall have reasonable access to the books, records and personnel of Grantee and NNGC for purposes of verifying the accuracy of the calculation of Final Working Capital. Grantee's calculation of Final Working Capital shall be deemed final and binding unless Grantor raises an objection in writing within 30 days of its receipt thereof, specifying in reasonable detail the nature and extent of such objection. If Grantor raises an objection to the calculation of Final Working Capital within such 30-day period, and if Grantor and Grantee are unable to resolve such objection within 30 days of the date Grantee receives such objection, then the disputed matter shall be submitted for determination to an accounting firm of national reputation mutually agreeable to Grantor and Grantee. The determination of such accounting firm shall be final and binding for all purposes. The fees and expenses of such accounting firm shall be borne equally by Grantor and Grantee. 2.4.2. Settlement of Working Capital Adjustment. If Final Working Capital exceeds Estimated Working Capital, then Grantee will pay Grantor the amount of such excess. If Final Working Capital -2- is less than Estimated Working Capital, then Grantor will pay Grantee the amount of such shortfall. Any such payments will be made within five (5) Business Days of the determination of the adjustment by wire transfer of immediately available funds. 3. Exercise of Purchase Option; Conditions; Closing. 3.1. Notice; Closing Location. If the Grantee wishes to exercise the Purchase Option, it shall send a written notice (an "Exercise Notice") (the date of which being herein referred to as the "Notice Date") to the Grantor specifying a date (as it may be extended from time to time, the "Closing Date") not earlier than three (3) Business Days nor later than ten (10) Business Days from the Notice Date for the closing of the purchase and sale pursuant to the Purchase Option (the "Closing"). The Closing will take place at the offices of Baker Botts L.L.P., 910 Louisiana, Houston, Texas 77002. 3.2. Extension. If the Closing cannot be effected by reason of the application of any Law, Regulation or Order, the Closing Date shall be extended to the tenth Business Day following the expiration or termination of the restriction imposed by such Law, Regulation or Order. Without limiting the foregoing, if prior notification to, or Authorization of, any Governmental Agency is required in connection with the purchase of the Option Interests or the Preferred Shares by virtue of the application of such Law, Regulation or Order, the Grantee and, if applicable, the Grantor and the Company shall promptly file the required notice or application for Authorization and the Grantee, with the cooperation of the Grantor and the Company, shall expeditiously process the same. 3.3. Conditions to Closing. It shall be a condition to Closing that: 3.3.1. HSR Clearance. The parties shall have obtained clearance under the HSR Act, if required by Law, to proceed with the transactions contemplated hereby. 3.3.2. Release of Guarantees. Unless waived by Dynegy, it shall be a condition to Closing that (a) either any guaranty by Dynegy or any Subsidiary of Dynegy (other than the Company and NNGC Holding) of NNGC's indebtedness under the Bank Credit Facility be released or all indebtedness under the Bank Credit Facility be repaid effective as of the Closing and (b) any guaranty by Dynegy or any Subsidiary of Dynegy (other than NNGC Holding) of the Company's indebtedness to NNGC be released effective as of the Closing. 3.3.3. Officer's Certificate. At the Closing, Dynegy will deliver an Officer's Certificate to the effect that the Dynegy Parties have the power to convey the Option Interests and the Series A Stock and setting forth the capitalization of the Company, NNGC Holding and NNGC, and that from the Closing under the Option Agreement through the Closing hereunder, Grantors have -3- operated NNGC in compliance with the affirmative covenants set forth in Section 4.3 hereof. 3.3.4. No Violation of Law [Grantee]. Unless waived by Grantee, the Closing shall not violate any Law, Regulation or Order applicable to Grantee or any of its Affiliates. 3.3.5. No Violation of Law [Grantor]. Unless waived by Grantor, the Closing shall not violate any Law, Regulation or Order applicable to Grantor or any of its Affiliates. 3.3.6. Accuracy of Enron and Grantee's Representations and Warranties. Unless waived by Grantor, the representations and warranties set forth in Section 5.1 are true and correct as of the Closing Date. 3.3.7. Accuracy of Dynegy Parties' Representations and Warranties. Unless waived by Grantee, the representations and warranties set forth in Section 5.2 are true and correct as of the Closing Date. 3.4. Payment and Delivery of Certificates. 3.4.1. Payment. At the Closing, the Grantee shall pay the Option Interests Exercise Price to Dynegy Holdings and the Series A Exercise Price to Dynegy in immediately available funds by wire transfer to a bank account designated by the applicable Grantor. 3.4.2. Delivery. At the Closing, simultaneously with the delivery of immediately available funds as provided above, Dynegy Holdings shall deliver to the Grantee a certificate or certificates representing the Option Interests and Dynegy shall deliver to Grantee a certificate or certificates representing the Preferred Shares, which Option Interests and Preferred Shares shall be duly authorized, validly issued, fully paid and nonassessable and free and clear of all Liens, and the Grantee shall deliver to Dynegy Holdings its written agreement that the Grantee will not offer to sell or otherwise dispose of such Option Interests or Preferred Shares in violation of applicable Law. 3.5. Certificates. (a) Certificates for the Option Interests delivered at the Closing shall be endorsed with a restrictive legend that shall read substantially as follows: THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS OF AN OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001 AND A PURCHASE OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF SUCH -4- AGREEMENTS WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR. (b) Certificates for the Preferred Shares delivered at the Closing shall be endorsed with a restrictive legend that shall read substantially as follows: THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS AND PURSUANT TO THE TERMS OF A PURCHASE OPTION AGREEMENT DATED AS OF NOVEMBER 9, 2001. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE COMPANY OF A WRITTEN REQUEST THEREFOR. 3.6. Unlegended Certificates. A new certificate or certificates evidencing the Option Interests and the Preferred Shares will be issued to the Grantee in lieu of the certificate bearing the above legend, and such new certificate shall not bear such legend, insofar as it applies to the Securities Act, if the Grantee shall have delivered to the Company a copy of a letter from the staff of the SEC, or an opinion of counsel in form and substance reasonably satisfactory to the Company and its counsel, to the effect that such legend is not required for purposes of the Securities Act. 4. Covenants. 4.1. Maintenance of 100% ownership of Option Interests and Preferred Shares; no Liens. The Grantors hereby covenant that, from the Closing Date under the Option Agreement through the end of the Purchase Option Term, Dynegy Holdings will maintain ownership of 100% of the membership interests of the Company, the Company will maintain ownership of 100% of the capital stock of NNGC Holding, and NNGC Holding will maintain ownership of 100% of the common stock of NNGC. The Grantors hereby covenant not to issue any equity interest or any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any equity interest in the Company, NNGC Holding or NNGC to any entity other than Grantor from the date hereof through the earlier of Closing Date or the expiration of the Option Term. Grantors, Enron, the Company, NNGC Holding, and NNGC will not, directly or indirectly, offer for sale, contract to sell, sell, distribute, grant any option, right or warrant to purchase, suffer any Liens upon, pledge, hypothecate or otherwise dispose of any equity interest in the Company, NNGC Holding or NNGC, any securities convertible into, or exercisable or exchangeable for, an equity interest in the Company, NNGC Holding or NNGC, or any other rights to acquire an equity interest in the Company, NNGC Holding or NNGC, except for Liens, pledges and hypothecations in the equity interest of NNGC to secure Debt. 4.2. Release of Guaranty. After receipt of the Purchase Option Exercise Notice, and prior to the Closing Date, Grantee agrees to use its reasonable commercial best efforts to cause the release of Dynegy's guarantee, if any, under the Bank Credit Facility, -5- including, if required, the substitution of Enron or an Affiliate of Enron as the guarantor thereunder. 