SCHEDULE 14A INFORMATION
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SECURITIES EXCHANGE ACT OF 1934
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[LOGO] Dynegy
To our shareholders:
On behalf of the Board of Directors of Dynegy Inc., I am pleased to invite
you to attend our 2002 Annual Meeting of Shareholders. As indicated in the
attached notice, the meeting will be held at Dynegy's Headquarters, The Wells
Fargo Bank Building, 1000 Louisiana, 71st Floor, Houston, Texas 77002 on
Friday, May 17, 2002, at 10:00 a.m., local time. At the meeting, in addition
to acting on the matters described in the attached proxy statement, there will
be an opportunity to discuss other matters of interest to you as a
shareholder.
Please date, sign and mail the enclosed proxy card in the envelope
provided, even if you plan to attend the meeting in person. You also may vote
your shares through the Internet or by telephone, as described in the enclosed
proxy statement. I look forward to seeing you in Houston on May 17th.
Sincerely,
/s/ Chuck Watson
Chuck Watson
Chairman of the Board and Chief
Executive Officer
April 9, 2002
[Dynegy Logo]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 17, 2002
To our shareholders:
NOTICE IS HEREBY GIVEN, that the 2002 Annual Meeting of Shareholders of
Dynegy Inc., an Illinois corporation, will be held on Friday, May 17, 2002, at
10:00 a.m., local time, at Dynegy's Headquarters, The Wells Fargo Bank
Building, 1000 Louisiana, 71st Floor, Houston, Texas 77002, for the following
purposes:
1. To elect eleven Class A common stock directors and three Class B common
stock directors to serve until the 2003 Annual Meeting of Shareholders;
2. To consider and act upon a proposal to approve the Dynegy Inc. 2002 Long
Term Incentive Plan;
3. To consider and act upon a proposal to ratify the Board of Directors'
appointment of PricewaterhouseCoopers LLP as Dynegy's independent
auditors for the fiscal year ending December 31, 2002; and
4. To consider and act upon any other matters that may properly come before
the annual meeting or any adjournment or postponement thereof.
The close of business on March 26, 2002 has been fixed as the record date
for the determination of shareholders entitled to receive notice of and to
vote at the annual meeting or any adjournment or postponement thereof.
You are cordially invited to attend the annual meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. ALTERNATIVELY, YOU MAY VOTE YOUR
SHARES VIA TELEPHONE OR THE INTERNET AS DETAILED ON THE ENCLOSED PROXY CARD.
By Order of the Board of Directors,
/s/ Keith R. Fullenweider
Keith R. Fullenweider
Senior Vice President, Deputy
General Counsel
and Secretary
April 9, 2002
DYNEGY INC.
1000 Louisiana, Suite 5800
Houston, Texas 77002
(713) 507-6400
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PROXY STATEMENT
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GENERAL INFORMATION
The enclosed proxy is solicited by and on behalf of the Board of Directors
of Dynegy for use at the Annual Meeting of Shareholders to be held on Friday,
May 17, 2002, at 10:00 a.m., local time, at Dynegy's Headquarters, The Wells
Fargo Bank Building, 1000 Louisiana, 71st Floor, Houston, Texas 77002, or at
any adjournment or postponement thereof. Dynegy expects to mail this proxy
statement, the notice of annual meeting, the proxy card and Dynegy's annual
report to shareholders for the year ended December 31, 2001, including
financial statements, to shareholders beginning on or about April 16, 2002.
The annual report to shareholders does not constitute a part of the proxy
soliciting material.
Quorum and Vote Required
The presence of the votes of a majority of the shares of Dynegy's Class A
common stock, no par value per share, and Class B common stock, no par value
per share, counted together, represented in person or by proxy at the annual
meeting and entitled to vote on a matter, will constitute a quorum for
consideration of that matter at the meeting. Abstentions and broker non-votes
are counted in determining the number of shares present at the meeting. A
"broker non-vote" occurs if a broker or other nominee who holds shares in
"street" name for customers who are beneficial owners of those shares does not
have discretionary authority with respect to the voting of the shares and has
not received instructions with respect to a particular item from the customer.
Broker non-votes as to a particular matter do not count toward the
determination of the shares represented in person or by proxy on that matter.
Election of Directors. In accordance with Dynegy's Amended and Restated
Articles of Incorporation (our "Articles of Incorporation"), the holders of
Class A common stock are entitled to elect eleven directors and the holders of
Class B common stock are entitled to elect three directors. The affirmative
vote of a majority of the votes of shares of Class A common stock represented
in person or by proxy and entitled to vote is required to elect a Class A
common stock director. Under Illinois law and our Articles of Incorporation
and Bylaws, withholding authority to vote for the director nominees would have
the effect of votes against the election of directors.
Under Illinois law and our Articles of Incorporation, holders of Class A
common stock are entitled to cumulate their votes in the election of the Class
A common stock directors. All holders of Class A common stock will be entitled
to eleven votes (the number of Class A common stock directors to be elected)
for each of their shares for candidates nominated to serve as Class A common
stock directors. Holders of Class A common stock may cast their votes equally
for all candidates or may cast all of their votes for any one candidate whose
name has been placed in nomination prior to the voting, or distribute their
votes among two or more candidates in such proportion as they desire.
Chevron U.S.A. Inc., the holder of all outstanding shares of Class B common
stock, will be entitled to one vote for each share it holds in the election of
the Class B common stock directors. Holders of Class A common stock do not
vote in the election of Class B common stock directors.
Approval of Dynegy Inc. 2002 Long Term Incentive Plan. Under our Articles
of Incorporation, the holders of Class A common stock and Class B common stock
are entitled to vote together as a single class on the
1
proposal to approve the Dynegy Inc. 2002 Long Term Incentive Plan. The holders
of Class A common stock and Class B common stock are entitled to one vote for
each share held. A majority of the votes of the shares of Class A common stock
and Class B common stock, represented in person or by proxy, and entitled to
vote is required to approve the Dynegy Inc. 2002 Long Term Incentive Plan.
Under Illinois law, an abstention would have the same legal effect as a vote
against this proposal, but a broker non-vote would not be counted for purposes
of determining shares represented in person or by proxy on the matter.
Ratification of Independent Auditors. Under our Articles of Incorporation,
the holders of Class A common stock and Class B common stock are entitled to
vote together as a single class on the ratification of auditors. The holders
of Class A common stock and Class B common stock are entitled to one vote for
each share held. A majority of the votes of the shares of Class A common stock
and Class B common stock, represented in person or by proxy, and entitled to
vote is required to ratify the selection of auditors. Under Illinois law, an
abstention would have the same legal effect as a vote against this proposal,
but a broker non-vote would not be counted for purposes of determining shares
represented in person or by proxy on the matter.
Record Date and Outstanding Shares
The Board of Directors has fixed the close of business on March 26, 2002 as
the record date for determining holders of outstanding shares of Class A
common stock and Class B common stock entitled to notice of and to vote at the
annual meeting or any adjournment or postponement thereof. As of the record
date, there were outstanding 269,235,953 shares of Class A common stock and
96,891,014 shares of Class B common stock, respectively. Class A common stock
and Class B common stock are the only classes of outstanding securities of
Dynegy entitled to notice of and to vote at the annual meeting.
Solicitation of Proxies
The cost of soliciting proxies will be borne by Dynegy. Proxies may be
solicited by mail, telecopy, telegraph or telex, or by directors, officers or
employees of Dynegy, in person or by telephone. Dynegy has retained Mellon
Investor Services LLC to assist in the solicitation of proxies for a fee of
$12,500. Dynegy will reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses for forwarding
solicitation material to the beneficial owners of common stock.
Questions concerning the proposals to be acted upon at the annual meeting
should be directed to Dynegy's Secretary at (713) 507-6400. Additional copies
of this proxy statement or the proxy card may be obtained from Dynegy's
Investor Relations Department at Dynegy's principal executive office. The
mailing address of Dynegy's principal executive office is 1000 Louisiana,
Suite 5800, Houston, Texas 77002.
Revocation of Proxies
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy by (i) the execution and submission
of a revised proxy (including an Internet or telephone vote), (ii) written
notice to the Secretary of Dynegy or (iii) voting in person at the annual
meeting. In the absence of such revocation, shares represented by proxies will
be voted at the annual meeting.
Voting by Telephone or Internet
Shareholders of record can simplify their voting and reduce Dynegy's cost
by voting their shares via telephone or the Internet. The telephone and
Internet voting procedures are designed to authenticate shareholders'
identities, allow shareholders to vote their shares and to confirm that their
instructions have been properly recorded. If a shareholder's shares are held
in the name of a bank or broker, the availability of telephone and Internet
voting will depend upon the voting processes of the bank or broker.
Accordingly, shareholders should follow the voting instructions on the form
they receive from their bank or broker. If you choose to cumulate your votes
other than equally for directors you MAY NOT use Internet or telephone voting,
instead you MUST vote by returning the enclosed proxy card in the envelope
provided.
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Shareholders who elect to vote via the Internet may incur
telecommunications and Internet access charges and other costs for which they
are solely responsible. The Internet and telephone voting facilities for
shareholders of record will close at 4:00 p.m., eastern standard time, on the
evening before the annual meeting. Instructions for voting via telephone or
the Internet are contained in the enclosed proxy card.
Meeting Attendance
Because of limited seating, only shareholders, their proxy holders and
Dynegy's guests may attend the annual meeting. If you plan to attend, you must
be a shareholder of record as of March 26, 2002 or you must bring with you a
brokerage statement or other evidence of beneficial ownership showing
ownership of common stock on March 26, 2002. Directions to the meeting site
and the parking garage in which Dynegy has reserved parking for the annual
meeting are on the back cover of this booklet. Parking at the designated
garage will be validated at the annual meeting.
Voting by Mail
Shareholders who elect to vote by mail are asked to date, sign and return
the enclosed proxy card using the postage paid envelope provided. The persons
named as proxies on the proxy card were designated by the Board of Directors.
Any proxy given pursuant to such solicitation and received prior to the annual
meeting will be voted as specified in such proxy card. Unless otherwise
instructed or unless authority to vote is withheld, proxies will be voted FOR
the election of the nominees to the Board of Directors, equally or
cumulatively as the proxies may determine, FOR the proposal to approve the
Dynegy Inc. 2002 Long Term Incentive Plan, FOR ratification of the appointment
of PricewaterhouseCoopers LLP, and in accordance with the judgment of the
persons named in the proxy card on such other matters as may properly come
before the annual meeting or any adjournment or postponement thereof.
Form 10-K
Shareholders may obtain, without charge, a copy of Dynegy's 2001 Annual
Report on Form 10-K as filed with the Securities and Exchange Commission. For
copies, please contact Dynegy's Investor Relations Department at Dynegy's
principal executive office address: Dynegy Inc., 1000 Louisiana, Suite 5800,
Houston, Texas 77002. The Form 10-K is also available to the public at the
Commission's website at www.sec.gov.
DATED: April 9, 2002
3
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the capital stock of Dynegy as of February 28, 2002, by (i) each
person who is known by Dynegy to own beneficially 5% or more of Dynegy's Class
A common stock or Class B common stock, (ii) each director or nominee for
director of Dynegy, (iii) each executive officer of Dynegy named in the
Summary Compensation Table set forth below, and (iv) all directors, nominees
for director and executive officers of Dynegy as a group. Share amounts and
percentages shown for each individual or group in the table are adjusted to
give effect to the exercise of all options exercisable by such individual or
group within 60 days of February 28, 2002.
Number of Shares(1)
------------------------- Percent of
Class A Class B Class A
Common Stock Common Stock Common Stock(2)
------------ ------------ ---------------
ChevronTexaco Corporation(3)......... -- 96,891,014 26.5%
Chevron U.S.A. Inc.
575 Market Street
San Francisco, CA 94104
AXA Financial, Inc(4)................ 28,234,120 -- 10.5%
1290 Avenue of the Americas
New York, NY 10104
Putnam Investments, LLC(5)........... 25,019,424 -- 9.3%
One Post Office Square
Boston, MA 02109
Massachusetts Financial Services
Company(6).......................... 14,308,497 -- 5.3%
500 Boylston
Boston, MA 02116
C.L. Watson(7)....................... 13,780,228 -- 5.1%
Stephen W. Bergstrom(8).............. 3,464,624 -- 1.3%
Kenneth E. Randolph(9)............... 1,975,154 -- *
Robert D. Doty, Jr.(10).............. 377,785 -- *
R. Blake Young(11)................... 108,971 -- *
Charles E. Bayless(12)............... 12,055 -- *
Michael D. Capellas(12).............. 6,879 -- *
Daniel L. Dienstbier(12)............. 26,040 -- *
Patricia M. Eckert(12)............... 7,510 -- *
Jerry L. Johnson(12)................. 8,210 -- *
H. John Riley(12).................... 6,337 -- *
Sheli Z. Rosenberg(12)............... 24,289 -- *
Joe J. Stewart(12)................... 15,804 -- *
J. Otis Winters(12).................. 24,666 -- *
Darald W. Callahan(13)............... -- -- *
Glenn F. Tilton(13).................. -- -- *
John S. Watson(13)................... -- -- *
Executive Officers, Directors and
Nominees for Director as a Group (23
persons)(7)(8)(9)(10)(11)(12)(13)... 21,083,632 -- 7.8%
--------
* Less than 1%.
4
(1) Unless otherwise noted, each of the persons has sole voting and
investment power with respect to the shares reported.
(2) Based upon 268,861,436 shares of Class A common stock and 96,891,014
shares of Class B common stock outstanding at February 28, 2002.
(3) The shares are held of record by Chevron U.S.A. Inc. ("Chevron U.S.A.").
ChevronTexaco Corporation ("ChevronTexaco") beneficially owns 100% of the
capital stock of Chevron U.S.A. Consequently, ChevronTexaco may be deemed
to beneficially own all of the shares of Class B common stock owned of
record by Chevron U.S.A. Does not include 18,000 shares of Class B common
stock issuable upon the exercise of options attributable to Messrs.
Callahan, Tilton and Watson, which options were granted in favor of
Chevron U.S.A. Also does not include 150,000 shares of Dynegy's Series B
Mandatorily Convertible Redeemable Preferred Stock held by ChevronTexaco,
which shares are convertible into shares of Class B common stock at a
conversion price of $31.64. Each share of Class B common stock may in
certain circumstances be converted into Class A common stock. For
purposes of Chevron U.S.A., percentage of Class A common stock
beneficially owned assumes conversion of Class B common stock into Class
A common stock.
(4) According to its Form 13G/A for the year ended December 31, 2001. Advisor
subsidiaries of AXA Financial, Inc. have sole voting power for 8,020,918
shares and sole power to dispose or direct the disposition of 28,234,120
shares.
(5) According to its Form 13G/A for the year ended December 31, 2001. Advisor
subsidiaries and related entities of Putman Investments, LLC have shared
voting power for 1,821,588 shares and shared power to dispose or direct
the disposition of 25,019,424 shares.
(6) According to its Form 13G for the year ended December 31, 2001.
(7) Includes 8,524,816 shares held of record by one or more partnerships, of
which Mr. Watson and his wife are the sole shareholders of the corporate
general partner and of which Mr. Watson (individually), his wife and
certain trusts (the "Trusts"), of which Mr. Watson or his wife are the
sole trustees, and a corporation, of which Mr. Watson and the Trusts are
the sole shareholders, are the sole limited partners (the "Family Limited
Partnership"). Mr. Watson may be deemed to beneficially own all of the
shares of Class A common stock held by the Family Limited Partnership and
by the Trusts. Also includes 2,089,414 shares of Class A common stock
issuable upon the exercise of employee stock options held by Mr. Watson
and 2,399,431 shares of Class A common stock issuable upon the exercise
of employee stock options held by the Family Limited Partnership. Also
includes approximately 7,074 shares of Class A common stock held by the
Trustee of the Dynegy Inc. Profit Sharing/401(k) Savings Plan (the
"401(k) Plan") for the account of Mr. Watson. Mr. Watson holds voting and
investment power with respect to such shares.
(8) Includes 601,174 shares of Class A common stock that are owned by trusts
established by Mr. Bergstrom. Mr. Bergstrom's father is the sole trustee
of these trusts. Mr. Bergstrom disclaims beneficial ownership of all of
the shares of Class A common stock held by the trusts. Also includes
1,167,412 shares of Class A common stock issuable upon the exercise of
employee stock options held by Mr. Bergstrom. Also includes approximately
6,890 shares of Class A common stock held by the Trustee of Dynegy's
401(k) Plan for the account of Mr. Bergstrom. Mr. Bergstrom holds voting
and investment power with respect to such shares.
(9) Includes 321,028 shares of Class A common stock issuable upon the
exercise of employee stock options held by Mr. Randolph. Also includes
approximately 6,522 shares of Class A common stock held by the Trustee of
Dynegy's 401(k) Plan for the account of Mr. Randolph. Mr. Randolph holds
voting and investment power with respect to such shares.