4.3. Affirmative Covenants Related to NNGC. Dynegy and the Company covenant that during the Purchase Option Term, or if the Options granted hereunder are exercised, until the Closing Date, they will cause NNGC to: 4.3.1. cause all properties owned by NNGC or used or held for use in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Board of Directors may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, that the foregoing shall not prevent NNGC from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the management of NNGC, desirable in the conduct of its business; 4.3.2. preserve and keep in full force and effect the corporate existence, rights (charter and statutory), licenses and franchises of NNGC; provided, that NNGC shall not be required to preserve any such right, license or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of NNGC as a whole; 4.3.3. maintain the books, accounts and records of NNGC in accordance with GAAP; 4.3.4. comply with all material legal requirements and material contractual obligations applicable to the operations and business of NNGC and pay all applicable taxes as they become due and payable; and 4.3.5. permit representatives of the Grantee and its agents (including their counsel, accountants and consultants) to have reasonable access during business hours to NNGC's books, records, facilities, key personnel, officers, directors, customers, independent accountants and legal counsel to the extent that such access is not prohibited by FERC marketing affiliate rules. 4.4. Negative Covenants Related to NNGC. For the period between the closing under the Option Agreement and the Closing Date under this Agreement, Dynegy, Grantors and the Company covenant that, without the approval of the Grantee, NNGC will not: -6- 4.4.1. Dividends. Directly or indirectly declare or pay, or permit any Subsidiary to declare or pay, any dividends, or make or permit any Subsidiary to make, any distributions upon any of its equity securities, other than dividends equal to NNGC's net income plus accrued and unpaid dividends on the Series A Preferred Stock; 4.4.2. Redemptions. Except as provided pursuant to the terms of the Series A Preferred Stock, directly or indirectly redeem, purchase or otherwise acquire, any of NNGC's equity securities; 4.4.3. Issuances. Authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) of (x) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities issued in connection with the issuance of equity securities or containing profit participation features) or (y) any equity securities (or any securities convertible into or exchangeable for any equity securities, including any warrants or stock options); 4.4.4. Mergers. Merge or consolidate, or enter into an agreement providing for any merger or consolidation, with any Person if the holders of NNGC's capital stock prior to the transaction will own less than 100% of the voting power of NNGC's capital stock after the transaction; 4.4.5. Sale of Assets. Except as provided in Schedule 4.4.5, sell, lease or otherwise dispose of any assets of NNGC, other than obsolete equipment or inventory and asset sales in the Ordinary Course of Business consistent with past practice not to exceed an aggregate of $20 million within any 12-month period; 4.4.6. Bankruptcy. Pursuant to or within the meaning of Title 11 of the United States Code or any similar federal, state or foreign law for the relief of debtors, commence a voluntary case, consent to the entry of an order for relief against it in an involuntary case, consent to the appointment of a receiver, trustee, assignee, liquidator or similar official of it or for all or substantially all of its property, or make a general assignment for the benefit of its creditors; 4.4.7. Charter Amendments. Make any amendment to or waive any provision of NNGC's certificate of incorporation or bylaws, or file any resolution of the Board of Directors with the Secretary of State of Delaware, in either case which materially and adversely affects the holders of the Series A Stock; -7- 4.4.8. Investments and Loans. Make any investment in any Person or any loans or advances to, or guarantees for the benefit of, any Affiliate, other than loans to any wholly owned Subsidiary; 4.4.9. Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, Debt, other than (i) the Debt outstanding as of the date hereof, (ii) Debt incurred after the date hereof not exceeding $450 million in the aggregate on the terms contained in or with interest rate and prepayment provisions not substantially different from, the terms contained in that Commitment Letter dated October 31, 2001 between NNGC and certain banks and (iii) Permitted Refinancing Debt; 4.4.10. Capital Expenditures. Make, or permit NNGC and its Subsidiaries, taken as a whole, to make capital expenditures (including, without limitation, payments with respect to capitalized leases), (i) during the period from the date hereof through December 31, 2001, totaling in excess of $40 million, (ii) during the year ending December 31, 2002, totaling in excess of $115 million and (iii) thereafter, in excess of annual budgeted amounts, except in each case for additional expenditures not ordinarily classified as capital expenditures that are required to be classified as capital expenditures by applicable regulatory requirements. 4.5. Tax Indemnity. Dynegy shall indemnify Enron and its Affiliates, including NNGC, against any liability for taxes of the affiliated group of corporations filing a consolidated federal income tax return of which Dynegy is the common parent under Treas. Reg.ss. 1.1502-6 (or similar principles of state, local or foreign law). Procedures similar to those set forth in Sections 8.1 and 8.3 of the Option Agreement shall apply to claims pursuant to this Section. 5. Representations and Warranties. 5.1. Representations and Warranties of Grantee. Enron and Grantee hereby represent and warrant to Grantors as follows: 5.1.1. Existence; Qualification; Subsidiaries. Grantee is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to conduct its business and own and operate its properties as now conducted, owned and operated. 5.1.2. Authorization and Enforceability. Grantee has the full power and authority and has taken all action necessary to permit Grantee to execute and deliver this Agreement and to carry out the terms -8- hereof, and none of such actions will violate any provision of the Grantee's Certificate of Incorporation or any applicable law, regulation, order, judgment or decree or rule, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which Grantee is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of Grantee, enforceable against Grantee in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. 5.1.3. Investment Intent of Grantee. Grantee is acquiring the Purchase Option and, if it exercises the Purchase Option, will acquire the Option Interests and the Series A Preferred Stock for its own account for investment and not with a view to distribution. 5.1.4. Sophistication and Financial Condition; Information. Grantee considers itself to be an experienced and sophisticated investor and to have such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Preferred Shares and the Option Interests. Grantee is able to bear the economic risk of this investment regarding the Company, is able to hold the Option Interests and the Preferred Shares indefinitely and has a sufficient net worth to sustain a loss of its entire investment in the Company and NNGC in the event such loss should occur. Grantee (a) has been furnished with such information about Dynegy and Grantors, the Company and the Purchase Option, the Preferred Shares and the Option Interests as it has requested, (b) has made its own independent inquiry and investigation into, and based thereon, has formed an independent judgment concerning these investments and (c) is an "accredited" investor within the meaning of Regulation D of the Securities Act, as currently in effect. The Grantee acknowledges that any certificate representing the Preferred Shares or the Option Interests will bear a customary legend regarding restrictions on the transferability of such Preferred Shares or the Option Interests. 5.2. Representations and Warranties of Dynegy and Dynegy Holdings. Each of Dynegy and Dynegy Holdings hereby represents and warrants to Grantee as follows: 5.2.1. Existence; Qualification; Subsidiaries. Grantors are corporations duly organized, validly existing and in good standing under the laws of the state of Delaware. Dynegy and Dynegy Holdings -9- have full corporate power and authority to conduct their business and own and operate their properties as now conducted, owned and operated. 5.2.2. Authorization and Enforceability. Dynegy and Dynegy Holdings have full power and authority and have taken all required corporate and other action necessary to permit each to execute and deliver this Agreement and to carry out the terms hereof, and none of such actions will violate any provision of each of their constituent documents or any applicable law, regulation, order, judgment or decree, or result in the breach of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, any agreement, instrument or understanding to which any of them is a party or by which it is bound. This Agreement constitutes a legal, valid and binding obligation of each of them, enforceable against each of them in accordance with its terms, except to the extent limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and similar laws of general application related to the enforcement of creditor's rights generally and (ii) general principles of equity. 5.2.3. Third-Party Approvals. Assuming the accuracy of the representations and warranties of the Grantee contained in this Agreement and except for any required filings under the HSR Act, neither Dynegy nor Dynegy Holdings are required to obtain any order, consent, approval or authorization of, or to make any declaration or filing with, any Governmental Agency or other third party (including under any state securities or "blue sky" laws) in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby. 6. Guarantee by Dynegy of Dynegy Holdings' Obligations Hereunder. Dynegy hereby unconditionally guarantees to Grantee the prompt, faithful and full performance of all of the covenants and obligations of Dynegy Holdings under the terms of this Agreement. 7. Miscellaneous. 7.1. Expenses. Except as otherwise provided in the Merger Agreement or as otherwise expressly provided herein, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and legal counsel. 7.2. Waiver and Amendment. Any provision of this Agreement may be waived at any time by the party that is entitled to the benefits of such provision. This Agreement may not -10- be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by the parties hereto. 7.3. Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. 7.4. Governing Law. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Texas, regardless of the Laws that might otherwise govern under applicable principles of conflicts of law. 7.5. Descriptive Headings. The descriptive headings contained herein are for convenience or reference only, are not comprehensive, and shall not affect in any way the meaning or interpretation of this Agreement. 7.6. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses or sent by electronic transmission to the telecopier number specified below: If to Enron or the Grantee, to: Enron Corp. 1400 Smith Street Houston, Texas 77002 Attention: General Counsel Facsimile: (713) 853-3129 with an information copy, which shall not constitute notice to: Vinson & Elkins L.L.P. 1001 Fannin, Suite 2300 Houston, Texas 77002-6760 Attention: William E. Joor, III, Esq. Scott N. Wulfe, Esq. Facsimile: (713) 758-2346 -11- If to Dynegy or Dynegy Holdings to: Dynegy Inc. 1000 Louisiana, Suite 5800 Houston, Texas 77002 Attention: General Counsel Facsimile: (713) 507-6808 with an information copy, which shall not constitute notice to: Baker Botts L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002-4995 Attention: R. Joel Swanson, Esq. J. David Kirkland, Jr., Esq. Facsimile: (713) 229-1522 7.7. Counterparts. This Agreement and any amendments hereto may be executed in counterparts, each of which shall be deemed an original and all of which taken together shall constitute but a single document. 7.8. Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be sold, assigned or otherwise disposed of or transferred by either of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other party, except that the Grantee may assign this Agreement to an Affiliate or Subsidiary of the Grantee; provided, however, that no such assignment shall have the effect of releasing the Grantee from its obligations hereunder and the assignee shall be subject to all of the terms and conditions of this Agreement as if it were the Grantee. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. 7.9. Further Assurances. In the event of any exercise of the Purchase Option by the Grantee, Enron and the Grantee shall execute and deliver all other documents and instruments and take all other action that may be reasonably necessary in order to consummate the transactions provided for by such exercise. 7.10. Specific Performance. The parties hereto hereby acknowledge and agree that the failure of any party to this Agreement to perform its agreements and covenants hereunder will cause irreparable injury to the other party to this Agreement for which damages, even if available, will not be an adequate remedy. Accordingly, each of the parties hereto hereby consents to the granting of equitable relief (including specific performance and injunctive relief) by any court of competent jurisdiction to enforce any party's obligations hereunder. The parties further agree to waive any requirement for the securing or posting of any bond in connection with the obtaining of any such equitable relief and that this provision is without prejudice to any other rights that the parties hereto may have for any failure to perform this Agreement. -12- 7.11. Complete Agreement; No Third Party Beneficiary. This Agreement and the other documents and instruments referred to herein and therein (i) constitutes the entire agreement and supersedes all prior agreements, conversations, negotiations and understandings, both written and oral, between the parties with respect to the subject matter hereof and (ii) is not intended to confer upon any Person other than the parties hereto any rights or remedies hereunder. [Remainder of this page intentionally left blank.] -13- IN WITNESS WHEREOF, the parties hereto have caused this Purchase Option Agreement to be signed by their respective officers thereunto duly authorized, all as of the day and year first written above. ENRON CORP., an Oregon corporation By: /s/ RAYMOND M. BOWEN, JR. ------------------------------------ Name: Raymond M. Bowen, Jr. Title: Authorized Agent CGNN HOLDING COMPANY, INC., a Delaware corporation By: /s/ DREW J. FOSSUM ------------------------------------ Name: Drew J. Fossum Title: Authorized Agent MCTJ HOLDING CO. LLC, a Delaware limited liability company By: /s/ DREW J. FOSSUM ------------------------------------ Name: Drew J. Fossum Title: Authorized Agent NORTHERN NATURAL GAS COMPANY, a Delaware corporation By: /s/ DREW J. FOSSUM ------------------------------------ Name: Drew J. Fossum Title: Authorized Agent -14- DYNEGY HOLDINGS INC., a Delaware corporation By: /s/ HUGH A. TARPLEY --------------------------------- Name: Hugh A. Tarpley Title: Authorized Agent DYNEGY INC., an Illinois corporation By: /s/ HUGH A. TARPLEY --------------------------------- Name: Hugh A. Tarpley Title: Authorized Agent -15- ANNEX A SCHEDULE OF DEFINED TERMS The following terms when used in the Option Agreement shall have the meanings set forth below unless the context shall otherwise require: "Affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question; provided, that none of Dynegy and its Affiliates shall be deemed to be an Affiliate of Enron. For purposes of this definition of Affiliate, "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or general partnership or member interests, by contract or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control any other Person in which it or any of its Affiliates owns, directly or indirectly, a majority of the ownership interests. "Agreement" shall mean this Option Agreement. "Authorization" shall mean any and all permits, licenses, authorizations, orders certificates, registrations or other approvals granted by any Governmental Agency. "Bank Credit Facility" shall mean one or more bank credit facilities providing credit availability to NNGC in an aggregate principal amount not to exceed $450 million on the terms contained in, or not substantially different from the terms contained in, that Commitment Letter dated October 31, 2001 between NNGC and certain banks. "Business Day" shall mean a day other than Saturday, Sunday or a federal holiday. "Closing" shall have the meaning ascribed to such term in Section 3 herein. "Closing Date" shall have the meaning ascribed to such term in Section 3 herein. "Code" means the Internal Revenue Code of 1986, as amended. "Contingent Obligation" shall mean, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend, letter of credit or other similar obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business) co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that Person is in effect liable through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet, income or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any such case if the A-1 purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation shall be equal to the amount of the obligation, or portion thereof, so guaranteed or otherwise supported. "Court" shall mean any court or arbitration tribunal of the United States, any foreign country or any domestic or foreign state, and any political subdivision thereof, and shall include the European Court of Justice. "Debt" shall mean, with respect to any Person, the aggregate amount of, without duplication, (i) all obligations for borrowed money; (ii) all obligations evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations to pay the deferred purchase price of property or services; (iv) all capitalized lease obligations; (v) all obligations or liabilities of others secured by a Lien on any asset owned by such person whether or not such obligation or Liability is assumed, to the extent of the lesser of such obligation or Liability or the book value of such asset; (vi) all Contingent Obligations of such person; and (vii) any other obligations or liabilities which are required by generally accepted accounting principles to be shown as debt on a balance sheet, other than trade payables. "Enron Common Stock" means the common stock, no par value, of Enron. "Estimated Working Capital" means Grantors' good faith estimate made within five Business Days of Closing of Working Capital on the Closing Date. "FERC" means the Federal Energy Regulatory Commission. "Final Working Capital" means the Working Capital on the close of business on the Closing Date as determined pursuant to Section 2.6. "Final Working Capital Statement" has the meaning set forth in Section 2.4. "GAAP" means United States generally accepted accounting principles as in effect from time to time, consistently applied. "Governmental Agency" means any federal, state, local, foreign or other governmental agency, instrumentality, commission, authority, board or body. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Intercompany Note Receivable" means any dividend or other distribution resulting from the cancellation by NNGC of Debt owed by Enron and its Affiliates to NNGC. "Investment" as applied to any Person means (a) any direct or indirect purchase or other acquisition by such Person of any notes, obligations, instruments, stock, securities or ownership interest of any other Person and (b) any capital contribution by such Person to any other Person. A-2 "Law" shall mean all laws, statutes and ordinances of the United States, any state of the United States, any foreign country, any foreign state and any political subdivision thereof, including all decisions of Courts having the effect of law in each such jurisdiction. "Liability" means any liability or obligation (whether absolute or contingent, liquidated or unliquidated or due or to become due). "Lien" means any lien, mortgage, pledge, security interest, restriction, charge or other encumbrance. "Material Adverse Effect" means a material adverse effect on (a) the business condition (financial or otherwise) or results of operations of the Company and its Subsidiaries or (b) the transactions contemplated by this Agreement. "Merger" shall have the meaning ascribed to such term in the Merger Agreement. "NNGC Holding" means NNGC Holding Company, Inc., a Delaware corporation and wholly owned Subsidiary of the Company. "NNGC" means Northern Natural Gas Company, a Delaware corporation, and its subsidiaries. "Notice Date" shall have the meaning ascribed to such term in Section 2 herein. "Option Agreement" means the Option Agreement among the parties hereto (other than NNGC) entered into concurrently herewith. "Order" shall mean any judgment, order or decree of any Court or Governmental Agency, federal, foreign, state or local, of competent jurisdiction. "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity, quality and frequency). "Permitted Refinancing Debt" shall mean any Debt of NNGC or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Debt of NNGC or any of its Subsidiaries (other than intercompany Debt); provided that: (1) the principal amount of such Permitted Refinancing Debt does not exceed the principal amount of, plus accrued interest on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of necessary fees and expenses incurred in connection therewith and any premiums paid on the Debt so extended, refinanced, renewed, replaced, defeased or refunded); (2) such Permitted Refinancing Debt has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity A-3 equal to or greater than the Weighted Average Life to Maturity of, the Debt being extended, refinanced, renewed, replaced, defeased or refunded; "Person" means any individual, partnership, joint venture, corporation, limited liability company, trust, unincorporated organization or other entity. "Regulation" shall mean any rule or regulation of any Governmental Agency having the effect of Law or of any rule or regulation of any self-regulatory organization, such as the NYSE. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series A Stock" means the Series A Preferred Stock, par value $0.01 per share, of NNGC. "Subscription Agreement" means that certain Subscription Agreement dated as of November 9, 2001, by and among Enron, NNGC and Dynegy, Inc., an Illinois corporation. "Subsidiary," when used with respect to any Person, shall mean any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by such Person. For purposes hereof, such Person shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person, directly or indirectly, is allocated a majority of partnership, limited liability company, association or other business entity gains or losses, or is or controls the managing director or general partner of such partnership, limited liability company, association or other business entity. "Weighted Average Life to Maturity" shall mean, when applied to any Debt at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Debt. "Working Capital" is equal to cash, plus (a) accounts receivable, plus (b) transportation and exchange gas receivable, plus (c) intercompany accounts receivable plus (d) the Intercompany Note Receivable less (e) accounts payable, less (f) transportation and exchange gas payable, less (g) accrued taxes, less (h) accrued interest, less (i) intercompany accounts payable. A-4 EX-99.13 15 h92082ex99-13.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 99.13 REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") dated as of November 9, 2001, is by and between Enron Corp., an Oregon corporation (the "COMPANY"), and Dynegy Inc., an Illinois corporation ("STOCKHOLDER"). WHEREAS, the Company, Northern Natural Gas Company, a Delaware corporation ("Northern"), and Stockholder entered into a Subscription Agreement dated the date hereof pursuant to which Stockholder will purchase shares of Series A Preferred Stock, par value $0.01 per share, of Northern ("Series A Preferred Stock") that may be exchanged for Common Stock, no par value, of the Company ("Common Stock") pursuant to an Exchange Agreement dated the date hereof by and between the Company and Stockholder (the "Exchange Agreement"); WHEREAS, in connection with the Exchange Agreement, the Company has agreed to grant to Stockholder certain registration rights set forth below. NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Stockholder and the Company, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 SPECIFIC DEFINITIONS. The following capitalized terms shall have the meanings ascribed to them in this Section 1.1: "AFFILIATE" shall have the meaning set forth in Rule 12b-2 under the Exchange Act. "AGREEMENT" shall have the meaning set forth in the preamble hereto. "COMMON STOCK" shall have the meaning set forth in the recitals hereto. "COMPANY" shall have the meaning set forth in the preamble hereto. "COMPANY REGISTRATION" is defined in Section 3.1. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "HOLDER" shall mean Stockholder and each transferee of Registrable Common Stock directly or indirectly (in a chain of title) from Stockholder to whom the right to cause one or more demand registrations under Section 2.1 has been expressly assigned in writing in accordance with Section 9.1 directly or indirectly (in a chain of title) from Stockholder. "INDEMNIFIED PARTY" shall have the meaning set forth in Section 7.3. "INDEMNIFYING PARTY" shall have the meaning set forth in Section 7.3. "INSPECTORS" shall have the meaning set forth in Section 4.1(l). "LOSS" or "LOSSES" shall have the meaning set forth in Section 7.1. "MATERIAL EVENT" shall have the meaning set forth in Section 4.1(k). "MERGER AGREEMENT" shall have the meaning set forth in the recitals hereto. "PARTICIPATING HOLDERS" shall have the meaning set forth in Section 2.2(a). "PERSON" shall mean any business entity (including, without limitation, a corporation, partnership (limited or general), limited liability company or business trust) or a natural person. "PROSPECTUS" shall have the meaning set forth in Section 7.1. "REGISTER" "REGISTERED" and "REGISTRATION" and words of similar import refer to a registration effected by preparing and filing with the SEC a registration statement in compliance with the Securities Act, and the declaration and ordering by the SEC of effectiveness of such registration statement or document. "REGISTRABLE COMMON STOCK" shall mean any Common Stock issuable upon exchange of the Series A Preferred Stock, and any securities issued or issuable in respect of any such Registrable Common Stock by way of any stock split or stock dividend or in connection with any combination of shares, recapitalization, merger, consolidation, reorganization or otherwise. Common Stock shall cease to be Registrable Common Stock when (i) it has been disposed of in a transaction registered under the Securities Act, (ii) it has been sold pursuant to Rule 144 under the Securities Act, (iii) it is held by a Person not entitled to the benefits of this Agreement under Section 9.1, (iv) at such time as the Registrable Common Stock held by such holder constitutes less than 1% of the then outstanding shares of Common Stock and such shares could be sold without registration pursuant to Rule 144 under the Securities Act, or (v) it has otherwise been transferred in circumstances where no restrictive legend is required on the certificate for such shares because no restriction on transfer exists. "SEC" shall mean the United States Securities and Exchange Commission. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SERIES A PREFERRED STOCK" shall have the meaning set forth in the recitals hereto. "STOCKHOLDER" shall have the meaning set forth in the preamble hereto. 1.2 OTHER DEFINITIONS. Other capitalized terms used herein but not defined in Section 1.1 shall have the respective meanings ascribed to them throughout this Agreement. 