(10) Includes 333,314 shares of Class A common stock issuable upon the
exercise of employee stock options held by Mr. Doty. Also includes
approximately 6,344 shares of Class A common stock held by the Trustee of
Dynegy's 401(k) Plan for the account of Mr. Doty. Mr. Doty holds voting
and investment power with respect to such shares.
(11) Includes 64,152 shares of Class A common stock issuable upon the exercise
of employee stock options held by Mr. Young. Also includes approximately
2,503 shares of Class A common stock held by the Trustee of Dynegy's
401(k) Plan for the account of Mr. Young. Mr. Young holds voting and
investment power with respect to such shares.
(12) Includes 6,000 shares of Class A common stock issuable upon the exercise
of director stock options held by each of Messrs. Bayless, Capellas,
Dienstbier, Johnson, Riley, Stewart and Winters, and by Mses. Eckert and
Rosenberg. Does not include certain stock units held by Messrs. Bayless,
Johnson, Riley and Stewart, or held by Mses. Eckert and Rosenberg,
through the Dynegy Deferred Compensation Plan for Certain Directors.
Participants in the Deferred Compensation Plan receive cash equal to the
number of stock units in their account times the last sales price of the
Class A common stock on the last business day of the month preceding the
termination of their service as a director of Dynegy.
(13) Messrs. Callahan, Tilton and Watson disclaim beneficial ownership of all
shares of record held by Chevron U.S.A.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Eleven Class A common stock directors are to be elected at the annual
meeting by the shareholders of Class A common stock. The affirmative vote of a
majority of the votes of shares of Class A common stock represented in person
or by proxy and entitled to vote is required to elect a director. Under
Illinois law and our Articles of Incorporation and Bylaws, abstentions would
have the effect of votes against the election of directors. Under Illinois law
and our Articles of Incorporation, holders of Class A common stock are
entitled to cumulate their votes in the election of the Class A common stock
directors.
All holders of Class A common stock will be entitled to eleven votes (the
number of Class A common stock directors to be elected) for each of their
shares for candidates nominated to serve as Class A common stock directors.
Holders of Class A common stock may cast their votes equally for all
candidates or may cast all of their votes for any one candidate whose name has
been placed in nomination prior to the voting, or distribute their votes among
two or more candidates in such proportion as they desire. If you are a holder
of Class A common stock and you choose to cumulate your votes other than
equally for Class A common stock directors, you MAY NOT use Internet or
telephone voting, instead you MUST vote by returning the enclosed proxy card
in the envelope provided.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below
equally or cumulatively as the proxies may determine. Although the Board of
Directors does not contemplate that any of the nominees will be unable to
serve, if such a situation arises prior to the annual meeting, the persons
appointed in the enclosed proxy card will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
Under our Articles of Incorporation, Chevron U.S.A., the sole holder of
Dynegy's Class B common stock, is entitled to nominate and vote as a single
class for three nominees to the Board of Directors.
All nominees for Class A common stock director and for Class B common stock
director are currently directors of Dynegy. The following table sets forth
information regarding the names, ages and principal occupations of the current
directors, other directorships held by them in certain companies and the
length of their service as a director of Dynegy.
6
Age as
of Director
Directors Principal Occupation and Directorships 3/30/02 Since
--------- ------------------------------------------- ------- --------
Class A Common Stock
Directors
Charles L. Watson....... Chairman of the Board and Chief Executive 52 1995
Officer of Dynegy; Director of Baker Hughes
Incorporated
Stephen W. Bergstrom.... President and Chief Operating Officer of 44 1995
Dynegy
Charles E. Bayless...... Retired Chairman and Chief Executive 59 2000
Officer of Illinova Corporation and
Illinois Power Company
Michael D. Capellas..... Chairman and Chief Executive Officer of 47 2001
Compaq Computer Corporation
Daniel L. Dienstbier.... Private Investments, President of Northern 61 1995
Natural Gas Company
Patricia M. Eckert...... Former President California Public 54 2000
Utilities Commission, Regulatory Consultant
Jerry L. Johnson........ Retired Executive Vice President of 54 2000
Safeguard Scientifics, Inc.; Director of
PAC-West Telecomm, Inc. and E-Money
Advisors
H. John Riley, Jr....... Chairman, President and Chief Executive 61 2001
Officer of Cooper Industries, Inc.;
Director of The Allstate Corporation and
Baker Hughes Incorporated
Sheli Z. Rosenberg...... Vice Chairman of Equity Group Investments, 60 2000
LLC; Director of Capital Trust, CVS
Corporation, Equity Office Properties
Trust, Equity Residential Properties Trust,
Manufactured Home Communities, Inc.,
Cendant Corporation, Ventas Inc. and iDine
Rewards Network, Inc.
Joe J. Stewart.......... Retired President of BWX Technologies, Inc. 64 2000
and Past President and Chief Operating
Officer of The Babcock and Wilcox Company;
Retired Executive Vice President of
McDermott International, Inc.
J. Otis Winters......... Chairman, PWS Group, Inc.; Director of AMX 69 1993
Corporation
Class B Common Stock
Directors
Darald W. Callahan...... Executive Vice President of Power, 59 1996
Chemicals and Technology of ChevronTexaco
Corporation
Glenn F. Tilton......... Vice Chairman of the Board of Directors of 53 2001
ChevronTexaco Corporation; Director of
Lincoln National Corp.
John S. Watson.......... Vice President and Chief Financial Officer 45 2001
of ChevronTexaco Corporation
In addition to the principal occupations and directorships of the directors
described above, the named nominees were engaged or are engaged (as
applicable) in the past five years in the principal occupations set forth
below.
Charles L. Watson has served as Chairman of the Board and Chief Executive
Officer of Dynegy since 1995. He joined Dynegy's predecessor, Natural Gas
Clearinghouse, as President in 1985 and became Chairman and Chief Executive
Officer in 1989. Prior to his employment with Dynegy, he served as Director of
Gas Sales for
7
the Western United States for Conoco Inc. Mr. Watson also serves on the Board
of Directors of Baker Hughes Incorporated.
Stephen W. Bergstrom has served as President and Chief Operating Officer of
Dynegy since August 1999 and as a Director of Dynegy since 1995. He is
responsible for the day-to-day execution of Dynegy's strategy across its
operating business units. He was formerly President and Chief Operating
Officer of Dynegy Marketing and Trade and Executive Vice President of Dynegy.
Mr. Bergstrom joined Dynegy's predecessor, Natural Gas Clearinghouse, in 1986
as Vice President of Gas Supply.
Charles E. Bayless served as Chairman of Illinova and Illinois Power from
August 1998 until his retirement in December 1999. Mr. Bayless served as Chief
Executive Officer of Illinova and President of Illinois Power from July 1998
until September 1999. He was Chairman, President and Chief Executive Officer
of Tucson Electric Power from 1992 to 1998. Mr. Bayless served as a Director
of Illinova from 1998 until the closing of the merger with Dynegy in February
2000.
Michael D. Capellas has served as Chairman and Chief Executive Officer of
Compaq Computer Corp. since September 2000. He was named President and Chief
Executive Officer of Compaq in July 1999 and was named Chief Operating Officer
in June 1999. Mr. Capellas joined Compaq in August 1998 as Senior Vice
President, Information Management, and Chief Information Officer. Prior to
joining Compaq, Mr. Capellas was Senior Vice President and General Manger of
the global energy business of Oracle Corporation from 1997 through 1998, and
Director of Supply Chain Management for SAP America from 1996 through 1997.
From 1981 through 1996, Mr. Capellas held several management positions at
Schlumberger Limited, including serving as head of worldwide information
services.
Daniel L. Dienstbier has served as President of Northern Natural Gas
Company, an indirect Dynegy subsidiary, since February 2002. He has over
thirty years of experience in the oil and gas industry. He served as President
and Chief Operating Officer of American Oil & Gas Corp. from October 1993
through July 1994, President and Chief Operating Officer of Arkla, Inc. from
July 1992 through October 1993, and President of Jule, Inc., a private company
involved in energy consulting and joint venture investments in the pipeline,
gathering and exploration and production industries, from February 1991
through June 1992. Prior thereto, Mr. Dienstbier served as President and Chief
Executive Officer of Dyco Petroleum Corp., and Executive Vice President of
Diversified Energy from February 1989 through February 1991. In addition, he
served as President of the Gas Pipeline Group of Enron Corp. from July 1985
through July 1988. Mr. Dienstbier is a former director of American Oil & Gas
Corp., Arkla, Inc., Enron Corp. and Midwest Resources, and a former member of
the Audit Committee of Northern Border Partners, L.P.
Patricia M. Eckert serves as a consultant to Fortune 100 companies,
specializing in telecommunications and utilities issues. Ms. Eckert has
provided regulatory advisory and business development services to her clients
for over the past five years as an independent consultant. Ms. Eckert is a
former President of the California Public Utilities Commission and served as a
Commissioner from 1989 through 1994. From 1968 to 1982, she served in
management positions at The Dow Chemical Company and Procter & Gamble, prior
to establishing the law firm of Eckert and Colman. She also serves on the
advisory board of Enertech Capital Partners.
Jerry L. Johnson served as Executive Vice President of Safeguard
Scientifics, Inc. from March 1999 until his retirement in January 2002. Prior
to his retirement, he was the head of Safeguard's e-communications division.
Mr. Johnson joined Safeguard in 1995 as Senior Vice President, Operations.
Prior to joining Safeguard, Mr. Johnson was a telecommunications executive,
having spent nearly 20 years with the Bell System and US West. He currently
consults with several IT services and telecommunications companies. He also
serves on the Board of Directors of PAC-West Telecomm, Inc. and E-Money
Advisors.
H. John Riley, Jr. serves as Chairman, President and Chief Executive
Officer of Cooper Industries, Inc. He was named President and Chief Operating
Officer in 1992, Chief Executive Officer in 1995 and Chairman in 1996. Mr.
Riley also serves as a Director of The Allstate Corporation and Baker Hughes
Incorporated.
8
Sheli Z. Rosenberg has served as Vice Chairman since 2000, Chief Executive
Officer since 1999 and President and Chief Executive Officer since 1994 of
Equity Group Investments, LLC, Chicago, Illinois, a privately held business
conglomerate holding controlling interests in numerous publicly traded
corporations involved in basic manufacturing, retail, insurance and real
estate. From 1980 to 1994, she served as General Counsel of Equity Group
Investments. Ms. Rosenberg served as a Director of Illinova from 1997 until
the closing of the merger with Dynegy in February 2000. She also is a Director
of Capital Trust, CVS Corporation, Equity Office Properties Trust, Equity
Residential Properties Trust, Manufactured Home Communities, Inc., Cendant
Corporation, Ventas Inc. and iDine Rewards Network, Inc.
Joe J. Stewart served as President of BWX Technologies, Inc., Lynchburg,
Virginia, and Executive Vice President of McDermott International, Inc., New
Orleans, Louisiana, a diversified energy and environmental equipment and
services company, from 1995 until his retirement in 1998. He was President and
Chief Operating Officer of The Babcock & Wilcox Company and Executive Vice
President of McDermott International, Inc. from 1993 to 1995 and Executive
Vice President of the Power Generation Group of The Babcock and Wilcox Company
from 1987 to 1993. Mr. Stewart served as a Director of Illinova from 1998
until the closing of the merger with Dynegy in February 2000.
J. Otis Winters is a co-founder and Chairman of The PWS Group, Inc.
(formerly known as Pate, Winters & Stone, Inc.), a consulting firm, and has
served in such position since 1990. Mr. Winters was formerly Executive Vice
President and Director of The Williams Companies, and Executive Vice President
and Director of the First National Bank of Tulsa. Mr. Winters also serves as a
Director of AMX Corporation, a designer of electronic equipment.
Darald W. Callahan was appointed Executive Vice President of Power,
Chemicals and Technology in connection with the recent merger between Chevron
Corporation and Texaco Inc., which was completed in October 2001. Previously,
he served as Executive Vice President of Chevron Corporation, a position he
assumed in August 2000. He was appointed President of Chevron Chemical Co.
LLC, a subsidiary of Chevron, in February 1999. He served as Senior Vice
President of Chevron Chemical from October 1991 through January 1999. Mr.
Callahan has been employed by ChevronTexaco and its affiliates since 1964.
Glenn F. Tilton was appointed Vice Chairman of the Board of Directors of
ChevronTexaco in connection with the recent merger between Chevron Corporation
and Texaco Inc., which was completed in October 2001. Previously, he served as
Chairman of the Board and Chief Executive Officer of Texaco Inc, a position he
assumed in February 2001. Mr. Tilton joined Texaco Inc. in 1970 after serving
in various domestic marketing, corporate planning and European downstream
assignments of increasing responsibility. In 1989, while serving as President
of U.S. Refining and Marketing, he was appointed Vice President of Texaco Inc.
He was appointed Chairman of Texaco Ltd. in 1991 and was appointed President
of Texaco Europe in 1992. He became President of Texaco USA in January 1995
and was appointed a Senior Vice President of Texaco Inc. in April 1995. In
January 1997, he was appointed President of Texaco's Global Business Unit. He
serves on the President's Advisory Board at the University of South Carolina,
on the Board of Directors of the American Petroleum Institute and Lincoln
National Corp., and on the Board and the Executive Committee of the British
American Chamber of Commerce.
John S. Watson was appointed Vice President and Chief Financial Officer of
ChevronTexaco in connection with the recent merger between Chevron Corporation
and Texaco Inc., which was completed in October 2001. Previously, he served as
Vice President, Finance and Chief Financial Officer for Chevron Corp., a
position he assumed in August 2000. Mr. Watson joined Chevron in 1980 as a
financial analyst. He was appointed manager of investor relations in 1990. In
1993, Mr. Watson became manager of credit card enterprises for Chevron U.S.A.
Products Co. Mr. Watson was appointed President of Chevron Canada Ltd. in
January 1996 and in February 1998 was appointed Vice President of Chevron,
responsible for strategic planning.
The Board of Directors recommends that shareholders vote "FOR" the election
of the nominees to the Board of Directors.
9
Directors' Meetings and Committees of the Board of Directors
During 2001, the Dynegy Board of Directors held 25 meetings. Each director
attended at least 75% of the total number of meetings of the Board of
Directors (held during the period for which he or she has been a director) and
the total number of meetings held by all committees of the Board on which he
or she served (during the periods that he or she served). The Board of
Directors of Dynegy has the following committees:
Audit and Compliance Committee. The Audit and Compliance Committee
(formerly the Audit Committee), which is currently comprised of Messrs.
Winters (chairman), Johnson, Riley and Stewart, met six times during 2001.
Each of the members of the Audit Committee is independent as independence is
defined by Section 303.01(B) of the New York Stock Exchange rules. The Audit
and Compliance Committee is responsible for meeting with the independent
auditors, internal auditors and senior executives of Dynegy to review and
inquire into matters affecting the financial reporting of Dynegy and
recommending to the Board of Directors the auditors to be recommended for
appointment at the annual meeting of shareholders. Please read "--Audit and
Compliance Committee Report."
Corporate Governance Committee. The Corporate Governance Committee, which
is currently comprised of Messrs. Winters (chairman), Callahan, Dienstbier and
Johnson and Ms. Rosenberg, met two times during 2001. The Corporate Governance
Committee was established in September 2001 and is responsible for the
oversight of the composition, conduct and compensation of the Board of
Directors, with a strong emphasis on achieving and maintaining best practices.
Executive Committee. The Executive Committee is currently comprised of
Messrs. C.L. Watson (chairman), Callahan, Dienstbier, Johnson and Winters and
Ms. Rosenberg. The Executive Committee has been delegated the authority to
approve any actions that the Board of Directors could approve, except to the
extent restricted by law, our Articles of Incorporation or Bylaws. This
committee also is responsible for maintaining an effective working
relationship between the Board of Directors and management.
Finance Committee. The Finance Committee, which is currently comprised of
Messrs. Johnson (chairman), Dienstbier, Riley, Stewart and J. Watson, met six
times during 2001. The Finance Committee is responsible for meeting with
Dynegy management to review Dynegy's financing plans and objectives, its
annual federal securities filings and all of its prospectuses and other
offering memoranda.
Human Resources Committee. The Human Resources Committee (formerly the
Compensation Committee), which is currently comprised of Mses. Rosenberg
(chairwoman) and Eckert and Messrs. Bayless, Capellas and Tilton, met six
times during 2001. The Human Resources Committee reviews recommendations for
the appointment of persons to senior executive positions, reviews and approves
corporate compensation and benefits strategy, reviews and approves terms of
employment and compensation for senior executives, and is responsible for the
proper and orderly administration of Dynegy's retirement and savings plans
(other than matters relating to the funding and investment of the plans' trust
funds).
Options Committee. The Options Committee, which is currently comprised of
Mses. Eckert (chairwoman) and Rosenberg and Messrs. Bayless and Capellas, met
seven times during 2001. The Options Committee is responsible for recommending
awards under Dynegy's stock option and long-term incentive plans.
Risk and Environmental Committee. The Risk and Environmental Committee,
which is currently comprised of Messrs. Stewart (chairman), Bayless,
Bergstrom, Riley and Tilton and Ms. Eckert, met three times during 2001. The
Risk and Environmental Committee is responsible for overseeing Dynegy's
environmental and occupational health and safety practices.
10
Compensation of Directors
During 2001, each non-employee director of Dynegy was paid an annual
retainer of $30,000, plus $1,500 per board meeting and $1,000 per committee
meeting attended. Committee chairpersons were paid an additional $5,000
chairperson fee. Chairpersons' fees were increased in January 2002 to $10,000
for the Audit and Compliance Committee, Corporate Governance Committee and
Human Resources Committee. The annual retainer is payable 50% in Dynegy Class
A common stock and the remaining 50%, as well as 100% of meeting and committee
chairperson fees, are payable in either Class A common stock or cash at the
election of the directors. The Board of Directors has adopted a guideline
pursuant to which all Class A common stock directors are required to own
Dynegy Class A common stock with a minimum value of two times their annual
retainer within two years of their appointment to the Board of Directors. In
addition, each director is entitled to reimbursement for his or her reasonable
out-of-pocket expenses incurred in connection with travel to and from, and
attendance at, meetings of the Dynegy Board of Directors or committees
thereof. Directors who are employees of Dynegy or employees of ChevronTexaco
are not compensated for their services.
All non-employee directors of Dynegy are entitled to receive options to
purchase 6,000 shares of Class A common stock with an exercise price equal to
the market value of such stock on the day of their election at the annual
meeting or appointment to the Board of Directors. The annual award of 6,000
options (18,000 options in the aggregate) attributable to the services of the
three ChevronTexaco designees on the Board of Directors is granted in favor of
Chevron U.S.A., which receives options to purchase shares of Class B common
stock. Dynegy intends to make annual option grants a part of its non-employee
director compensation package.
Daniel L. Dienstbier Consulting Agreement. Dynegy entered into a consulting
agreement with Daniel L. Dienstbier effective as of February 1, 2002, the date
Dynegy completed its acquisition of Northern Natural Gas Company ("Northern
Natural"). Mr. Dienstbier previously held various executive positions at
Northern Natural, including President, before being named President of Enron's
Gas Pipeline Group in 1985. Mr. Dienstbier agreed to serve as interim
President of Northern Natural through July 31, 2002. In connection with the
execution of this agreement, which provides for Dynegy to compensate Mr.
Dienstbier $30,000 per month, Mr. Dienstbier resigned from Dynegy's Audit and
Compliance Committee. The consulting agreement contains non-compete provisions
relating to Mr. Dienstbier's provision of consulting services.
Certain Transactions and Other Matters
For a description of certain transactions with management and others,
certain business relationships, indebtedness of management and compliance with
Section 16(a) of the Securities Exchange Act of 1934, see "--Executive
Compensation--Employment Agreements and Change-in-Control Arrangements,"
"Certain Relationships and Related Transactions" and "Section 16(a) Beneficial
Ownership Reporting Compliance."
11
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned by Dynegy's Chief Executive Officer and the four other
most highly compensated executive officers of Dynegy at the end of 2001 (the
"Named Executive Officers") in combined salary and bonus earned in 2001, as
well as amounts earned by or awarded to such individuals for services rendered
in all capacities to Dynegy and its subsidiaries during 2000 and 1999.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
-------------------------------------------- -------------
Shares
Fiscal Cash Other Annual Underlying All Other
Name and Position Year Salary Bonus(1) Compensation(2) Stock Options Compensation(3)
----------------- ------ ---------- ---------- --------------- ------------- ---------------
Charles L. Watson...... 2001 $1,528,756 $5,000,000 $1,484,493 1,009,347 $27,200
Chairman of the Board
and Chief 2000 $1,527,500 $4,632,814 -- 681,924 $26,000
Executive Officer 1999 $1,029,501 $4,300,000 -- 1,151,617 $24,000
Stephen W. Bergstrom... 2001 $ 886,493 $5,000,000 $ 222,784 475,283 $27,200
President and Chief
Operating 2000 $ 865,580 $2,628,962 -- 450,000 $25,500
Officer 1999 $ 652,080 $1,770,000 -- 713,253 $24,000
Kenneth E. Randolph.... 2001 $ 372,000 $ 550,000 $ 50,632 162,371 $27,200
Executive Vice
President and 2000 $ 356,417 $ 525,000 -- 61,463 $27,427
General Counsel 1999 $ 271,630 $ 520,000 -- 148,024 $31,000
Robert D. Doty, Jr..... 2001 $ 316,856 $1,300,000 $ 5,063 147,949 $27,200
Executive Vice
President and Chief 2000 $ 253,125 $ 493,000 -- 60,000 $28,573
Financial Officer 1999 $ 199,349 $ 163,950 -- 81,376 $26,000
R. Blake Young......... 2001 $ 306,667 $ 450,000 $ 25,316 144,814 $27,200
Executive Vice
President and 2000 $ 270,000 $ 490,000 -- 60,000 $28,646
President, Global
Technology 1999 $ 216,666 $ 220,000 -- 126,936 $26,000
--------
(1) During 2001, each of the Named Executive Officers was party to an
employment agreement with Dynegy Inc. Bonus awards for 2001, 2000 and
1999, which were paid in 2002, 2001 and 2000, respectively, were
determined under the terms of Dynegy's Incentive Compensation Plan,
subject to the minimum guaranteed bonus provisions of such employment
agreements. See "--Employment Agreements." The bonus shown for 2000 for
Mr. Watson includes a payment of $500,000 in February 2001 relating to the
Dynegy/Illinova Merger, as described below. The bonus shown for 1999 for
Mr. Watson includes Mr. Watson's 1999 bonus award of $2,300,000 and
$2,000,000 of an additional $2,500,000 discretionary bonus awarded in
recognition of Mr. Watson's efforts in connection with the Dynegy/Illinova
Merger. The $2,000,000 was paid in February 2000 as an additional bonus
award for 1999 and the remaining $500,000 was paid in February 2001. The
1999 bonus shown for Messrs. Randolph, Doty and Young include signing
bonuses of $100,000, $25,000 and $55,000, respectively, relating to the
execution of new employment agreements effective upon consummation of the
Dynegy/Illinova Merger.
(2) Includes "Perquisites and Other Personal Benefits" if value is greater
than the lesser of $50,000 or 10% of reported salary and bonus. For 2001,
amounts reflect the dollar value of the difference between the price paid
by the Named Executive Officers for shares of Class A common stock
purchased from Dynegy in a private placement transaction in December 2001
and the net proceeds per share to Dynegy from a concurrent public offering
(after a $1.00 per share underwriting discount). In addition, for Mr.
Watson the amount for 2001 includes $600,000 in reimbursements for
financial planning, estate planning, tax preparation and various other
administrative services. No Named Executive Officer received perquisites
that exceeded the threshold amount in 2000 or 1999.
(3) During 2001, 2000 and 1999, respectively, Messrs. Watson, Bergstrom,
Randolph, Doty and Young received Dynegy contributions to their respective
savings plan accounts of $27,200 each; $26,000, $25,500, $27,428, $28,573
and $28,646, respectively; and $24,000, $24,000, $26,000, $26,000 and
$26,000, respectively. In 1999, life insurance premiums of $5,000 were
paid on behalf of Mr. Randolph.
12
Stock Option Grants
The following table sets forth certain information with respect to stock
option grants made to the Named Executive Officers during 2001 and related to
2001 performance under the Dynegy Inc. 2000 Long Term Incentive Plan. No stock
appreciation rights were granted during 2001.
Potential Realizable
Value at Assumed Annual
Rate of Stock Price
Appreciation for Option
Individual Grants(1) Term(2)
----------------------------------------- -----------------------
Number of % Total
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Expiration
Name Granted 2001 $/Share Date 5% 10%
---- ---------- ---------- -------- ---------- ----------- -----------
Charles L. Watson....... 162,327 1.5% $34.65 09/28/11 $ 3,537,300 $ 8,964,213
847,020 8.0% $23.85 12/20/11 $12,704,569 $32,195,872
Stephen W. Bergstrom.... 108,218 1.0% $34.65 09/28/11 $ 2,358,200 $ 5,976,142
367,065 3.5% $23.85 12/20/11 $ 5,505,658 $13,952,419
Kenneth E. Randolph..... 40,582 * $34.65 09/28/11 $ 884,330 $ 2,241,067
121,789 1.2% $23.85 12/20/11 $ 1,826,730 $ 4,629,292
Robert D. Doty, Jr...... 40,582 * $34.65 09/28/11 $ 884,330 $ 2,241,067
107,367 1.0% $23.85 12/20/11 $ 1,610,412 $ 4,081,101
R. Blake Young.......... 54,109 * $34.65 09/28/11 $ 1,179,100 $ 2,988,071
90,705 * $23.85 12/20/11 $ 1,360,497 $ 3,447,766
--------
* Less than 1%
(1) Each of the Named Executive Officers is entitled to receive certain annual
market value stock option grants during the term of their respective
employment agreements. See "--Employment Agreements."
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of common
stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the price of common stock.
Option Exercises and Year-End Value Table
The following table sets forth information regarding options held by the
Named Executive Officers at December 31, 2001. None of the Named Executive
Officers exercised stock options in 2001.
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Stock
Stock Options at 12/31/01 Options at 12/31/01(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Charles L. Watson(2)........ 2,089,414 2,180,092 $27,448,178 $11,923,852
Stephen W. Bergstrom........ 1,167,412 1,374,125 $16,451,981 $11,589,298
Kenneth E. Randolph......... 321,028 322,027 $ 4,253,010 $ 2,204,922
Robert D. Doty, Jr.......... 333,314 229,592 $ 5,611,948 $ 819,594
R. Blake Young.............. 44,152 287,598 $ 392,070 $ 1,644,849
--------
(1) Value based on the closing price of $25.50 on the New York Stock
Exchange--Composite Tape for Dynegy Class A common stock on December 31,
2001.
(2) Number of shares underlying unexercised options does not include 2,399,431
options held by the Family Limited Partnership.
13
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Dynegy's executive officers and directors, and persons who own more than 10%
of a registered class of Dynegy's equity securities, to file reports of
ownership and changes in ownership with the SEC and the New York Stock
Exchange. Executive officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish Dynegy with copies of all Section 16(a)
forms they file. Based solely upon review of the copies of such forms
furnished to Dynegy or upon written representations that no Form 5s were
required, except as described below, Dynegy believes that all persons subject
to these reporting requirements filed the required reports on a timely basis.
Hugh A. Tarpley was late in filing one Form 4 relating to an open market
purchase. Michael R. Mott was late in filing a Form 3 and a Form 5. Lawrence
McLernon was late in filing a Form 3, a Form 4 relating to an open market
purchase and a Form 5. Deborah A. Fiorito was late in filing a Form 3, a Form
4 relating to two open market purchases and a Form 5. None of the late filed
reports relate to sales of Dynegy securities.
Employment Agreements and Change-in-Control Arrangements
C.L. Watson Employment Agreement. Mr. Watson's 2001 compensation was
determined under the terms of an employment agreement between Dynegy Inc. and
Mr. Watson that expires on February 1, 2003. Mr. Watson serves as Chairman and
Chief Executive Officer of Dynegy. Mr. Watson's employment agreement entitles
him to a base salary of $1,500,000, subject to increase at the discretion of
the Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon certain financial or performance objectives, as a
participant in the Incentive Compensation Plan. Mr. Watson's current base
salary is $1,560,000. The employment agreement also provides that Mr. Watson
is entitled to receive stock option grants each year during the term of the
agreement. During 2001, Mr. Watson was granted options to purchase 162,327
shares and 847,020 shares of common stock with an exercise price of $34.65 per
share and $23.85 per share, respectively, for his 2001 performance. The
employment agreement also contains non-compete provisions in the event of Mr.
Watson's termination of employment.
Mr. Watson's employment agreement also includes provisions governing the
payment of severance benefits if his employment is terminated due to
resignation following a "constructive termination," as defined in the
agreement, or for any other reason other than his voluntary resignation,
death, disability or discharge for cause. For purposes of the agreement, the
term "constructive termination" is defined to include certain changes in
control of Dynegy. Any severance benefits shall be made as follows: (i) a lump
sum amount equal to the product of (a) 2.99 and (b) the greater of (1) the
average annual base salary and incentive compensation paid to Mr. Watson for
the highest three calendar years preceding the year of termination, and (2)
Mr. Watson's base salary and target bonus amount for the year of termination;
(ii) a lump sum amount equal to the present value, as defined by the Board of
Directors, of the senior management benefits and other perquisites owed to Mr.
Watson through the remaining term of his employment; (iii) vesting of any
previously granted unvested Dynegy stock options to be exercised until the
later of the term of this agreement and the one-year anniversary of the
termination date; and (iv) continued health and welfare benefits for 36 months
from the termination date.
Stephen W. Bergstrom Employment Agreement. Mr. Bergstrom's 2001
compensation was determined under the terms of an employment agreement between
Dynegy Inc. and Mr. Bergstrom that expires on February 1, 2003. Mr. Bergstrom
serves as President and Chief Operating Officer of Dynegy. Mr. Bergstrom's
employment agreement entitles him to a base salary of $850,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon certain financial
or performance objectives, as a participant in the Incentive Compensation
Plan. Mr. Bergstrom's current base salary is $885,000. The employment
agreement also provides that Mr. Bergstrom is entitled to receive stock option
grants each year during the term of the agreement. During 2001, Mr. Bergstrom
was granted options to purchase 108,218 shares and 367,065 shares of common
stock with an exercise price of $34.65 per share and $23.85 per share,
respectively, for his 2001 performance. The employment agreement also contains
non-compete provisions in the event of Mr. Bergstrom's termination of
employment.
14
Mr. Bergstrom's employment agreement also includes provisions governing the
payment of severance benefits substantially similar to those described above
for Mr. Watson if Mr. Bergstrom's employment is terminated due to resignation
following a "constructive termination," as defined in the agreement, or for
any other reason other than his voluntary resignation, death, disability or
discharge for cause.
Kenneth E. Randolph Employment Agreement. Mr. Randolph's 2001 compensation
was determined under the terms of an employment agreement between Dynegy Inc.
and Mr. Randolph that expires on February 1, 2003. Mr. Randolph serves as
Executive Vice President and General Counsel of Dynegy. Mr. Randolph's
employment agreement entitles him to a base salary of $350,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon certain financial
or performance objectives, as a participant in the Incentive Compensation
Plan. Mr. Randolph's current base salary is $425,000. Mr. Randolph was paid a
signing bonus of $100,000 in connection with the execution of his employment
agreement. The employment agreement also provides that Mr. Randolph is
entitled to receive stock option grants each year during the term of the
agreement. During 2001, Mr. Randolph was granted options to purchase 40,582
shares and 121,789 shares of common stock with an exercise price of $34.65 per
share and $23.85 per share, respectively, for his 2001 performance. The
employment agreement contains non-compete provisions in the event of Mr.
Randolph's termination of employment.
Mr. Randolph's employment agreement also includes provisions governing the
payment of severance benefits substantially similar to those described above
for Mr. Watson if Mr. Randolph's employment is terminated due to resignation
following a "constructive termination," as defined in the agreement, or for
any other reason other than his voluntary resignation, death, disability or
discharge for cause.
Robert D. Doty, Jr. Employment Agreement. Mr. Doty's 2001 compensation was
determined under the terms of an employment agreement between Dynegy Inc. and
Mr. Doty that expires on February 1, 2003. Mr. Doty serves as Executive Vice
President and Chief Financial Officer of Dynegy. Mr. Doty's employment
agreement entitles him to a base salary of $225,000, subject to increase at
the discretion of the Board of Directors, and the annual opportunity to earn
additional bonus amounts, dependent upon certain financial or performance
objectives, as a participant in the Incentive Compensation Plan. Mr. Doty's
current base salary is $450,000. Mr. Doty was paid a signing bonus of $25,000
in connection with the execution of his employment agreement. The employment
agreement also provides that Mr. Doty is entitled to receive stock option
grants each year during the term of the agreement. During 2001, Mr. Doty was
granted options to purchase 40,582 shares and 107,367 shares of common stock
with an exercise price of $34.65 per share and $23.85 per share, respectively,
for his 2001 performance. The employment agreement contains non-compete
provisions in the event of Mr. Doty's termination of employment.
Mr. Doty's employment agreement also includes provisions governing the
payment of severance benefits substantially similar to those described above
for Mr. Watson if Mr. Doty's employment is terminated due to resignation
following a "constructive termination," as defined in the agreement, or for
any other reason other than his voluntary resignation, death, disability or
discharge for cause.