2 SECTION 2. REGISTRATION RIGHTS 2.1 DEMAND REGISTRATION RIGHTS. (a) Upon receipt of a written request from a Holder to register under the Securities Act (whether for purposes of a public offering, an exchange offer or otherwise) all or part of the Registrable Common Stock held by such Holder, the Company shall as expeditiously as reasonably possible (but in any event not later than forty-five (45) days after receipt of such request) prepare and file, and use its commercially reasonable best efforts to cause to become effective as soon thereafter as practicable, a registration statement under the Securities Act to effect the offering of such Registrable Common Stock in the manner specified in such request. (b) Holders of a majority of the Registrable Common Stock to be included in such registration shall be entitled to select and retain one or more investment bankers or managers reasonably acceptable to the Company in connection with any underwritten offerings made pursuant to this Section 2.1. (c) Subject to the terms and conditions set forth in Section 2.2, Holder may request the Company to register Registrable Common Stock under the Securities Act pursuant to this Section 2.1 at any time and from time to time; provided, however, that the Company shall not be required to register Registrable Common Stock pursuant to this Section 2.1 more than once in any 270-day period. 2.2 TERMS AND CONDITIONS OF DEMAND REGISTRATION RIGHTS. Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to the Holders in Section 2.1 are expressly subject to the following terms and conditions: (a) The Holders, collectively, shall only be entitled to six (6) requests to register Registrable Common Stock under the terms of Section 2.1. A "request" as it is used in this Section 2.2(a) shall be deemed to have occurred only upon completion of a requested registration and the subsequent sale of Registrable Common Stock by one or more Holders; provided, however, that if the Company shall have substantially completed its requirements to permit the sale of the Registrable Common Stock and all Holders participating in any such registration (the "Participating Holders") determine to withdraw such registration or not to effect sales of Registrable Common Stock pursuant to such registration, then a "request" shall be deemed to have occurred unless either (i) such withdrawal or determination not to effect sales resulted from an adverse change in the Company's circumstances or (ii) the Participating Holders pay the Company's out-of-pocket expenses associated with such registration. (b) The Company shall be entitled to defer for a reasonable period of time, but not to exceed ninety (90) days in the aggregate, the filing of any registration statement otherwise required to be prepared and filed by it under Section 2.1 if the Company notifies the Holder, within five (5) business days after such Holder requested the registration under Section 2.1 that the Company (i) is at such time conducting or is about to conduct an underwritten public offering of its securities for its own account and the Board of Directors of the Company determines in 3 good faith that such offering would be materially adversely affected by such registration requested by the Holders or (ii) would be required (as determined after consultation with counsel) to disclose in such registration statement information not otherwise then required by law to be publicly disclosed and, in the good faith judgment of the Board of Directors of the Company, such disclosure might adversely affect any material business transaction or negotiation in which the Company is then engaged. If the Company elects to defer the filing of a registration statement pursuant to this Section 2.2(b), the Holder may withdraw its request, in writing, during the time of such deferral and such request shall not be counted toward the limit set forth in Section 2.2(a). (c) The Holders shall not be entitled to exercise their rights pursuant to Section 2.1 during the 60-day period immediately following the effective date of any registration statement filed by the Company under the Securities Act (other than on Form S-8 or another similar form) in respect of an offering or sale of Common Stock of the Company by or on behalf of the Company or any other stockholder of the Company. (d) The Company shall not be obligated to effect a registration pursuant to Section 2.1 above unless the shares of Registrable Common Stock proposed to be included in such registration are reasonably expected to have an aggregate sales price to the public of at least $100 million. SECTION 3. PIGGYBACK REGISTRATION RIGHTS 3.1 PIGGYBACK REGISTRATION RIGHTS. If at any time or from time to time the Company shall propose to register any Common Stock for public sale under the Securities Act (a "COMPANY REGISTRATION"), the Company shall give the Holders prompt written notice of the proposed registration and shall include in such registration on the same terms and conditions as the other securities included in such registration such number of shares of Registrable Common Stock as such Holders shall request within five (5) business days after the giving of such notice; provided, however, that the Company may at any time prior to the effectiveness of any such registration statement, in its sole discretion and without the consent of such Holders, abandon the proposed offering in which such Holders had requested to participate (provided that the Company gives such Holders prompt notice of such decision); and provided further that such Holders shall be entitled to withdraw any or all of their shares of Registrable Common Stock to be included in a registration statement under this Section 3.1 at any time prior to the date on which the registration statement with respect to such shares of Registrable Common Stock is declared effective by the SEC. The Company shall be entitled to select the investment bankers and/or managers, if any, to be retained in connection with any registration referred to in this Section 3.1. 4 3.2 RESTRICTIONS ON PIGGYBACK REGISTRATION RIGHTS. Notwithstanding anything to the contrary contained elsewhere herein, the registration rights granted to the Holders in Section 3.1 are expressly subject to the following terms and conditions: (a) The Company shall not be obligated to include shares of Registrable Common Stock in an offering as contemplated by Section 3.1 if the Company is advised in writing by the managing underwriter or underwriters of such offering (with a copy to each Participating Holder), that the success of such offering would in its or their good faith judgment be adversely affected by such inclusion (after consideration of all relevant factors, including without limitation, the impact of any delay caused by including such shares); provided, however, that the Company shall in any case be obligated to include such number of shares of Registrable Common Stock in such offering, if any, as such underwriter or underwriters shall determine will not adversely affect the success of such offering. (b) The Company shall not be obligated to include any shares of Registrable Common Stock in any registration by the Company of any Common Stock in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reinvestment plan or stock option or other director or employee incentive or benefit plan. In addition, the Company shall not be obligated to include any shares of Registrable Common Stock in any registration that is effected pursuant to any of the agreements listed on Exhibit A hereto (the "Existing Registration Rights Agreements") to the extent that such Existing Registration Rights Agreements prohibit such inclusion. (c) The Company shall use commercially reasonable best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Common Stock requested to be included in a registration of Common Stock pursuant to this Section 3 to be included on the same terms and conditions as any similar securities included therein. Notwithstanding the foregoing, the Company shall not be required to include Registrable Common Stock of any Holder in such offering unless such Holder accepts the terms of the underwriting agreement between the Company and the managing underwriter or underwriters. If the managing underwriter or underwriters of a proposed underwritten offering advise the Company in writing that in its or their good faith judgment the total amount of securities, including securities requested to be included in a registration of Common Stock pursuant to this Section 3 and other similar securities, to be included in such offering is sufficiently large to adversely affect the success of such offering, then in such event the securities to be included in such offering shall be allocated first to the Company and then, to the extent that any additional securities can, in the good faith judgment of such managing underwriter or underwriters, be sold without creating any such adverse effect on the success of such offering (but subject to existing priority requirements in the Existing Registration Rights Agreements), to the Participating Holders based upon the number of shares of Registrable Common Stock requested to be included in such registration. (d) In the event that some but less than all of the Participating Holders' shares of Registrable Common Stock are included in an offering contemplated by a registration statement pursuant to this Section 3, each Participating Holder shall execute one or more 5 "lockup" letters, in customary form, setting forth an agreement by such Participating Holder not to offer for sale, sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock, or any securities convertible into or exchangeable into or exercisable for any shares of Common Stock, for a period of ninety (90) days from the date such offering commences; provided, however, that if the period of any such "lockup" applicable to the Company with respect to any such registration statement shall be less than ninety (90) days, then the period of time applicable to the Participating Holders shall be such lesser period of time. SECTION 4. COVENANTS 4.1 COVENANTS OF THE COMPANY. In connection