R. Blake Young Employment Agreement. Mr. Young's 2001 compensation was
determined under the terms of an employment agreement between Dynegy Inc. and
Mr. Young that expires on February 1, 2003. Mr. Young serves as Executive Vice
President of Dynegy and President, Global Technology. Mr. Young's employment
agreement entitles him to a base salary of $270,000, subject to increase at
the discretion of the Board of Directors, and the annual opportunity to earn
additional bonus amounts, dependent upon certain financial or performance
objectives, as a participant in the Incentive Compensation Plan. Mr. Young's
current base salary is $325,000. Mr. Young was paid a signing bonus of $55,000
in connection with the execution of his employment agreement. The employment
agreement also provides that Mr. Young is entitled to receive stock option
grants each year during the term of the agreement. During 2001, Mr. Young was
granted options to purchase 54,109 shares and 90,705 shares of common stock
with an exercise price of $34.65 per share and $23.85 per share, respectively.
The employment agreement contains non-compete provisions in the event of Mr.
Young's termination of employment.
15
Mr. Young's employment agreement also includes provisions governing the
payment of severance benefits substantially similar to those described above
for Mr. Watson if Mr. Young's employment is terminated due to resignation
following a "constructive termination," as defined in the agreement, or for
any other reason other than his voluntary resignation, death, disability or
discharge for cause.
Certain Relationships and Related Transactions
ChevronTexaco Corporation
Business Combination. In August 1996, Dynegy completed a business
combination with a subsidiary of Chevron Corporation pursuant to which
substantially all of Chevron's midstream energy assets were merged into
Dynegy's operations. In connection with this business combination, Dynegy and
Chevron, or affiliates thereof, entered into certain supply, sales and service
agreements pursuant to which, among other things, Dynegy has (i) the
obligation to purchase and the right to market substantially all natural gas
and natural gas liquids produced or controlled by Chevron in the United States
(except Alaska) and to supply natural gas and natural gas liquids feedstock to
Chevron refineries and Chevron Chemical plants in the United States, (ii) the
right to participate in existing and future opportunities to provide
electricity to United States facilities of Chevron and Chevron Chemical, as
well as to purchase or market excess electricity generated by such facilities,
and (iii) the right to process substantially all of Chevron's processable
natural gas in those geographic areas where it is economically feasible for
Dynegy to provide such service. During 2001, Dynegy purchased approximately
$3.6 billion of natural gas, natural gas liquids and crude oil produced or
controlled by Chevron, and sold approximately $1.3 billion of natural gas,
natural gas liquids and crude oil to Chevron refineries and Chevron Chemical
plants. Dynegy believes these transactions were executed at prevailing market
rates.
Venice Energy. In 1996, Dynegy and Chevron formed Venice Gas Processing
Company, a Texas limited partnership. Venice Gas was formed for the purpose of
owning and operating the Venice Complex, located in Plaquemines Parish,
Louisiana. In 1997, Venice Gas reorganized as a limited liability company and
changed its name to Venice Energy Services Company, L.L.C. In September 1997,
Venice Energy members agreed to expand ownership in Venice Energy to include
an affiliate of Shell Midstream Enterprises, a subsidiary of Shell Oil Company
effective September 1, 1997, in exchange for Shell's commitment of certain
offshore reserves to Venice. In 1998, ownership in Venice Energy was again
expanded to include Koch Energy Services Company, in exchange for their
contribution of the cryogenic processing unit. At December 31, 2001, Dynegy's
approximate 22% interest in Venice Energy was valued at $48.3 million. Dynegy
operates the facility and has commercial responsibility for product
distribution and sales.
Merger--Chevron Corporation and Texaco Inc. In October 2001, Chevron
Corporation completed a business combination with Texaco Inc., forming
ChevronTexaco Corporation. Dynegy recently expanded its commercial
relationship with ChevronTexaco to include its purchase of substantially all
of the undedicated United States natural gas and natural gas liquids
production of the former Texaco through August 31, 2006. Dynegy also will
purchase the undedicated liquids production associated with its processing of
the former Texaco's natural gas. In the Gulf of Mexico, Dynegy has the right
to process substantially all of the current uncommitted natural gas production
from the former Texaco properties as well as most future production of
ChevronTexaco that commences prior to August 31, 2006. Dynegy also purchased
Texaco's wholesale propane marketing business. Concurrent with the expanded
commercial relationship, Dynegy and ChevronTexaco agreed to replace their
existing credit support arrangements with a perfected security interest on
behalf of ChevronTexaco in a portion of Dynegy's trade receivables.
Preferred Stock Investment. On November 13, 2001, in connection with the
merger agreement between Dynegy, Enron Corp. and affiliated entities,
ChevronTexaco purchased 150,000 shares of Dynegy's Series B preferred stock
for $1.5 billion. Dynegy used the proceeds from this issuance to purchase
preferred stock in Northern Natural Gas Company. Each share of Series B
preferred stock is convertible, at the option of ChevronTexaco, prior to its
redemption, into shares of Dynegy's Class B common stock at a conversion price
of $31.64. At the time it was established, the conversion price represented a
five percent discount relative to the
16
prevailing market price for Dynegy's Class A common stock. Unless
ChevronTexaco exercises its conversion right, Dynegy is required to redeem the
Series B preferred stock in November 2003.
Shareholder Agreement. In connection with the merger between Dynegy and
Illinova, a subsidiary of ChevronTexaco, Chevron U.S.A., entered into a
shareholder agreement with Dynegy governing certain aspects of their
relationship. Upon consummation of the Illinova transaction, Chevron U.S.A.
received shares of Class B common stock, which entitle it to designate three
members of Dynegy's Board of Directors. The Class B common stock director
nominees, Messrs. Callahan, Tilton and Watson, are each executive officers of
ChevronTexaco and Mr. Tilton also serves on Chevron's board of directors.
Chevron U.S.A. is Dynegy's largest shareholder and currently owns
approximately 26.5 percent of Dynegy's outstanding voting securities. For more
information regarding this shareholder agreement, please read Dynegy's Annual
Report on Form 10-K for the year ended December 31, 2001.
Conflicts of Interest. ChevronTexaco, one of the world's largest integrated
energy companies, is involved in every aspect of the energy industry, from oil
and gas exploration and production to transportation, refining and retail
marketing, as well as chemicals manufacturing and sales and power production.
Accordingly, ChevronTexaco's present operations and its pursuit of future
opportunities may overlap with Dynegy's operations and strategy. There are no
contractual limits on ChevronTexaco's ability to compete with Dynegy.
Accordingly, conflicts of interest may arise between ChevronTexaco, and its
affiliates, and Dynegy as they each pursue business opportunities. These
conflicts may be resolved in favor of ChevronTexaco.
Transactions with Directors and Executive Officers
Dynegy Inc. Short-Term Executive Stock Purchase Loan Program. In July 2001,
Dynegy established the Dynegy Inc. Short-Term Executive Stock Purchase Loan
Program. Under this program, Dynegy may loan eligible employees funds to
acquire Class A common stock through market purchases. The related notes have
a two-year maturity, bear interest at the greater of five percent or the
applicable federal rate as of the loan date and are full recourse to the
participants. The following table indicates the amounts outstanding under
program loans made to executive officers as of December 31, 2001 and related
information.
Amount
Outstanding
(including
accrued
interest) as of
December 31, Maturity Interest
Name 2001(1) Date(s) Rate
---- --------------- -------- --------
Deborah A. Fiorito......................... $ 201,840 09/29/03 5%
$ 239,250 10/10/03 5%
Lawrence A. McLernon....................... $1,595,457 10/11/03 5%
Hugh A. Tarpley............................ $ 252,641 10/03/03 5%
R. Blake Young............................. $ 598,125 10/10/03 5%
--------
(1) The amount indicated combined, where applicable, with the amounts
indicated in the following table represents the largest aggregate amount
of indebtedness outstanding to Dynegy during the year ended December 31,
2001 for each individual listed.
December 2001 Equity Purchases. In December 2001, certain executive
officers purchased Class A common stock from Dynegy in a private placement
pursuant to Section 4(2) of the Securities Act of 1933. The following
executive officers received loans from Dynegy to purchase the common stock at
a price of $19.75 per share. This purchase price equaled the net proceeds per
share to Dynegy from a concurrent public offering (after a $1.00 per share
underwriting discount).
17
Approximate Amount
Outstanding
(including accrued
interest) as of Interest
Name December 31, 2001(1) Initial Maturity Date(2) Rate
---- -------------------- ------------------------ --------
Charles L. Watson.... $15,014,678 February 17, 2002 3.25%
Stephen W.
Bergstrom........... $ 4,404,293 February 17, 2002 3.25%
Kenneth E. Randolph.. $ 1,000,961 February 17, 2002 3.25%
Robert D. Doty....... $ 100,092 February 17, 2002 3.25%
R. Blake Young....... $ 500,480 February 17, 2002 3.25%
Milton L. Scott...... $ 1,000,961 February 17, 2002 3.25%
Deborah A. Fiorito... $ 500,480 February 17, 2002 3.25%
Lawrence A.
McLernon............ $ 1,000,961 February 17, 2002 3.25%
Hugh A. Tarpley...... $ 500,480 February 17, 2002 3.25%
--------
(1) The amount indicated combined, where applicable, with the amounts
indicated in the preceding table represents the largest aggregate amount
of indebtedness outstanding to Dynegy during the year ended December 31,
2001 for each individual listed.
(2) The maturity date was initially extended through March 19, 2002. Messrs.
Watson, Bergstrom, Randolph and Doty paid their loans in full on or before
such date. The maturity date for loans that remain outstanding was
subsequently extended through June 18, 2002.
Brokerage Commissions. Caldwell Nyberg Interests, Inc. ("CNI") was retained
by Dynegy's predecessor in or around 1994 to assist in exploring the lease or
purchase of an office building. Charles L. Watson, Dynegy's Chairman of the
Board and Chief Executive Officer, acquired a 50% passive investment interest
in CNI in or around June 1994. In 1996, CNI assisted Cushman & Wakefield, Inc.
("Cushman & Wakefield") as a cooperating broker in securing Dynegy's current
office headquarters lease. Since 1998, CNI's successor, Caldwell Watson Real
Estate Group ("CWREG"), has received commissions as a participating broker
from Cushman & Wakefield. In 2001, CWREG was paid a commission as a
participating broker in the amount of $114,051.
Audit and Compliance Committee Report
Dynegy's Board of Directors has established an Audit and Compliance
Committee of independent directors, which operates under a written charter
adopted by the Board of Directors. Dynegy's management is responsible for
establishing a system of internal controls and for preparing Dynegy's
consolidated financial statements in accordance with generally accepted
accounting principles. Dynegy's independent accountants are responsible for
auditing Dynegy's consolidated financial statements in accordance with
generally accepted auditing standards and issuing their report based on such
audit. Under the Audit and Compliance Committee's charter, the primary
function of the Audit and Compliance Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities as to these processes.
The Audit and Compliance Committee's functions also include the selection and
evaluation of the independent auditors, the review, in conjunction with the
independent auditors, of the plans and scope of the audit engagement and a
review with the independent auditors of their objectivity and independence.
In connection with the preparation of the audited financial statements
included in Dynegy's Annual Report on Form 10-K for the year ended December
31, 2001:
. The Audit and Compliance Committee reviewed and discussed the audited
financial statements with management.
. The Audit and Compliance Committee discussed with the independent
auditors Dynegy's critical accounting policies and the matters required
to be discussed by Statement on Auditing Standards No. 61 and Statement
on Auditing Standards No. 90. In general, these auditing standards
require the auditors to
18
communicate to the Audit and Compliance Committee certain matters that
are incidental to the audit, such as any initiation of or changes to
significant accounting policies, management judgments, accounting
estimates and audit adjustments, disagreements with management and the
auditors' judgment about the quality of Dynegy's accounting principles.
. The Audit and Compliance Committee received from the independent
auditors written disclosures regarding their independence required by
Independence Standards Board Standard No. 1 and discussed with the
auditors their independence. In general, Independence Standards Board
Standard No. 1 requires the auditors to disclose to the Audit and
Compliance Committee any relationship between the auditors and its
related entities and Dynegy that in the auditor's professional judgment
may reasonably be thought to bear on independence.
Based on the review and discussions noted above, the Audit and Compliance
Committee recommended to the Board of Directors that the audited consolidated
financial statements for the year ended December 31, 2001 be included in
Dynegy's Annual Report on Form 10-K filed with the SEC.
This report is submitted by the members of the Audit and Compliance
Committee of the Board of Directors:
J. Otis Winters (chairman)
Jerry L. Johnson
H. John Riley
Joe J. Stewart
Each of the members of the Audit and Compliance Committee is independent as
independence is defined by Section 303.01(B) of the New York Stock Exchange
rules.
Independent Auditors
The Audit and Compliance Committee has recommended to the Board of
Directors, and the Board of Directors has approved, the selection of
PricewaterhouseCoopers LLP as independent auditors to examine Dynegy's
accounts for the year ending December 31, 2002. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the annual meeting to
be available to respond to appropriate questions.
Set forth below is a summary of the total fees paid to Arthur Andersen LLP,
Dynegy's former independent accountants, for fiscal 2001. These fees consisted
of:
Audit Fees....................................................... $3,247,577
Financial Information Systems Design and Implementation Fees..... $ -0-
All Other Fees (Including Tax Consultation Fees)................. $4,711,148
Total.......................................................... $7,958,725
In determining the independence of Arthur Andersen LLP for purposes of its
2001 audit, the Audit and Compliance Committee considered whether the
provision of non-audit services was compatible with maintaining Arthur
Andersen LLP's independence.
Human Resources Committee and Options Committee Report on Executive
Compensation
The Human Resources Committee/Options Committee. The Human Resources
Committee of the Board of Directors is responsible for developing Dynegy's
executive compensation philosophy. It is the duty of the Human Resources
Committee to administer the philosophy and its relationship with the
compensation paid to the Chief Executive Officer and each of Dynegy's other
executive officers. The 2001 Human Resources Committee (formerly known as the
Compensation Committee) was chaired by Ms. Rosenberg, an independent director,
and was comprised of a total of five members.
19
During 2001, the Options Committee approved awards under the Dynegy 2000
Long Term Incentive Plan and the Dynegy 2001 Non-Executive Stock Incentive
Plan. The Options Committee is chaired by Ms. Eckert.
The executive compensation philosophy at Dynegy is to reward executives'
performance in a way that creates long-term shareholder value. Dynegy's
executive compensation program was designed to help Dynegy attract, motivate
and retain the executive resources that it needs in order to maximize its
return to shareholders. Dynegy's goal is to provide its executives with a
total compensation package that--at expected levels of performance--meets or
exceeds those provided to executives who hold comparable positions or have
similar qualifications in other similarly situated organizations. Salary
increases, annual incentive awards and long-term incentive grants are reviewed
annually to ensure consistency with Dynegy's total compensation philosophy.
Dynegy also seeks to encourage executive participation in stock ownership,
thereby aligning the employees' interests with those of shareholders and
providing an incentive to increase shareholder value. To achieve this goal,
Dynegy makes extensive use of stock option awards to executives, managers and
key employees.
The Human Resources Committee primarily compares Dynegy's executive
compensation program to other national energy merchants of comparable size.
The Human Resources Committee also consults from time to time with outside
consultants experienced in executive compensation, and Dynegy has access to
and utilizes an extensive nationwide database that tracks pay trends for a
broad industry index in which Dynegy competes for executives and senior
management.
During 2001, Dynegy's executive compensation program consisted of three
main components: (1) base salary; (2) potential for an annual incentive award
based on overall company performance as well as individual performance; and
(3) the opportunity to earn stock-based incentives, which are intended to
encourage superior performance and to align executive officer and shareholder
interests. The second and third elements constitute the "at risk" portion of
the compensation program.
Base Salary. All decisions regarding base salary are made based upon
individual performance as measured against pre-established individual
objectives and competitive practices as measured by periodic compensation
surveys. Base salaries are targeted at competitive levels when compared to an
industry group that includes peer group companies, including those reflected
in the performance graph, and general industry companies similar in size to
Dynegy.
Annual Incentive Awards. During 2001, Dynegy's mechanism for awarding
annual bonuses to its executive officers was the Dynegy Inc. Incentive
Compensation Plan. The Incentive Compensation Plan is used to provide
incentive payments to all non-union salaried employees of Dynegy. The basis
for the payment of annual bonuses under the Incentive Compensation Plan is a
combination of attaining certain corporate and/or business unit performance
goals recommended and approved by the Board of Directors (i.e., earnings per
share, net income, cash-flow, return on capital employed), personal
performance and competitiveness with comparable external positions as measured
by periodic compensation surveys.
Long Term Incentive Compensation. In addition to the 2000 Long Term
Incentive Plan, in 2001 Dynegy added the 2001 Non-Executive Stock Incentive
Plan. Dynegy's long term incentive compensation is based upon grants of market
value stock option awards pursuant to the 2000 Long Term Incentive Plan and
the 2001 Non-Executive Stock Incentive Plan. Such awards are consistent with
the stock option awards made by similarly situated companies in Dynegy's
industry who are aggressive in the use of stock option awards as a means of
long term compensation and for the express use for retention of critical
talent. During 2001, the Options Committee was responsible for approving stock
option awards. Stock option grants were awarded to all executive officers of
Dynegy during 2001.