with any offering of shares of Registrable Common Stock pursuant to this Agreement, the Company shall: (a) Prepare and file with the SEC such amendments and post-effective amendments to the registration statement as may be necessary to keep the registration statement effective for a period of not less than 120 days, unless the offering is a continuous offering of securities under Rule 415, in which case the registration statement shall be kept effective until the first anniversary of such effective date or, in either case, such shorter period which will terminate when all Registrable Common Stock covered by such registration statement has been sold or withdrawn at the request of participating holders of Registrable Common Stock; and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; (b) Furnish to the Participating Holders and to each managing underwriter, if any, (i) at least two (2) business days prior to filing with the SEC, any registration statement covering shares of Registrable Common Stock, any amendment or supplement thereto, and any prospectus used in connection therewith, which documents will be subject to the reasonable review of the Participating Holders and such underwriter, and, with respect to a registration statement prepared pursuant to Section 2.1, the Company shall not file any such documents with the SEC to which the Participating Holders shall reasonably object; and (ii) a copy of any and all transmittal letters or other correspondence with the SEC or any other governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering of shares of Registrable Common Stock; (c) Furnish to the Participating Holders and each managing underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included in such registration statement (including each preliminary prospectus and prospectus supplement) as the Participating Holders or such underwriter may reasonably request in order to facilitate the sale of the shares of Registrable Common Stock; (d) After the filing of such registration statement, promptly notify the Participating Holders of any stop order issued or enforcement action initiated or, to the 6 knowledge of the Company, threatened to be issued by the SEC and promptly take all reasonable actions to prevent the entry of such stop order or to obtain its withdrawal if entered; (e) Use its commercially reasonable best efforts to qualify such shares of Registrable Common Stock for offer and sale under the securities, "blue sky" or similar laws of such jurisdictions (including any foreign country or any political subdivision thereof in which shares of Common Stock are then listed) as the Participating Holders or underwriter shall reasonably request and use its commercially reasonable best efforts to obtain all appropriate registrations, permits and consents required in connection therewith, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation or to file a general consent to service of process in any such jurisdiction; (f) Furnish to each managing underwriter, if any, an opinion of counsel for the Company addressed to each of them, dated as of the date of the closing of the offering of shares of Registrable Common Stock, and a "comfort" letter or letters signed by the Company's independent public accountants, each in reasonable and customary form and covering such matters of the type customarily covered by opinions or comfort letters delivered by such parties in underwritten public offerings, and use its commercially reasonable best efforts to have such opinions and comfort letters addressed to and delivered to each Participating Holder; (g) Furnish unlegended certificates representing ownership of the shares of Registrable Common Stock being sold in such denominations as shall be requested by the Participating Holders or the managing underwriter, if any, provided such request is made at least two (2) business days prior to the closing of the sale of such shares; (h) Promptly inform the Participating Holders (i) in the case of any offering of shares of Registrable Common Stock in respect of which a registration statement is filed under the Securities Act, of the date on which such registration statement or any post-effective amendment thereto becomes effective and, if applicable, of the date of filing a Rule 430A prospectus (and, in the case of an offering abroad of shares of Registrable Common Stock, of the date when any required filing under the securities and other laws of such foreign jurisdictions shall have been made and when the offering may be commenced in accordance with such laws) and (ii) of any request by the SEC, any securities exchange, government agency, self-regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or preliminary prospectus or prospectus included therein or any offering memorandum or other offering document relating to such offering; (i) Subject to subparagraph (k) below, until the earlier of (i) such time as all of the shares of Registrable Common Stock being offered have been disposed of by the Participating Holders in accordance with the intended method of disposition set forth in the registration statement or other offering document (and the expiration of any prospectus delivery requirements in connection therewith) or (ii) the expiration of 120 days after such registration statement or other offering document becomes effective (unless the offering is a continuous offering of securities under Rule 415, in which case until the earlier of (i) the date the offering is completed and (ii) the first anniversary of such effective date), keep effective and maintain any registration, qualification or approval obtained in connection with the offering of the shares of 7 Registrable Common Stock, and amend or supplement the registration statement or prospectus or other offering document used in connection therewith to the extent necessary in order to comply with applicable securities laws; (j) Use its commercially reasonable best efforts to have the shares of Registrable Common Stock listed on any domestic and foreign securities exchanges on which the Common Stock is then listed; (k) As promptly as practicable, notify the Participating Holders at any time when a prospectus relating to the sale of the shares of Registrable Common Stock is required by law to be delivered in connection with sales by an underwriter or dealer, of the occurrence of an event (a "Material Event") requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made, not misleading, and as promptly as practicable (subject to Section 4.3) make available to the Participating Holders and to each managing underwriter, if any, any such supplement or amendment; in the event the Company shall give such notice, the Company shall extend the period during which such registration statement shall be maintained effective as provided in Sections 4.1(a) and (i) by the number of days during the period from and including the date of the giving of such notice to the date when the Company shall make available to the Participating Holders such supplemented or amended prospectus; (l) Make available for inspection during the normal business hours of the Company by the Participating Holders, any underwriter participating in such offering, and any attorney, accountant or other agent retained by the Participating Holders or any such underwriter in connection with the sale of shares of Registrable Common Stock (collectively, the "INSPECTORS"), all relevant financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the officers, directors and employees of the Company to supply all information reasonably requested by any such Inspector in connection with such registration statement and make available for consultation and for analyst and other marketing calls such officers, accountants and employees in connection therewith as shall reasonably be requested by the Participating Holders; provided, however, that (i) in connection with any such inspection, any such Inspectors shall cooperate to the extent reasonably practicable to minimize any disruption to the operation by the Company of its business, (ii) any records, information or documents shall be kept confidential by such Inspectors, unless (A) such records, information or documents are in the public domain or otherwise publicly available or (B) disclosure of such records, information or documents is required by a court or administrative order or by applicable law (including, without limitation, the Securities Act) and (iii) the Company will not be required to waive any privilege in connection with any such registration; (m) Enter into and perform its obligations under usual and customary agreements (including an underwriting agreement in usual and customary form) and take such other actions as are reasonably required in order to expedite or facilitate the sale of the Registrable Common Stock. 