Compensation of Chief Executive Officer; Employment Agreement. Effective
upon the completion of the Dynegy/Illinova merger on February 1, 2000, Dynegy
entered into a three-year employment agreement with Mr. Watson, pursuant to
which Mr. Watson serves as Chairman and Chief Executive Officer of Dynegy. Mr.
Watson's
20
employment agreement entitles him to a base salary of $1,500,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon certain financial
or performance objectives, as a participant in the Incentive Compensation
Plan. The employment agreement also contains non-compete provisions in the
event of Mr. Watson's termination of employment.
In determining Mr. Watson's base salary adjustment and annual incentive
award for 2001, the Human Resources Committee considered Mr. Watson's efforts
in executing Dynegy's long-term business strategy and the financial
performance of Dynegy.
After consideration of these criteria and 2001 corporate performance, the
Human Resources Committee approved an annual incentive award of $5,000,000 for
Mr. Watson. Mr. Watson's base salary was determined to be competitive and
therefore remained at $1,560,000. Under the terms of his employment agreement,
Mr. Watson is also eligible to receive, each year during the term of his
agreement, stock option grants under the Dynegy 2000 Long Term Incentive Plan
with a target range at the 75th percentile of 375% of his base salary. In
2001, Mr. Watson received grants of 162,327 and 847,020 options with an
exercise price of $34.65 and $23.85 per share, respectively, reflecting a
current competitive market range at the 75th percentile of approximately 900%
of his current base salary.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for certain compensation over $1,000,000 paid to Dynegy's
Chief Executive Officer and four other most highly compensated executive
officers, as reported in this proxy statement. Excluded from the limitation is
compensation that is "performance based." For compensation to be performance
based, it must meet certain criteria, including being based on predetermined
objective standards approved by shareholders. In general, Dynegy believes that
compensation relating to options granted under its 2000 Long Term Incentive
Plan should be excluded from the $1,000,000 limitation. Compensation relating
to Dynegy's Incentive Compensation Plan does not currently qualify for
exclusion from limitation, given the discretion that is provided to the Human
Resources Committee under such plans in determining the actual amount of such
awards. The Committee believes that maintaining the discretion to evaluate the
performance of Dynegy's management is an important part of its
responsibilities and inures to the benefit of Dynegy's shareholders. The Human
Resources Committee, however, will continue to take into account the potential
application of Section 162(m) with respect to incentive compensation awards
and other compensation decisions made by it in the future.
All amounts paid or accrued during fiscal year 2001 under the above-
described plans and programs are included in the preceding tables. The
individuals who served as members of the Human Resources Committee or the
Options Committee and participated in the deliberations concerning
compensation reported for 2001 are listed below. No such member of the Human
Resources Committee or Options Committee was an officer or employee of Dynegy
or any of its subsidiaries during 2001.
Human Resources Committee
Sheli Z. Rosenberg (chairwoman)
Charles E. Bayless
Michael D. Capellas
Patricia M. Eckert
Glenn F. Tilton
Options Committee
Patricia M. Eckert (chairwoman)
Charles E. Bayless
Michael D. Capellas
Sheli Z. Rosenberg
21
Shareholder Return Performance Presentation
The performance graph shown on the following page was prepared by Standard
& Poor's IMS (Institutional Market Services), a division of McGraw-Hill, Inc.,
using data from the Standard & Poor's IMS Database for use in this proxy
statement. As required by applicable rules of the SEC, the graph was prepared
based upon the following assumptions:
1. One hundred dollars ($100) was invested in Dynegy Class A common stock,
the S&P 500, the New Peer Group (as defined below) and the Old Peer
Group (as defined below) on December 31, 1996.
2. The returns of each component company in the New Peer Group and Old Peer
Group are weighed based on the market capitalization of such company at
the beginning of the measurement period.
3. Dividends are reinvested on the ex-dividend dates.
Dynegy's peer group for the fiscal year ended December 31, 2001 (the "New
Peer Group") is comprised of Dominion Resources Inc., Duke Energy Corporation,
El Paso Corporation, Mirant Corporation, Reliant Energy, Incorporated, Reliant
Resources, Inc., Aquila Inc. and The Williams Companies, Inc. Dynegy's peer
group for the fiscal year ended December 31, 2000 was comprised of a weighted
index of eight energy services companies: The AES Corp, Calpine Corporation,
Duke Energy Corporation, El Paso Corporation, Enron Corp., Reliant Energy,
Incorporated, The Williams Companies, Inc. and Mirant Corporation; seven
utilities: Ameren, Allete Company, Dominion Resources Inc., Nstar Company,
Southern Company, Inc., Vectren and WPS Resources Corp.; and two midstream gas
and natural gas liquids companies: Mitchell Energy & Development Corporation
and Western Gas Resources Inc. The results were weighted 70% energy services
group, 15% utilities group and 15% midstream group.
Dynegy believes the New Peer Group more accurately reflects its industry
peers based on size and business focus. The New Peer Group also accounts for
industry consolidations or eliminations.
22
[Chart appears here]
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
ANNUAL PERFORMANCE
Year Ending December 31,
---------------------------------------
Company Name/Index 1996 1997 1998 1999 2000 2001
------------------ ---- ------ ------ ------ ------ ------
Dynegy Inc.............................. $100 75.48 47.35 105.53 337.93 154.84
S&P 500 Index........................... $100 133.36 171.48 207.56 188.66 166.24
New Peer Group.......................... $100 130.65 154.04 135.64 231.59 180.98
Old Peer Group.......................... $100 128.85 137.94 170.46 322.31 191.17
23
PROPOSAL 2
APPROVAL OF DYNEGY INC. 2002 LONG TERM INCENTIVE PLAN
The affirmative vote of the holders of a majority of the Class A common
stock and the Class B common stock, represented in person or by proxy, and
entitled to vote, voting together as a single class, is required to approve
the Dynegy Inc. 2002 Long Term Incentive Plan (the "2002 Plan"). Under
Illinois law, an abstention would have the same legal effect as a vote against
this proposal, but a broker non-vote would not be counted for purposes of
determining shares represented in person or by proxy on the matter.
The Board of Directors believes approval of the Dynegy Inc. 2002 Long Term
Incentive Plan, in the form attached to this proxy statement as Appendix A, is
in the best interests of Dynegy and recommends that shareholders vote "FOR"
the Dynegy Inc. 2002 Long Term Incentive Plan.
The 2002 Plan is a broad-based incentive plan that provides for granting
incentive stock options, stock options that do not constitute incentive stock
options, restricted stock awards, performance awards and phantom stock awards.
The Board of Directors unanimously adopted the 2002 Plan on March 15, 2002,
subject to shareholder approval at the annual meeting. On that date, the Board
of Directors also amended the Company's 2000 Long Term Incentive Plan (the
"2000 Plan") so that, effective as of the date of the annual meeting, no
further stock options will automatically be granted to non-employee directors
under the 2000 Plan. If the 2002 Plan is not approved by shareholders at the
annual meeting, then no awards will be granted under the 2002 Plan and the
amendment to the 2000 Plan will be void and of no effect.
The 2002 Plan is designed to enable Dynegy and its affiliates to better
attract able directors, employees and consultants and to provide a means
whereby those individuals upon whom the responsibilities of the successful
administration and management of Dynegy and its affiliates rest, and whose
present and potential contributions to Dynegy and its affiliates are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of Dynegy and its affiliates. A further purpose
of the 2002 Plan is to provide these individuals with additional incentive and
reward opportunities designed to enhance Dynegy's profitable growth.
Accordingly, the 2002 Plan provides for the following:
. discretionary grants to employees of Dynegy and its subsidiary
corporations of stock options that constitute incentive stock options as
defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), ("Incentive Stock Options"); and
. discretionary grants to directors of Dynegy and to employees and
consultants of Dynegy and its affiliates of (a) stock options that do
not constitute Incentive Stock Options ("Non-statutory Stock Options"),
(b) shares of Class A common stock that are subject to restrictions on
disposition and forfeiture to Dynegy under certain circumstances
("Restricted Stock"), (c) shares of Class A common stock, cash payments,
or a combination thereof that may be earned based on the satisfaction of
various performance measures ("Performance Awards"), and (d) shares of
Class A common stock, cash payments or a combination thereof which vest
over a period of time ("Phantom Stock Awards").
Set forth below is a summary of the terms of the 2002 Plan. This summary is
qualified in its entirety by reference to the full text of the 2002 Plan,
which is attached to this proxy statement as Appendix A.
Number of Shares Subject to the 2002 Plan and Award Limits
The aggregate maximum number of shares of Class A common stock that may be
issued under the 2002 Plan will be 10,000,000 shares, and no more than
2,500,000 shares of Class A common stock may be utilized for Restricted Stock
awards and Performance Awards during the term of the 2002 Plan. The maximum
number of shares of Class A common stock that may be subject to Options,
Restricted Stock awards and Performance
24
Awards denominated in shares of Class A common stock granted to any one
individual during any calendar year may not exceed 1,500,000 shares of Class A
common stock. Each of the limitations described in the preceding sentences may
be adjusted upon a reorganization, stock split, recapitalization or other
change in Dynegy's capital structure. The maximum amount of compensation that
may be paid under all Performance Awards under the 2002 Plan that are
denominated in cash (including the fair market value of any shares of Class A
common stock paid in satisfaction of such Performance Awards) granted to any
one individual during any calendar year may not exceed $5,000,000, and any
payment due with respect to a Performance Award will be paid no later than 10
years after the date of grant of such Performance Award.
Administration
The 2002 Plan will be administered by a committee (the "Committee") of, and
appointed by, the Board of Directors that will be comprised solely of two or
more non-employee directors who also qualify as "outside directors" (within
the meaning assigned to such term under Section 162(m) of the Code). The Board
of Directors has appointed the Options Committee to initially administer the
2002 Plan.
The Committee will have full authority, subject to the terms of the 2002
Plan, to establish rules and regulations for the proper administration of the
2002 Plan, to select the employees, consultants and directors to whom awards
are granted, and to set the date of grant, the type of award that shall be
made and the other terms of the awards. When granting awards, the Committee
will consider such factors as an individual's duties and present and potential
contributions to Dynegy's success.
Eligibility
All directors of Dynegy, and all employees and consultants of Dynegy and
its affiliates, are eligible to participate in the 2002 Plan. The selection of
those employees, consultants and directors, from among those eligible, who
will receive Incentive Stock Options, Non-statutory Stock Options, Restricted
Stock awards, Performance Awards, Phantom Stock Awards or any combination
thereof is within the discretion of the Committee. However, Incentive Stock
Options may be granted only to employees of Dynegy and its subsidiary
corporations. As of February 28, 2002, approximately 4,270 individuals were
potentially eligible to participate in the 2002 Plan.
Term of 2002 Plan
The 2002 Plan will be effective as of March 15, 2002, the date of its
adoption by the Board of Directors, provided the 2002 Plan is timely approved
by Dynegy's shareholders. No further awards may be granted under the 2002 Plan
after March 14, 2012, and the 2002 Plan will terminate thereafter once all
awards have been satisfied, exercised or expire. The Board of Directors in its
discretion may terminate the 2002 Plan at any time with respect to any shares
of Class A common stock for which awards have not theretofore been granted.
Stock Options
Term of Option. The term of each option will be as specified by the
Committee at the date of grant (but not more than ten years). The effect of
the termination of an optionee's employment, consulting relationship or
membership on the Board of Directors will be specified in the option contract
that evidences each option grant.
Option Price. The option price will be determined by the Committee and will
be no less than the fair market value of the shares on the date that the
option is granted. Except for adjustments for certain changes in the Class A
common stock, the Committee may not, without the approval of Dynegy's
shareholders, amend any outstanding option contract that evidences an option
grant to lower the option price.
Special Rules for Certain Shareholders. If an Incentive Stock Option is
granted to an employee who then owns, directly or by attribution under the
Code, stock possessing more than 10% of the total combined voting
25
power of all classes of stock of Dynegy or a subsidiary, then the term of the
option will not exceed five years, and the option price will be at least 110%
of the fair market value of the shares on the date that the option is granted.
Size of Grant. Subject to the limitations described above under the section
"Number of Shares Subject to the 2002 Plan and Award Limits," the number of
shares for which an option is granted to an employee, consultant or director
will be determined by the Committee.
Status of Options. The status of each option granted to an employee as
either an Incentive Stock Option or a Non-statutory Stock Option will be
designated by the Committee at the time of grant. If, however, the aggregate
fair market value (determined as of the date of grant) of shares with respect
to which Incentive Stock Options become exercisable for the first time by an
employee exceeds $100,000 in any calendar year, the options with respect to
the excess shares will be Non-statutory Stock Options. All options granted to
consultants and non-employee directors will be Non-statutory Stock Options.
Payment. The option price upon exercise may, at the discretion of the
Committee, be paid by an optionee in cash, other shares of Class A common
stock owned by the optionee, or by a combination of cash and Class A common
stock. Additionally, stock appreciation rights may be granted to optionees in
conjunction with stock options granted under the 2002 Plan. Stock appreciation
rights give the holder, among other things, the right to a payment in cash,
Class A common stock, or a combination thereof, in an amount equal to the
number of stock appreciation rights exercised by the holder multiplied by the
excess of the fair market value of the Class A common stock on the exercise
date over the option exercise price. The 2002 Plan also allows the Committee,
in its discretion, to establish procedures pursuant to which an optionee may
affect a cashless exercise of an option.
Option Agreement. All options will be evidenced by a written contract
containing provisions consistent with the 2002 Plan and such other provisions
as the Committee deems appropriate.
Transferability. An Incentive Stock Option is not transferable other than
by will or the laws of descent and distribution, and may be exercised during
the employee's lifetime only by the employee or his or her guardian or legal
representative. A Non-statutory Stock Option is not transferable other than by
will or the laws of descent and distribution, pursuant to a qualified domestic
relations order, or with the consent of the Committee.
Restricted Stock
Transfer Restrictions and Forfeiture Obligations. Pursuant to a Restricted
Stock award, shares of Class A common stock will be issued or delivered to the
employee, consultant or director at the time the award is made without any
payment to Dynegy (other than for any payment amount determined by the
Committee in its discretion), but such shares will be subject to certain
restrictions on the disposition thereof and certain obligations to forfeit and
surrender such shares to Dynegy as may be determined in the discretion of the
Committee. The Committee may provide that the restrictions on disposition and
the obligations to forfeit the shares will lapse based on (i) the attainment
of one or more performance measures established by the Committee that are
based on (1) the price of a share of Class A common stock, (2) Dynegy's
earnings per share, (3) the return on capital employed by Dynegy, (4) the
return on capital employed by a business unit of Dynegy designated by the
Committee, (5) Dynegy's sales, (6) the sales of a business unit of Dynegy
designated by the Committee, (7) the net income (before or after taxes) of
Dynegy or any business unit of Dynegy designated by the Committee, (8) the
cash flow return on investment of Dynegy or any business unit of Dynegy
designated by the Committee, (9) the earnings before or after interest, taxes,
depreciation, and/or amortization of Dynegy or any business unit of Dynegy
designated by the Committee, (10) the economic value added, (11) the return on
shareholders' equity achieved by Dynegy, or (12) the total shareholders'
return achieved by Dynegy, (ii) the holder's continued employment or continued
service as a consultant or director with Dynegy and its affiliates for a
specified period, (iii) the occurrence of any event or the satisfaction of any
other condition specified by the Committee in its sole discretion or (iv) a
combination of any of these factors. The performance measures may be made
subject to adjustment for specified significant extraordinary items or events,
and may be absolute, relative to one or more
26
other companies, or relative to one or more indices, and may be contingent
upon future performance of Dynegy or any affiliate, division or department
thereof. Upon the issuance of shares of Class A common stock pursuant to a
Restricted Stock award, except for the foregoing restrictions and unless
otherwise provided, the recipient of the award will have all the rights of a
shareholder of Dynegy with respect to such shares, including the right to vote
such shares and to receive all dividends and other distributions paid with
respect to such shares. At the time of such award, the Committee may, in its
sole discretion, prescribe additional terms, conditions, or restrictions
relating to Restricted Stock awards, including but not limited to rules
pertaining to the effect of the termination of employment or service as a
consultant or a director of a recipient of Restricted Stock (by reason of
retirement, disability, death or otherwise) prior to the lapse of any
applicable restrictions.
Accelerated Vesting. The Committee may, in its discretion, fully vest any
outstanding Restricted Stock award as of a date determined by the Committee,
but the Committee may not take any action to vest a Restricted Stock award
that has been granted to a covered employee (within the meaning of Section
162(m) of the Code) if such award has been designed to meet the exception for
performance-based compensation under Section 162(m) of the Code.
Other Terms and Conditions. The Committee may establish other terms and
conditions for the issuance of Restricted Stock under the 2002 Plan.
Performance Awards
Performance Period. The Committee may, in its sole discretion, grant
Performance Awards under the 2002 Plan that may be paid in cash, Class A
common stock, or a combination thereof as determined by the Committee. At the
time of the grant, the Committee will establish the maximum number of shares
of Class A common stock subject to, or the maximum value of, each Performance
Award and the performance period over which the performance applicable to the
award will be measured. A Performance Award will terminate if the recipient's
employment or service as a consultant or director of Dynegy and its affiliates
terminates during the applicable performance period, except as otherwise
determined by the Committee.
Performance Measures. The receipt of cash or Class A common stock pursuant
to a Performance Award will be contingent upon satisfaction by Dynegy, or any
affiliate, division or department thereof, of performance targets established
by the Committee either (i) prior to the beginning of the performance period,
or (ii) within ninety days after the beginning of the performance period if
the outcome of the performance targets is substantially uncertain at the time
the targets are established, but not later than the date that 25% of the
performance period has elapsed. The performance targets may be made subject to
adjustment for specified significant extraordinary items or events and may be
absolute, relative to one or more other companies, or relative to one or more
indices. The performance targets may be based upon (1) the price of a share of
Class A common stock, (2) Dynegy's earnings per share, (3) the return on
capital employed by Dynegy, (4) the return on capital employed by a business
unit of Dynegy designated by the Committee, (5) Dynegy's sales, (6) the sales
of a business unit of Dynegy designated by the Committee, (7) the net income
(before or after taxes) of Dynegy or any business unit of Dynegy designated by
the Committee, (8) the cash flow return on investment of Dynegy or any
business unit of Dynegy designated by the Committee, (9) the earnings before
or after interest, taxes, depreciation, and/or amortization of Dynegy or any
business unit of Dynegy designated by the Committee, (10) the economic value
added, (11) the return on shareholders' equity achieved by Dynegy, (12) the
total shareholders' return achieved by Dynegy, or (13) a combination of any of
the foregoing. The Committee may, in its sole discretion, provide for an
adjustable Performance Award value based upon the level of achievement of
performance measures and/or provide for a reduction in the value of a
Performance Award during the performance period.
Payment. Following the end of the performance period, the Committee will
determine and certify in writing the amount payable to the holder of the
Performance Award, not to exceed the maximum number of shares of Class A
common stock subject to, or the maximum value of, the Performance Award, based
on the achievement of the performance measures for such performance period.
Payment may be made in cash, Class A common
27
stock or a combination thereof, as determined by the Committee. Such payment
may be made in a lump sum or in installments as prescribed by the Committee.
If a Performance Award covering shares of Class A common stock is to be paid
in cash, then such payment will be based on the fair market value of the Class
A common stock on the payment date.
Other Terms and Conditions. The Committee may establish other terms and
conditions for Performance Awards under the 2002 Plan.
Phantom Stock Awards
General. Phantom Stock Awards under the 2002 Plan are awards of Class A
common stock (or the fair market value thereof), or rights to receive amounts
equal to share appreciation over a specific period of time. Such awards vest
over a period of time established by the Committee, without satisfaction of
any performance criteria or objectives. The Committee may, in its discretion,
require payment or other conditions of the recipient of a Phantom Stock Award.
A Phantom Stock Award will terminate if the recipient's employment or service
as a consultant or director of Dynegy and its affiliates terminates during the
applicable vesting period, except as otherwise determined by the Committee.
Payment. Payment of a Phantom Stock Award may be made in cash, Class A
common stock, or a combination thereof. Payment may be made in a lump sum or
in installments as prescribed by the Committee. Any payment to be made in cash
will be based on the fair market value of the Class A common stock on the
payment date.
Other Terms and Conditions. The Committee may establish other terms and
conditions for Phantom Stock Awards under the 2002 Plan.
Corporate Change and Other Adjustments
The 2002 Plan provides that, upon a Corporate Change (as hereinafter
defined), the Committee may accelerate the vesting of options, cancel options
and cause Dynegy to make payments in respect thereof in cash, or adjust the
outstanding options as appropriate to reflect such Corporate Change
(including, without limitation, adjusting an option to provide that the number
and class of shares of stock covered by such option will be adjusted so that
the option will thereafter cover securities of the surviving or acquiring
corporation or other property (including cash) as determined by the
Committee). Upon the occurrence of a Corporate Change, the Committee may
adjust the outstanding Restricted Stock awards as appropriate to reflect such
Corporate Change or fully vest such outstanding Restricted Stock awards and,
upon such vesting, all restrictions applicable to such Restricted Stock will
terminate. Further, upon the occurrence of a Corporate Change, the Committee
may adjust the outstanding Performance Awards or Phantom Stock Awards as
appropriate to reflect such Corporate Change, or cancel any of such
outstanding awards and cause Dynegy to make payments in respect thereof in
cash, which payments shall be prorated in the event that the applicable
performance or vesting period with respect to such awards has not been
completed. The 2002 Plan provides that a Corporate Change occurs (i) if Dynegy
is dissolved and liquidated, (ii) if Dynegy is not the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity), (iii)
if Dynegy sells, leases or exchanges all or substantially all of its assets,
(iv) if any person, entity or group acquires or gains ownership or control of
more than 50% of the outstanding shares of Dynegy's voting stock, or (v) if
after a contested election of directors, the persons who were directors before
such election cease to constitute a majority of the Board of Directors.
The maximum number of shares that may be issued under the 2002 Plan, the
maximum number of shares that may be subject to Restricted Stock awards and
Performance Awards denominated in shares, and the maximum number of shares
that may be issued to any one individual and the other individual award
limitations, as well as the number and price of shares of Class A common stock
or other consideration subject to an award under the 2002 Plan, will be
appropriately adjusted by the Committee in the event of changes in the
outstanding Class A common stock by reason of recapitalizations,
reorganizations, mergers, consolidations, combinations,
28
split-ups, split-offs, spin-offs, exchanges or other relevant changes in
capitalization or distributions to the holders of Class A common stock
occurring after an award is granted.
Amendments
The Board of Directors may from time to time amend the 2002 Plan; however,
any change that would impair the rights of a participant with respect to an
award theretofore granted will require the participant's consent. Further,
without the prior approval of Dynegy's shareholders, the Board of Directors
may not amend the 2002 Plan to change the class of eligible individuals,
increase the number of shares of Class A common stock that may be issued under
the 2002 Plan, or amend or delete the provisions of the 2002 Plan that prevent
the Committee from amending any outstanding option contract to lower the
option price.
United States Federal Income Tax Aspects of the 2002 Plan
Incentive Stock Options. Incentive Stock Options are subject to special
federal income tax treatment. No federal income tax is imposed on the optionee
upon the grant or the exercise of an Incentive Stock Option if the optionee
does not dispose of the shares acquired pursuant to the exercise within the
two-year period beginning on the date the option was granted or within the
one-year period beginning on the date the option was exercised (collectively,
the "holding period"). In such event, Dynegy would not be entitled to any
deduction for federal income tax purposes in connection with the grant or
exercise of the option or the disposition of the shares so acquired. With
respect to an Incentive Stock Option, the difference between the fair market
value of the stock on the date of exercise and the exercise price must
generally be included in the optionee's alternative minimum taxable income for
the year in which such exercise occurs. However, if the optionee exercises an
Incentive Stock Option and disposes of the shares received in the same year
and the amount realized is less than the fair market value of the shares on
the date of exercise, then the amount included in alternative minimum taxable
income will not exceed the amount realized over the adjusted basis of the
shares.
Upon disposition of the shares received upon exercise of an Incentive Stock
Option after the holding period, any appreciation of the shares above the
exercise price should constitute capital gain. If an optionee disposes of
shares acquired pursuant to his or her exercise of an Incentive Stock Option
prior to the end of the holding period, the optionee will be treated as having
received, at the time of disposition, compensation taxable as ordinary income.
In such event, and subject to the application of Section 162(m) of the Code as
discussed below, Dynegy may claim a deduction for compensation paid at the
same time and in the same amount as compensation is treated as received by the
optionee. The amount treated as compensation is the excess of the fair market
value of the shares at the time of exercise (or in the case of a sale in which
a loss would be recognized, the amount realized on the sale if less) over the
exercise price; any amount realized in excess of the fair market value of the
shares at the time of exercise would be treated as short-term or long-term
capital gain, depending on the holding period of the shares.
Non-statutory Stock Options and Stock Appreciation Rights. As a general
rule, no federal income tax is imposed on the optionee upon the grant of a
Non-statutory Stock Option such as those under the 2002 Plan (whether or not
including a stock appreciation right), and Dynegy is not entitled to a tax
deduction by reason of such grant. Generally, upon the exercise of a Non-
statutory Stock Option, the optionee will be treated as receiving compensation
taxable as ordinary income in the year of exercise in an amount equal to the
excess of the fair market value of the shares of stock at the time of exercise
over the option price paid for such shares. In the case of the exercise of a
stock appreciation right, the optionee will be treated as receiving
compensation taxable as ordinary income in the year of exercise in an amount
equal to the cash received plus the fair market value of the shares
distributed to the optionee. Upon the exercise of a Non-statutory Stock Option
or a stock appreciation right, and subject to the application of Section
162(m) of the Code as discussed below, Dynegy may claim a deduction for
compensation paid at the same time and in the same amount as compensation
income is recognized by the optionee assuming any federal income tax reporting
requirements are satisfied.
29
Upon a subsequent disposition of the shares received upon exercise of a
Non-statutory Stock Option or a stock appreciation right, any difference
between the fair market value of the shares at the time of exercise and the
amount realized on the disposition would be treated as capital gain or loss.
If the shares received upon the exercise of an option or a stock appreciation
right are transferred to the optionee subject to certain restrictions, then
the taxable income realized by the optionee, unless the optionee elects
otherwise, and Dynegy's tax deduction (assuming any federal income tax
reporting requirements are satisfied) should be deferred and should be
measured at the fair market value of the shares at the time the restrictions
lapse. The restriction imposed on officers, directors and 10% shareholders by
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is such a restriction during the period prescribed thereby if
other shares have been purchased by such an individual within six months of
the exercise of a Non-statutory Stock Option or stock appreciation right.
Restricted Stock. The recipient of a Restricted Stock award will not
realize taxable income at the time of grant, and Dynegy will not be entitled
to a deduction at that time, assuming that the restrictions constitute a
substantial risk of forfeiture for federal income tax purposes. When the risk
of forfeiture with respect to the stock subject to the award lapses, the
holder will realize ordinary income in an amount equal to the fair market
value of the shares of Class A common stock at such time, and, subject to
Section 162(m) of the Code, Dynegy will be entitled to a corresponding
deduction. All dividends and distributions (or the cash equivalent thereof)
with respect to a Restricted Stock award paid to the holder before the risk of
forfeiture lapses will also be compensation income to the holder when paid
and, subject to Section 162(m) of the Code, deductible as such by Dynegy.
Notwithstanding the foregoing, the holder of a Restricted Stock award may
elect under Section 83(b) of the Code to be taxed at the time of grant of the
Restricted Stock award based on the fair market value of the shares of Class A
common stock on the date of the award, in which case (a) subject to Section
162(m) of the Code, Dynegy will be entitled to a deduction at the same time
and in the same amount, (b) dividends paid to the recipient during the period
the forfeiture restrictions apply will be taxable as dividends and will not be
deductible by Dynegy, and (c) there will be no further federal income tax
consequences when the risk of forfeiture lapses. Such election must be made
not later than 30 days after the grant of the Restricted Stock award and is
irrevocable.
Performance Awards and Phantom Stock Awards. An individual who has been
granted a Performance Award or a Phantom Stock Award generally will not
realize taxable income at the time of grant, and Dynegy will not be entitled
to a deduction at that time. Whether a Performance Award or Phantom Stock
Award is paid in cash or shares of Class A common stock, the individual will
have taxable compensation and, subject to the application of Section 162(m) of
the Code as discussed below, Dynegy will have a corresponding deduction. The
measure of such income and deduction will be the amount of any cash paid and
the fair market value of any shares of Class A common stock either at the time
the Performance Award or the Phantom Stock Award is paid or at the time any
restrictions on the shares (including restrictions under Section 16(b) of the
Exchange Act) subsequently lapse, depending on the nature, if any, of the
restrictions imposed and whether the individual elects to be taxed without
regard to any such restrictions. Any dividend equivalents paid with respect to
a Performance Award or a Phantom Stock Award prior to the actual issuance of
shares under the award will be compensation income to the employee and,
subject to the application of Section 162(m) of the Code as discussed below,
deductible as such by Dynegy.
Section 162(m) of the Code. Section 162(m) of the Code precludes a public
corporation from taking a deduction for annual compensation in excess of $1
million paid to its chief executive officer or any of its four other highest
paid officers. However, compensation that qualifies under Section 162(m) of
the Code as "performance-based" is specifically exempt from the deduction
limit. Based on Section 162(m) of the Code and the regulations issued
thereunder, Dynegy's ability to deduct compensation income generated in
connection with the exercise of stock options granted by the Committee under
the 2002 Plan should not be limited by Section 162(m) of the Code. Further,
Dynegy believes that compensation income generated in connection with
Performance Awards granted by the Committee under the 2002 Plan should not be
limited by Section 162(m) of the Code. The 2002 Plan has been designed to
provide flexibility with respect to whether Restricted Stock awards
30
granted by the Committee will qualify as performance-based compensation under
Section 162(m) of the Code and, therefore, be exempt from the deduction limit.
Assuming no election is made under Section 83(b) of the Code, if the lapse of
the forfeiture restrictions relating to a Restricted Stock award granted by
the Committee is based solely upon the satisfaction of one of the performance
criteria set forth in the 2002 Plan, then Dynegy believes that the
compensation expense deduction relating to such an award should not be limited
by Section 162(m) of the Code if the Restricted Stock becomes vested. However,
compensation expense deductions relating to Restricted Stock awards granted by
the Committee will be subject to the Section 162(m) deduction limitation if
the Restricted Stock becomes vested based upon any other criteria set forth in
such award (such as the occurrence of a change of control or vesting based
upon continued service with Dynegy). Compensation income generated in
connection with Phantom Stock Awards under the 2002 Plan will be subject to
the Section 162(m) deduction limitation.
The 2002 Plan is not qualified under Section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of
certain of the United States federal income tax consequences relating to the
2002 Plan. No consideration has been given to the effects of state, local or
other tax laws on the 2002 Plan or award recipients.
Initial Grants
The awards to be received by participants under the 2002 Plan are not
currently determinable.
Inapplicability of ERISA
Based upon current law and published interpretations, Dynegy does not
believe that the 2002 Plan is subject to any of the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
31
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit and Compliance
Committee, has appointed the firm of PricewaterhouseCoopers LLP as independent
auditors of Dynegy for the fiscal year ending December 31, 2002 and recommends
ratification by the shareholders of such appointment. Such ratification
requires the affirmative vote of a majority of the shares of Class A common
stock and Class B common stock, voting together as a single class, present or
represented by proxy and entitled to vote at the annual meeting. Under
Illinois law, an abstention would have the same legal effect as a vote against
this proposal, but a broker non-vote would not be counted for purposes of
determining shares represented in person or by proxy on the matter. The
persons named in the accompanying proxy card intend to vote for ratification
of such appointment unless instructed otherwise on the proxy card.
Although there is no requirement that Dynegy submit the appointment of
independent auditors to shareholders for ratification or that such auditors be
terminated if such ratification fails, if the appointment is not ratified, the
Board of Directors will consider the appointment of other independent
auditors. The Board of Directors may terminate the appointment of
PricewaterhouseCoopers LLP as Dynegy's independent auditors without the
approval of the shareholders of Dynegy whenever the Board of Directors deems
such termination necessary or appropriate.
Arthur Andersen LLP served as Dynegy's independent auditors for 2001.
Representatives of PricewaterhouseCoopers LLP and Arthur Andersen LLP are
expected to attend the annual meeting and will be available to respond to
appropriate questions. Such representatives also will have the opportunity to
make a statement if desired.
The Board of Directors recommends that shareholders vote "FOR" ratification
of the appointment of PricewaterhouseCoopers LLP as Dynegy's independent
auditors.
INFORMATION REGARDING CHANGE OF INDEPENDENT AUDITORS
The Audit and Compliance Committee annually considers and recommends to the
Board of Directors the selection of Dynegy's independent public accountants.
As recommended by the Audit and Compliance Committee, the Board of Directors
on March 15, 2002 decided to no longer engage Arthur Andersen LLP as Dynegy's
independent public accountants and engaged PricewaterhouseCoopers LLP to serve
as Dynegy's independent public accountants for 2002. The appointment of
PricewaterhouseCoopers LLP is subject to ratification by Dynegy's shareholders
at the annual meeting.
Arthur Andersen's reports on Dynegy's consolidated financial statements for
the past two years did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
During Dynegy's two most recent fiscal years and through March 19, 2002
(the date Dynegy filed a Current Report on Form 8-K disclosing its decision to
no longer engage Arthur Andersen), there were no disagreements with Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to
the subject matter in connection with their report on Dynegy's consolidated
financial statements for such years; there were no reportable events, as
listed in Item 304(a)(1)(v) of Regulation S-K; and Dynegy did not consult
PricewaterhouseCoopers LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on Dynegy's consolidated
financial statements, or any other matters or reportable events listed in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
32
SHAREHOLDER PROPOSALS
Under the rules of the SEC, if a shareholder wants Dynegy to include a
proposal in its proxy statement and form of proxy for presentation at Dynegy's
2003 Annual Meeting of Shareholders, the proposal must be received by Dynegy's
Secretary at the address indicated on the first page of this proxy statement
by December 10, 2002.