8 (n) Make "generally available to its security holders" (within the meaning of Rule 158 of the Securities Act) an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder no later than 45 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of the registration statement, which earnings statement shall cover said 12-month period; (o) If requested by the managing underwriter or underwriters or a Participating Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or any participating Holder reasonably requests to be included therein, including, without limitation, information with respect to the number of shares of Registrable Common Stock being sold by the Participating Holders to any underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the Registrable Common Stock to be sold in such offering, and promptly make all required filings of such prospectus by supplement or post-effective amendment; (p) As promptly as practicable after filing with the SEC of any document which is incorporated by reference in a prospectus contained in a registration statement, deliver a copy of such document to the Participating Holders; (q) Not later than the effective date of the applicable registration statement (or if later, the earliest business day thereafter on which a CUSIP number is available), provide a CUSIP number for all Registrable Common Stock and provide the applicable transfer agent with printed certificates for the Registrable Common Stock which are in a form eligible for deposit with The Depository Trust Company (if such Registrable Common Stock is then eligible for such deposit); (r) Cooperate with each seller of Registrable Common Stock and each underwriter or agent, if any, participating in the disposition thereof and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers; (s) Provide and cause to be maintained a transfer agent and registrar for all Registrable Common Stock covered by such registration statement from and after a date not later than the effective date thereof; and (t) Take all other steps necessary to effect the registration of the Registrable Common Stock contemplated hereby. 4.2 COVENANT OF THE PARTICIPATING HOLDERS. Each Participating Holder agrees and covenants that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.1(k) hereof, the Participating Holder will forthwith discontinue disposition of Registrable Common Stock pursuant to the registration statement covering such Registrable Common Stock until the Participating Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.1(k) hereof, and, if so directed by the Company, the Participating 9 Holder will deliver to the Company all copies, other than permanent file copies, then in the Participating Holder's possession of the most recent prospectus covering such Registrable Common Stock at the time of receipt of such notice. 4.3 DEFERRAL PERIOD. Upon the occurrence or existence of any pending corporate development or any other Material Event that, in the reasonable judgment of the Company, makes it appropriate to suspend the availability of the registration statement and the related prospectus or other offering document in connection with the registration of shares of Registrable Common Stock, the Company shall give notice to the Participating Holders that the availability of such registration statement or other offering document is suspended (a "Deferral Notice") and, upon receipt of the Deferral Notice, the Participating Holders agree not to sell any Registrable Common Stock pursuant to such registration statement or other offering document until receipt of copies of the supplemented or amended prospectus or other offering document provided for in Section 4.1(k) above, or until they are advised in writing by the Company that the prospectus or other offering document may be used, and have received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such prospectus, if applicable. The period during which the availability of such registration statement and any prospectus or other offering document is suspended (the "Deferral Period") shall not exceed 120 days in any 12 consecutive calendar month period; provided, that a single Deferral Period shall not exceed 45 days. The Company's obligations under Section 4.1 shall be suspended during any Deferral Period. SECTION 5. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS 5.1 The Company agrees: (a) Upon a written request from a Holder not to effect any public sale or distribution of any Common Stock during the 30-day period following the pricing of any firm commitment underwritten public offering pursuant to a registration statement filed pursuant to Section 2.1, except in connection with any merger, acquisition, exchange offer, or any other business combination, including any transaction within the scope of Rule 145 promulgated pursuant to the Securities Act, subscription offer, dividend reimbursement plan or stock option or other director or employee incentive or benefit plan or pursuant to commitments under the Existing Registration Rights Agreements; provided that the Company shall not be obligated to comply with more than three such requests in any 12-month period. (b) That any agreement entered into after the date hereof pursuant to which the Company grants registration rights with respect to the Company's securities shall not interfere with any Holders' ability to exercise their rights hereunder. 5.2 Upon a written request from the Company, each Holder agrees not to effect any public sale or distribution of Registrable Common Stock during the 30-day period following the pricing of any firm commitment underwritten public offering of Common Stock by the Company; provided that no Holder shall be required to comply with more than three such requests in any 12-month period. 10 SECTION 6. EXPENSES All expenses incurred in connection with the registration of Registrable Common Stock, including, without limitation, all filing fees, escrow fees, fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of the Company's counsel in connection with blue sky qualifications of the Registrable Common Stock), rating agency fees, printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed, and fees and disbursements of counsel for the Company and the reasonable fees and disbursements of a single counsel for the Participating Holders and the Company's independent certified public accountants (including the expenses of any special audit or "cold comfort" letters required by or incident to such performance) directly attributable to the registration of securities, Securities Act liability insurance (if the Company elects to obtain such insurance), and the fees and expenses of any special experts or other persons retained by the Company will be borne by the Company. The Company shall have no obligation to pay and shall not pay any underwriting fees, discounts or commissions in connection with any Registrable Common Stock registered pursuant to this Agreement or any out-of-pocket expenses of the holders in connection therewith (except as expressly contemplated by the preceding sentence). SECTION 7. INDEMNIFICATION 7.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and hold harmless each Participating Holder, its officers, directors and agents, and will agree to indemnify and hold harmless any underwriter of Registrable Common Stock, and each person, if any, who controls any of the foregoing persons within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (individually, a "LOSS" collectively, "LOSSES") arising from or caused by (x) with respect to any registration statement relating to Registrable Common Stock, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading and with respect to any prospectus relating to the Registrable Common Stock (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state therein a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading and (y) any violation or alleged violation by the Company of the Securities Act, any blue sky laws, securities laws or other applicable laws of any state in which shares of Registrable Common Stock are offered and relating to action or inaction required of the Company in connection with such offering; and will reimburse each such person for any legal or other out-of-pocket expenses reasonably incurred in connection with investigating, or defending against, any such Loss (or any 11 proceeding in respect thereof), subject to the provisions of Section 7.3, except that the indemnification provided for in this Section 7.1 shall not apply to Losses that are caused by any such untrue statement or omission or alleged untrue statement or omission based upon and in conformity with information furnished in writing to the Company by or on behalf of such Participating Holder expressly for use therein. Notwithstanding the foregoing, the Company shall not be liable in any such case to the extent that any such Loss arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in any preliminary prospectus if (i) such Participating Holder failed to send or deliver a copy of the prospectus included in the relevant registration statement at the time it became effective (the "PROSPECTUS") with or prior to the delivery of written confirmation of the sale of Registrable Common Stock to the person asserting such Loss or who purchased such Registrable Common Stock which are the subject thereof if, in either case, such delivery is required by the Securities Act and (ii) the Prospectus would have corrected such untrue statement or omission or alleged untrue statement or alleged omission; and the Company shall not be liable in any such case to the extent that any such Loss arises out of, or is based upon, an untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in the Prospectus, if such untrue statement or alleged untrue statement or omission or alleged omission is corrected in any amendment or supplement to the Prospectus and if, having previously been furnished by or on behalf of the Company with copies of the Prospectus as so amended or supplemented, such Participating Holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to and concurrently with the sale of Registrable Common Stock if such delivery is required by the Securities Act. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Participating Holders or any other person indemnified hereunder and shall survive the transfer of such securities by the Participating Holders. 7.2 INDEMNIFICATION BY PARTICIPATING HOLDERS. Each Participating Holder agrees to indemnify and hold harmless the Company, its officers and directors, and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the indemnity made pursuant to clause (x) of Section 7.1 above from the Company to the Participating Holders, but only with reference to information furnished in writing by or on behalf of the Participating Holders expressly for use in any registration statement or prospectus relating to shares of Registrable Common Stock, or any amendment or supplement thereto, or any preliminary prospectus. 7.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to Section 7.1 or 7.2, such person (the "INDEMNIFIED PARTY") shall promptly notify the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing, provided that the failure to so notify the Indemnifying Party will not relieve the Indemnifying Party of any liability it may have under this Agreement or otherwise except to the extent of any loss, damage, liability or expense arising from such failure. The Indemnifying Party, upon the request of the Indemnified Party, shall retain counsel reasonably satisfactory to such Indemnified Party to represent such Indemnified Party and any others the Indemnifying Party may designate in such proceeding and 12 shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention, (ii) the Indemnifying Party shall have failed to comply with its obligations under the preceding sentence or (iii) the Indemnified Party shall have been advised by its counsel in writing that actual or potential differing interests exist between the Indemnifying Party and the Indemnified Party. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld. In no event will the Indemnifying Party be responsible for the fees and disbursements or more than one independent counsel on behalf of all Indemnified Parties. The Indemnifying Party shall not agree to any settlement as the result of which any remedy or relief, other than monetary damages for which the Indemnifying Party shall be fully responsible, shall be applied to or against an Indemnified Party without the prior written consent of such Indemnified Party. 7.4 CONTRIBUTION. If the indemnification provided for in this Section 7.4 from the Indemnifying Party is unavailable to an Indemnified Party hereunder in respect of any Losses, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Losses referred to above shall be deemed to include, subject to the limitations set forth in Section 7.3, any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. No party shall be liable for contribution with respect to any action or claim settled without its written consent, which consent shall not be unreasonably withheld. Notwithstanding the provisions of this Section 7.4, no Participating Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Common Stock of such Participating Holder was offered to the public exceeds the amount of any damages which such Participating Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission of alleged omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.4 were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 13 SECTION 8. AVAILABLE INFORMATION For as long as there are any shares of Registrable Common Stock, the Company shall take such reasonable action and file such information, documents and reports as shall be required by the SEC as a condition to the availability of Rule 144 and Rule 144A, or any successor provisions. SECTION 9. ASSIGNMENT OF RIGHTS 9.1 ASSIGNMENT OF RIGHTS. Subject to Section 9.2, the Registrable Common Stock and rights of a Holder under this Agreement with respect to any Registrable Common Stock owned by such Holder may be assigned to any person who acquires Registrable Common Stock from such Holder, except that any person who acquires such Registrable Common Stock (x) pursuant to a public offering registered under the Securities Act, or (y) pursuant to a transfer made in accordance with Rule 144 under the Securities Act (or any similar successor provision) may not be assigned rights hereunder with respect to such Registrable Common Stock. Notwithstanding the foregoing, rights to cause one or more demand registrations under Section 2.1 may only be assigned if such rights are expressly assigned in writing from such Holder and if such assignee is acquiring Registrable Common Stock with a fair market value as of the time of such assignment equal to at least $50 million. Any assignment of registration rights pursuant to this Section 9.1 shall be effective only upon receipt by the Company of (a) written notice from the assigning Holder (i) stating the name and address of any assignee, (ii) describing the manner in which the assignee acquired Registrable Common Stock from such Holder and (iii) identifying the Registrable Common Stock with respect to which the rights under this Agreement are being assigned and (b) the written agreement of such assignee to be bound by the obligations of such Holder under this Agreement. 9.2 SCOPE OF ASSIGNMENT. The rights of an assignee under Section 9.1 shall be the same rights granted to the Stockholder under this Agreement, except that in no event shall the Company's obligations hereunder be increased due to any such assignment. After any such assignment, the assigning Holder shall retain its rights under this Agreement with respect to all other Registrable Common Stock owned by the assigning Holder. SECTION 10. MISCELLANEOUS 10.1 PROVISION OF INFORMATION. Any Holder shall, and shall cause its officers, directors, employees and agents to complete and execute all such questionnaires as the Company shall reasonably request in connection with any registration pursuant to this Agreement. 14 10.2 INJUNCTIONS. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specified terms or were otherwise breached. Therefore, the parties hereto shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms of provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which they may be entitled at law or in equity. 10.3 SEVERABILITY. If any term or provision of this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. 10.4 FURTHER ASSURANCES. Subject to the specific terms of this Agreement, the Holders and the Company shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. 10.5 ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire understanding of the parties with respect to the transactions contemplated hereby and supersedes all agreements and understandings entered into prior to the execution hereof. This Agreement may be modified only by a written instrument duly executed by or on behalf of the Company and Holders holding a majority of the Registrable Common Stock. No breach of any covenant, agreement, warranty or representation shall be deemed waived unless expressly waived in writing by or on behalf of the party who might assert such breach. 10.6 COUNTERPARTS. For the convenience of the parties hereto, any number of counterparts of this Agreement may be executed by the parties hereto, but all such counterparts shall be deemed one and the same instrument. 10.7 NOTICES. All notices, consents, requests, demands, and other communications hereunder shall be in writing and shall be given by hand or by mail (return receipt requested) or sent by overnight delivery service, cable, telegram, or facsimile transmission to the parties at the address specified beside each party's name on the signature pages hereto or at such other address as shall be specified by the parties by like notice. Notice so given shall, in the case of notice so given by mail, be deemed to be given and received on the fourth business day after posting, in the case of notice so given by overnight 15 delivery service, on the day after notice is deposited with such service, and in the case of notice so given by cable, telegram, facsimile transmission or, as the case may be, personal delivery, on the date of actual delivery. 10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO ANY CHOICE OF LAW PRINCIPLES WHICH MIGHT REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. 10.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of and be enforceable by and against the successors and permitted assigns of the parties hereto. 10.10 PARTIES IN INTEREST. Except as otherwise specifically provided herein, nothing in this Agreement expressed or implied is intended or shall be construed to confer any right or benefit upon any person, firm or corporation other than Stockholder and the Company and their respective successors and permitted assigns. 10.11 TERMINATION. This Agreement shall terminate if the Exchange Agreement terminates without any Common Stock being issued thereunder. 16 IN WITNESS WHEREOF, Stockholder and the Company have caused this Registration Rights Agreement to be duly executed as of the date first above written. DYNEGY INC. By: /s/ HUGH A. TARPLEY ------------------------------- Name: Hugh A. Tarpley Title: Executive Vice President Address: 1000 Louisiana, Suite 5800 Houston, TX 77002 Attn: Telecopier: ENRON CORP. By: /s/ RAYMOND M. BOWEN, JR. ------------------------------- Name: Raymond M. Bowen, Jr. Title: Executive Vice President- Finance and Treasurer Address: Attn: Telecopier: -----END PRIVACY-ENHANCED MESSAGE-----