Under Dynegy's Bylaws, and as permitted by the rules of the SEC, certain
procedures are provided which a shareholder must follow to nominate persons
for election as directors or to introduce an item of business at an annual
meeting of shareholders. The procedures provide that nominations for director
and/or an item of business to be introduced at an annual meeting of
shareholders must be submitted in writing to Dynegy's Secretary at the address
indicated on the first page of this proxy statement. Dynegy must receive the
notice of your intention to introduce a nomination or proposed item of
business at Dynegy's 2003 Annual Meeting of Shareholders:
. not later than the close of business on February 16, 2003 nor earlier
than the close of business on January 17, 2003, if the 2003 annual
meeting of shareholders is held within 30 days before or 60 days
following the anniversary date (May 17, 2003) of this year's meeting; or
. not earlier than 120 days prior to such annual meeting and not later
than 90 days prior to such annual meeting or the tenth day following
public announcement of the meeting date, if the 2003 annual meeting of
shareholders is not held within 30 days before or 60 days following the
anniversary date (May 17, 2003) of this year's meeting.
Dynegy's annual meeting of shareholders is generally held on the third
Friday of May. Assuming Dynegy's 2003 Annual Meeting of Shareholders is held
on schedule, Dynegy must receive notice of your intention to introduce a
nomination or other item of business at that meeting by the dates specified in
the first bullet point above. Dynegy's Bylaws specify the information that
must be contained in a shareholder's notice for director nominees or an item
of business to be introduced at an annual meeting of shareholders. Please read
Dynegy's Bylaws for additional information regarding shareholder proposals.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the annual meeting. However, if any other matters
properly come before the annual meeting or any adjournment or postponement
thereof, it is intended that the enclosed proxy card will be voted in
accordance with the judgment of the persons named in the proxy card.
By Order of the Board of Directors,
/s/ Keith R. Fullenweider
Keith R. Fullenweider
Senior Vice President, Deputy
General Counsel
and Secretary
April 9, 2002
33
APPENDIX A
DYNEGY INC. 2002 LONG TERM INCENTIVE PLAN
I. PURPOSE
The purpose of the DYNEGY INC. 2002 LONG TERM INCENTIVE PLAN (the "Plan")
is to provide a means through which DYNEGY INC., an Illinois corporation (the
"Company"), and its Affiliates may attract able persons to serve as Directors
or Consultants or to enter the employ of the Company and its Affiliates and to
provide a means whereby those individuals upon whom the responsibilities of
the successful administration and management of the Company and its Affiliates
rest, and whose present and potential contributions to the Company and its
Affiliates are of importance, can acquire and maintain stock ownership,
thereby strengthening their concern for the welfare of the Company and its
Affiliates. A further purpose of the Plan is to provide such individuals with
additional incentive and reward opportunities designed to enhance the
profitable growth of the Company and its Affiliates. Accordingly, the Plan
provides for granting Incentive Stock Options, options that do not constitute
Incentive Stock Options, Restricted Stock Awards, Performance Awards, and
Phantom Stock Awards, or any combination of the foregoing, as is best suited
to the circumstances of the particular employee, Consultant, or Director as
provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Affiliate" means any corporation, partnership, limited liability
company or partnership, association, trust or other organization which,
directly or indirectly, controls, is controlled by, or is under common control
with, the Company.
(b) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Performance Award or Phantom Stock Award.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(e) "Committee" means a committee of the Board that is selected by the
Board as provided in Paragraph IV(a).
(f) "Common Stock" means the Class A common stock, no par value per share,
of the Company, or any security into which such common stock may be changed by
reason of any transaction or event of the type described in Paragraph XI.
(g) "Company" means Dynegy Inc., an Illinois corporation.
(h) "Consultant" means any person who is not an employee or a Director and
who is providing advisory or consulting services to the Company or any
Affiliate.
(i) "Corporate Change" shall have the meaning assigned to such term in
Paragraph XI(c) of the Plan.
(j) "Director" means an individual who is a member of the Board.
(k) An "employee" means any person in an employment relationship with the
Company or any Affiliate.
(l) "Fair Market Value" means, as of any specified date, the closing sales
price of the Common Stock reported on the stock exchange composite tape on
that date (or such other reporting service approved by the
A-1
Committee), or, if no prices are reported on that date, on the last preceding
date on which such prices of the Common Stock are so reported. In the event
Common Stock is not publicly traded at the time a determination of its value
is required to be made hereunder, the determination of its fair market value
shall be made by the Committee in such manner as it deems appropriate.
(m) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(n) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(o) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options
that do not constitute Incentive Stock Options to purchase Common Stock.
(p) "Option Agreement" means a written agreement between the Company and a
Participant with respect to an Option.
(q) "Participant" means an employee, Consultant, or Director who has been
granted an Award.
(r) "Performance Award" means an Award granted under Paragraph IX of the
Plan.
(s) "Performance Award Agreement" means a written agreement between the
Company and a Participant with respect to a Performance Award.
(t) "Phantom Stock Award" means an Award granted under Paragraph X of the
Plan.
(u) "Phantom Stock Award Agreement" means a written agreement between the
Company and a Participant with respect to a Phantom Stock Award.
(v) "Plan" means the Dynegy Inc. 2002 Long Term Incentive Plan, as amended
from time to time.
(w) "Restricted Stock Agreement" means a written agreement between the
Company and a Participant with respect to a Restricted Stock Award.
(x) "Restricted Stock Award" means an Award granted under Paragraph VIII of
the Plan.
(y) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "Stock Appreciation Right" shall have the meaning assigned to such term
in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the Board,
provided the Plan is approved by the stockholders of the Company within 12
months thereafter. Notwithstanding any provision in the Plan, no Option shall
be exercisable and no Performance Award, Phantom Stock Award or Restricted
Stock Award shall vest or become satisfiable prior to such stockholder
approval. No further Awards may be granted under the Plan after 10 years from
the date the Plan is adopted by the Board. The Plan shall remain in effect
until all Options granted under the Plan have been exercised or expired, all
Restricted Stock Awards granted under the Plan have vested or been forfeited,
and all Performance Awards and Phantom Stock Awards have been satisfied or
expired.
A-2
IV. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by a committee
of, and appointed by, the Board that shall be comprised solely of two or more
outside Directors (within the meaning of the term "outside directors" as used
in section 162(m) of the Code and applicable interpretive authority thereunder
and within the meaning of the term "Non-Employee Director" as defined in Rule
16b-3).
(b) Powers. Subject to the express provisions of the Plan, the Committee
shall have authority, in its discretion, to determine which employees,
Consultants or Directors shall receive an Award, the time or times when such
Award shall be made, the type of Award that shall be made, the number of
shares to be subject to each Option or Restricted Stock Award, the number of
shares subject to or the value of each Performance Award, and the value of
each Phantom Stock Award. In making such determinations, the Committee shall
take into account the nature of the services rendered by the respective
employees, Consultants, or Directors, their present and potential contribution
to the Company's success and such other factors as the Committee in its sole
discretion shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
V. SHARES SUBJECT TO THE PLAN; AWARD LIMITS; GRANT OF AWARDS
(a) Shares Subject to the Plan and Award Limits. Subject to adjustment in
the same manner as provided in Paragraph XI with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 10,000,000
shares. Shares shall be deemed to have been issued under the Plan only (i) to
the extent actually issued and delivered pursuant to an Award or (ii) to the
extent an Award denominated in shares of Common Stock is settled in cash. To
the extent that an Award lapses or the rights of its holder terminate, any
shares of Common Stock subject to such Award shall again be available for the
grant of an Award under the Plan. Notwithstanding any provision in the Plan to
the contrary, (1) the maximum number of shares of Common Stock that may be
subject to Restricted Stock Awards and Performance Awards denominated in
shares of Common Stock is 2,500,000 shares of Common Stock (subject to
adjustment in the same manner as provided in Paragraph XI with respect to
shares of Common Stock subject to Options then outstanding), (2) the maximum
number of shares of Common Stock that may be subject to Options, Restricted
Stock Awards and Performance Awards denominated in shares of Common Stock
granted to any one individual during any calendar year may not exceed
1,500,000 shares of Common Stock (subject to adjustment in the same manner as
provided in Paragraph XI with respect to shares of Common Stock subject to
Options then outstanding), and (3) the maximum amount of compensation that may
be paid under all Performance Awards denominated in cash (including the Fair
Market Value of any shares of Common Stock paid in satisfaction of such
Performance Awards) granted to any one individual during any calendar year may
not exceed $5,000,000, and any payment due with respect to a Performance Award
shall be paid no later than 10 years after the date of grant of such
Performance Award. The limitations set forth in clauses (2) and (3) of the
preceding sentence shall be applied in a manner that will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code, including, without limitation,
counting against such maximum number of shares, to the extent required under
section 162(m) of the Code and applicable interpretive authority thereunder,
any shares subject to Options that are canceled or repriced.
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(b) Grant of Awards. The Committee may from time to time grant Awards to
one or more employees, Consultants, or Directors determined by it to be
eligible for participation in the Plan in accordance with the terms of the
Plan.
(c) Stock Offered. Subject to the limitations set forth in Paragraph V(a),
the stock to be offered pursuant to the grant of an Award may be authorized
but unissued Common Stock or Common Stock previously issued and outstanding
and reacquired by the Company. Any of such shares which remain unissued and
which are not subject to outstanding Awards at the termination of the Plan
shall cease to be subject to the Plan but, until termination of the Plan, the
Company shall at all times make available a sufficient number of shares to
meet the requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not
an Incentive Stock Option, a Restricted Stock Award, a Performance Award, a
Phantom Stock Award, or any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant, but in no event shall an Option be exercisable
after the expiration of 10 years from the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. An Incentive Stock
Option may be granted only to an individual who is employed by the Company or
any parent or subsidiary corporation (as defined in section 424 of the Code)
at the time the Option is granted. To the extent that the aggregate Fair
Market Value (determined at the time the respective Incentive Stock Option is
granted) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by an individual during any calendar year under
all incentive stock option plans of the Company and its parent and subsidiary
corporations exceeds $100,000, such Incentive Stock Options shall be treated
as Options which do not constitute Incentive Stock Options. The Committee
shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Participant's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Participant of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent
or subsidiary corporation, within the meaning of section 422(b)(6) of the
Code, unless (i) at the time such Option is granted the option price is at
least 110% of the Fair Market Value of the Common Stock subject to the Option
and (ii) such Option by its terms is not exercisable after the expiration of
five years from the date of grant. An Incentive Stock Option shall not be
transferable otherwise than by will or the laws of descent and distribution,
and shall be exercisable during the Participant's lifetime only by such
Participant or the Participant's guardian or legal representative.
(d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of (i) employment, (ii) the consulting or advisory
relationship, or (iii) membership on the Board, as applicable, on the
exercisability of the Option. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a
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number of shares of Common Stock (plus cash if necessary) having a Fair Market
Value equal to such option price. Moreover, an Option Agreement may provide
for a "cashless exercise" of the Option by establishing procedures
satisfactory to the Committee with respect thereto. Further, an Option
Agreement may provide for the surrender of the right to purchase shares under
the Option in return for a payment in cash or shares of Common Stock or a
combination of cash and shares of Common Stock equal in value to the excess of
the Fair Market Value of the shares with respect to which the right to
purchase is surrendered over the option price therefor ("Stock Appreciation
Rights"), on such terms and conditions as the Committee in its sole discretion
may prescribe. In the case of any such Stock Appreciation Right that is
granted in connection with an Incentive Stock Option, such right shall be
exercisable only when the Fair Market Value of the Common Stock exceeds the
price specified therefor in the Option or the portion thereof to be
surrendered. The terms and conditions of the respective Option Agreements need
not be identical. Subject to the consent of the Participant, the Committee
may, in its sole discretion, amend an outstanding Option Agreement from time
to time in any manner that is not inconsistent with the provisions of the Plan
(including, without limitation, an amendment that accelerates the time at
which the Option, or a portion thereof, may be exercisable).
(e) Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Paragraph XI, such
purchase price shall not be less than the Fair Market Value of a share of
Common Stock on the date such Option is granted. The Option or portion thereof
may be exercised by delivery of an irrevocable notice of exercise to the
Company, as specified by the Committee. The purchase price of the Option or
portion thereof shall be paid in full in the manner prescribed by the
Committee. Separate stock certificates shall be issued by the Company for
those shares acquired pursuant to the exercise of an Incentive Stock Option
and for those shares acquired pursuant to the exercise of any Option that does
not constitute an Incentive Stock Option.
(f) Restrictions on Repricing of Options. Except as provided in Paragraph
XI, the Committee may not, without approval of the stockholders of the
Company, amend any outstanding Option Agreement to lower the option price.
(g) Stockholder Rights and Privileges. The Participant shall be entitled to
all the privileges and rights of a stockholder only with respect to such
shares of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Participant's name.
(h) Options and Rights in Substitution for Options Granted by Other
Employers. Options and Stock Appreciation Rights may be granted under the Plan
from time to time in substitution for options held by individuals providing
services to corporations or other entities who become employees, Consultants,
or Directors as a result of a merger or consolidation or other business
transaction with the Company or any Affiliate.
VIII. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Participant and an obligation of the
Participant to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of one or more performance measures established by the Committee
that are based on (1) the price of a share of Common Stock, (2) the Company's
earnings per share, (3) the return on capital employed by the Company, (4) the
return on capital employed by a business unit of the Company designated by the
Committee, (5) the Company's sales, (6) the sales of a business unit of the
Company designated by the Committee, (7) the net income (before or after
taxes) of the Company or any business unit of the Company designated by the
Committee, (8) the cash flow return on investment of the Company or any
business unit of the Company designated by the Committee, (9) the earnings
before or after interest, taxes, depreciation, and/or amortization of the
Company or any business unit of the Company designated by the Committee, (10)
the economic value added,
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(11) the return on stockholders' equity achieved by the Company, or (12) the
total stockholders' return achieved by the Company, (ii) the Participant's
continued employment with the Company or continued service as a Consultant or
Director for a specified period of time, (iii) the occurrence of any event or
the satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. The performance
measures described in clause (i) of the preceding sentence may be subject to
adjustment for specified significant extraordinary items or events, and may be
absolute, relative to one or more other companies, or relative to one or more
indexes, and may be contingent upon future performance of the Company or any
Affiliate, division, or department thereof. Each Restricted Stock Award may
have different Forfeiture Restrictions, in the discretion of the Committee.
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Participant. Unless provided otherwise in a Restricted
Stock Agreement, the Participant shall have the right to receive dividends
with respect to Common Stock subject to a Restricted Stock Award, to vote
Common Stock subject thereto and to enjoy all other stockholder rights, except
that (i) the Participant shall not be entitled to delivery of the stock
certificate until the Forfeiture Restrictions have expired, (ii) the Company
shall retain custody of the stock until the Forfeiture Restrictions have
expired, (iii) the Participant may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture
Restrictions have expired, and (iv) a breach of the terms and conditions
established by the Committee pursuant to the Restricted Stock Agreement shall
cause a forfeiture of the Restricted Stock Award. At the time of such Award,
the Committee may, in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Restricted Stock Awards, including, but
not limited to, rules pertaining to the termination of employment or service
as a Consultant or Director (by retirement, disability, death or otherwise) of
a Participant prior to expiration of the Forfeitures Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a
Restricted Stock Agreement made in conjunction with the Award.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Common Stock received pursuant to a Restricted
Stock Award, provided that in the absence of such a determination, a
Participant shall not be required to make any payment for Common Stock
received pursuant to a Restricted Stock Award, except to the extent otherwise
required by law.
(d) Committee's Discretion to Accelerate Vesting of Restricted Stock
Awards. The Committee may, in its discretion and as of a date determined by
the Committee, fully vest any or all Common Stock awarded to a Participant
pursuant to a Restricted Stock Award and, upon such vesting, all restrictions
applicable to such Restricted Stock Award shall terminate as of such date. Any
action by the Committee pursuant to this Subparagraph may vary among
individual Participants and may vary among the Restricted Stock Awards held by
any individual Participant. Notwithstanding the preceding provisions of this
Subparagraph, the Committee may not take any action described in this
Subparagraph with respect to a Restricted Stock Award that has been granted to
a "covered employee" (within the meaning of Treasury Regulation section 1.162-
27(c)(2)) if such Award has been designed to meet the exception for
performance-based compensation under section 162(m) of the Code.
(e) Restricted Stock Agreements. At the time any Award is made under this
Paragraph VIII, the Company and the Participant shall enter into a Restricted
Stock Agreement setting forth each of the matters contemplated hereby and such
other matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be
identical. Subject to the consent of the Participant and the restriction set
forth in the last sentence of Subparagraph (d) above, the Committee may, in
its sole discretion, amend an outstanding Restricted Stock Agreement from time
to time in any manner that is not inconsistent with the provisions of the
Plan.
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IX. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, the number of shares of Common Stock
subject to, or the maximum value of, the Performance Award and the performance
period over which the performance applicable to the Performance Award shall be
measured.
(b) Performance Measures. A Performance Award shall be awarded to a
Participant contingent upon future performance of the Company or any
Affiliate, division, or department thereof during the performance period. The
Committee shall establish the performance measures applicable to such
performance either (i) prior to the beginning of the performance period or
(ii) within 90 days after the beginning of the performance period if the
outcome of the performance targets is substantially uncertain at the time such
targets are established, but not later than the date that 25% of the
performance period has elapsed; provided such measures may be made subject to
adjustment for specified significant extraordinary items or events. The
performance measures may be absolute, relative to one or more other companies,
or relative to one or more indexes. The performance measures established by
the Committee may be based upon (1) the price of a share of Common Stock, (2)
the Company's earnings per share, (3) the return on capital employed by the
Company, (4) the return on capital employed by a business unit of the Company
designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9)
the earnings before or after interest, taxes, depreciation, and/or
amortization of the Company or any business unit of the Company designated by
the Committee, (10) the economic value added, (11) the return on stockholders'
equity achieved by the Company, (12) the total stockholders' return achieved
by the Company, or (13) a combination of any of the foregoing. The Committee,
in its sole discretion, may provide for an adjustable Performance Award value
based upon the level of achievement of performance measures.
(c) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Participant's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate. The Committee, in its sole discretion, may provide for a
reduction in the value of a Participant's Performance Award during the
performance period.
(d) Payment. Following the end of the performance period, the holder of a
Performance Award shall be entitled to receive payment of an amount not
exceeding the number of shares of Common Stock subject to, or the maximum
value of, the Performance Award, based on the achievement of the performance
measures for such performance period, as determined and certified in writing
by the Committee. Payment of a Performance Award may be made in cash, Common
Stock, or a combination thereof, as determined by the Committee. Payment shall
be made in a lump sum or in installments as prescribed by the Committee. If a
Performance Award covering shares of Common Stock is to be paid in cash, such
payment shall be based on the Fair Market Value of the Common Stock on the
payment date.
(e) Termination of Award. A Performance Award shall terminate if the
Participant does not remain continuously in the employ of the Company and its
Affiliates or does not continue to perform services as a Consultant or a
Director for the Company and its Affiliates at all times during the applicable
performance period, except as may be determined by the Committee.
(f) Performance Award Agreements. At the time any Award is made under this
Paragraph IX, the Company and the Participant shall enter into a Performance
Award Agreement setting forth each of the matters contemplated hereby, and
such additional matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Performance Award Agreements need not
be identical.
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X. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares
of Common Stock (or the Fair Market Value thereof), or rights to receive an
amount equal to any appreciation or increase in the Fair Market Value of
Common Stock over a specified period of time, which vest over a period of time
as established by the Committee, without satisfaction of any performance
criteria or objectives. The Committee may, in its discretion, require payment
or other conditions of the Participant respecting any Phantom Stock Award.
(b) Award Period. The Committee shall establish, with respect to and at the
time of each Phantom Stock Award, a period over which the Award shall vest
with respect to the Participant.
(c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account a Participant's responsibility level,
performance, potential, other Awards, and such other considerations as it
deems appropriate.
(d) Payment. Following the end of the vesting period for a Phantom Stock
Award (or at such other time as the applicable Phantom Stock Award Agreement
may provide), the holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Common Stock, or a combination thereof as
determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. Any payment to be made in cash
shall be based on the Fair Market Value of the Common Stock on the payment
date. Cash dividend equivalents may be paid during or after the vesting period
with respect to a Phantom Stock Award, as determined by the Committee.
(e) Termination of Award. A Phantom Stock Award shall terminate if the
Participant does not remain continuously in the employ of the Company and its
Affiliates or does not continue to perform services as a Consultant or a
Director for the Company and its Affiliates at all times during the applicable
vesting period, except as may be otherwise determined by the Committee.
(f) Phantom Stock Award Agreements. At the time any Award is made under
this Paragraph X, the Company and the Participant shall enter into a Phantom
Stock Award Agreement setting forth each of the matters contemplated hereby,
and such additional matters as the Committee may determine to be appropriate.
The terms and provisions of the respective Phantom Stock Award Agreements need
not be identical.
XI. RECAPITALIZATION OR REORGANIZATION
(a) No Effect on Right or Power. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board
or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
Affiliate's capital structure or its business, any merger or consolidation of
the Company or any Affiliate, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or
liquidation of the Company or any Affiliate or any sale, lease, exchange or
other disposition of all or any part of its assets or business or any other
corporate act or proceeding.
(b) Subdivision or Consolidation of Shares; Stock Dividends. The shares
with respect to which Awards may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an
Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Common Stock or the payment of a stock dividend on
Common Stock without receipt of consideration by the Company, the number of
shares of Common Stock with respect to which such Award may thereafter be
exercised or satisfied, as applicable (i) in the event of an increase in the
number of outstanding shares shall be proportionately increased, and the
purchase price per share shall be proportionately reduced, and (ii) in the
event of a reduction in the number of outstanding shares shall be
proportionately reduced, and the purchase price per share shall be
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proportionately increased. Any fractional share resulting from such adjustment
shall be rounded down to the next whole share.
(c) Recapitalizations and Corporate Changes. If the Company recapitalizes,
reclassifies its capital stock, or otherwise changes its capital structure (a
"recapitalization"), the number and class of shares of Common Stock covered by
an Award theretofore granted shall be adjusted so that such Award shall
thereafter cover the number and class of shares of stock and securities to
which the Participant would have been entitled pursuant to the terms of the
recapitalization if, immediately prior to the recapitalization, the
Participant had been the holder of record of the number of shares of Common
Stock then covered by such Award. If (i) the Company shall not be the
surviving entity in any merger or consolidation (or survives only as a
subsidiary of an entity), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to
any other person or entity, (iii) the Company is to be dissolved and
liquidated, (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of Directors,
the persons who were Directors of the Company before such election shall cease
to constitute a majority of the Board (each such event is referred to herein
as a "Corporate Change"), no later than (x) 10 days after the approval by the
stockholders of the Company of such merger, consolidation, reorganization,
sale, lease or exchange of assets or dissolution or such election of Directors
or (y) 30 days after a Corporate Change of the type described in clause (iv),
the Committee, acting in its sole discretion without the consent or approval
of any Participant, shall effect one or more of the following alternatives,
which alternatives may vary among individual Participants and which may vary
among Options held by any individual Participant: (1) accelerate the time at
which Options then outstanding may be exercised so that such Options may be
exercised in full for a limited period of time on or before a specified date
(before or after such Corporate Change) fixed by the Committee, after which
specified date all unexercised Options and all rights of Participants
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Participants of some or all of the outstanding Options held by
such Participants (irrespective of whether such Options are then exercisable
under the provisions of the Plan) as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee shall
thereupon cancel such Options and the Company shall pay (or cause to be paid)
to each Participant an amount of cash per share equal to the excess, if any,
of the amount calculated in Subparagraph (d) below (the "Change of Control
Value") of the shares subject to such Option over the exercise price(s) under
such Options for such shares, or (3) make such adjustments to Options then
outstanding as the Committee deems appropriate to reflect such Corporate
Change (provided, however, that the Committee may determine in its sole
discretion that no adjustment is necessary to Options then outstanding),
including, without limitation, adjusting an Option to provide that the number
and class of shares of Common Stock covered by such Option shall be adjusted
so that such Option shall thereafter cover securities of the surviving or
acquiring corporation or other property (including, without limitation, cash)
as determined by the Committee in its sole discretion.
(d) Change of Control Value. For the purposes of clause (2) in Subparagraph
(c) above, the "Change of Control Value" shall equal the amount determined in
clause (i), (ii) or (iii), whichever is applicable, as follows: (i) the per
share price offered to stockholders of the Company in any such merger,
consolidation, sale of assets or dissolution transaction, (ii) the price per
share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate
Change occurs other than pursuant to a tender or exchange offer, the fair
market value per share of the shares into which such Options being surrendered
are exercisable, as determined by the Committee as of the date determined by
the Committee to be the date of cancellation and surrender of such Options. In
the event that the consideration offered to stockholders of the Company in any
transaction described in this Subparagraph (d) or Subparagraph (c) above
consists of anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the consideration offered which is other
than cash.
(e) Other Changes in the Common Stock. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
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exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph XI, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, or
upon the occurrence of any other event described in this Paragraph XI, the
aggregate number of shares available under the Plan, the maximum number of
shares that may be subject to Restricted Stock Awards and Performance Awards
denominated in shares, and the maximum number of shares that may be subject to
Awards granted to any one individual may be appropriately adjusted to the
extent, if any, determined by the Committee, whose determination shall be
conclusive. Notwithstanding the foregoing, except as otherwise provided by the
Committee, upon the occurrence of a Corporate Change, the Committee, acting in
its sole discretion without the consent or approval of any Participant, may
require the mandatory surrender to the Company by selected Participants of
some or all of the outstanding Performance Awards and Phantom Stock Awards as
of a date, before or after such Corporate Change, specified by the Committee,
in which event the Committee shall thereupon cancel such Performance Awards
and Phantom Stock Awards and the Company shall pay (or cause to be paid) to
each Participant an amount of cash equal to the maximum value of such
Performance Award or Phantom Stock Award which, in the event the applicable
performance or vesting period set forth in such Performance Award or Phantom
Stock Award has not been completed, shall be multiplied by a fraction, the
numerator of which is the number of days during the period beginning on the
first day of the applicable performance or vesting period and ending on the
date of the surrender, and the denominator of which is the aggregate number of
days in the applicable performance or vesting period.
(f) Stockholder Action. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(g) No Adjustments unless Otherwise Provided. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any
class or securities convertible into shares of stock of any class, for cash,
property, labor or services, upon direct sale, upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, and in any case
whether or not for fair value, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of shares of Common Stock
subject to Awards theretofore granted or the purchase price per share, if
applicable.
XII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares of Common Stock for which Awards have not theretofore been
granted. The Board shall have the right to alter or amend the Plan or any part
thereof from time to time; provided that no change in the Plan may be made
that would impair the rights of a Participant with respect to an Award
theretofore granted without the consent of the Participant, and provided,
further, that the Board may not, without approval of the stockholders of the
Company, (a) amend the Plan to increase the maximum aggregate number of shares
that may be issued under the Plan or change the class of individuals eligible
to receive Awards under the Plan, or (b) amend or delete Paragraph VII(f).
XIII. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan nor any action
of the Board or of the Committee shall be deemed to give any individual any
right to be granted an Option, a right to a Restricted Stock Award, a right to
a Performance Award or a right to a Phantom Stock Award, or any other rights
hereunder except as may be evidenced by an Award agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the performance of its
obligations under any Award.
A-10
(b) No Employment/Membership Rights Conferred. Nothing contained in the
Plan shall (i) confer upon any employee or Consultant any right with respect
to continuation of employment or of a consulting or advisory relationship with
the Company or any Affiliate or (ii) interfere in any way with the right of
the Company or any Affiliate to terminate his or her employment or consulting
or advisory relationship at any time. Nothing contained in the Plan shall
confer upon any Director any right with respect to continuation of membership
on the Board.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any Common Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933, as amended, and such other state and federal laws, rules and
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for
the issuance and sale of such shares. No fractional shares of Common Stock
shall be delivered, nor shall any cash in lieu of fractional shares be paid.
The Company shall have the right to deduct in connection with all Awards any
taxes required by law to be withheld and to require any payments required to
enable it to satisfy its withholding obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any Affiliate from taking any action
which is deemed by the Company or such Affiliate to be appropriate or in its
best interest, whether or not such action would have an adverse effect on the
Plan or any Award made under the Plan. No Participant, beneficiary or other
person shall have any claim against the Company or any Affiliate as a result
of any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii)
with the consent of the Committee.
(f) Governing Law. The Plan shall be governed by, and construed in
accordance with, the laws of the State of Texas, without regard to conflicts
of laws principles thereof.
A-11
DIRECTIONS TO THE ANNUAL MEETING OF SHAREHOLDERS
FROM INTERCONTINENTAL AIRPORT AREA
Dynegy Inc.
71st Floor
The Wells Fargo Bank Building
1000 Louisiana
Houston, Texas 77002
(713) 507-6400
. Take I-45 North approximately 12 miles to downtown.
. Exit McKinney Street, Exit 47C.
. Continue on McKinney Street for approximately 0.4 miles and turn left on
Travis Street.
. Enter the McKinney Garage, 930 Main Street (ph. 713-571-6300), on the
right just past the corner of McKinney Street and Travis Street.
. The Wells Fargo Bank Building is located two blocks north of the
McKinney Garage at the corner of McKinney Street and Louisiana Street.
PROXY - CLASS A COMMON STOCK
DYNEGY INC.
1000 LOUISIANA, SUITE 5800, HOUSTON, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DYNEGY INC.
The undersigned hereby appoints C.L. Watson, Kenneth E. Randolph and Robert D.
Doty, Jr., and each of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to represent and to vote, as
designated on the reverse side, all the shares of Class A common stock of Dynegy
Inc. held of record by the undersigned on March 26, 2002 at the Annual Meeting
of Shareholders to be held at Dynegy's Headquarters, The Wells Fargo Bank
Building, 1000 Louisiana, 71st Floor, Houston, TX 77002 at 10:00 A.M., local
time, on Friday, May 17, 2002, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3 AND, WITH RESPECT TO PROPOSAL 1, THE INDIVIDUALS
NAMED ABOVE ARE AUTHORIZED TO CUMULATE VOTES IN THEIR DISCRETION. THE
INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO VOTE IN THEIR DISCRETION ON ANY OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
(CONTINUED ON REVERSE SIDE)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3. Please mark [X]
your votes as
indicated in
this example
1. Election of Directors
Insert your vote for nominees named below in the designated space provided. Directors may be elected by cumulative voting. If you
choose cumulative voting for directors you MAY NOT use Internet or telephone voting, instead you MUST vote by returning this proxy
card in the envelope provided. You may vote the number of shares owned or controlled by you multiplied by eleven. This number of
votes may be cast for any one nominee or may be distributed between nominees as you wish. Shareholders may withhold authority to
vote for any nominee by entering zero in the space following the nominee's name.
Nominees - Class A common stock Votes FOR all nominees WITHHOLD
1. C.L. Watson ____________________ listed to the left, cumulative AUTHORITY
2. Stephen W. Bergstrom ____________________ votes to be divided equally for all eleven nominees
3. Charles E. Bayless ____________________ between the nominees [ ]
4. Michael D. Capellas ____________________ [ ]
5. Daniel L. Dienstbier ____________________
6. Patricia M. Eckert ____________________
7. Jerry L. Johnson ____________________
8. H. John Riley, Jr. ____________________
9. Sheli Z. Rosenberg ____________________
10. Joe J. Stewart ____________________
11. J. Otis Winters ____________________
Note: The total number of votes you cast in the election of the directors should not exceed the number of shares shown above times
eleven.
2. Proposal to approve Dynegy Inc. FOR AGAINST ABSTAIN
2002 Long Term Incentive Plan. [ ] [ ] [ ]
3. Proposal to ratify the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as independent
auditors for Dynegy for the fiscal
year ending December 31, 2002.
4. In their discretion, the proxies are authorized to vote upon such other business as may properly
come before the meeting or any adjournment thereof.
Yes
I PLAN TO ATTEND THE MEETING [ ]
IN THE FUTURE, WOULD YOU CONSENT TO ACCESSING YOUR ANNUAL REPORT AND Yes
PROXY STATEMENT ELECTRONICALLY VIA THE INTERNET? [ ]
SIGNATURE______________________________ SIGNATURE_______________________________ DATE_______________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
------------------------------------------------------------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4PM EASTERN TIME ON MAY 16, 2002.
YOUR INTERNET OR TELEPHONE VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU MARKED,
SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
HTTP://WWW.EPROXY.COM/DYN 1-800-435-6710
Use the Internet to vote your proxy. Use any touch-tone telephone to Mark, sign and date
Have your proxy card in hand when you vote your proxy. Have your your proxy card
access the web site. You will be OR proxy card in hand when you call. OR and
prompted to enter your control number, You will be prompted to enter return it in
located in the box below, to create your control number, located in the enclosed postage-paid
and submit an electronic ballot. the box below, and then follow envelope.
the directions given.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE, YOU DO
NOT NEED TO MAIL BACK YOUR PROXY CARD.
If you choose cumulative voting for directors you MAY NOT use Internet or telephone voting, instead you MUST vote by returning this
proxy card in the envelope provided.
PROXY - CLASS B COMMON STOCK
DYNEGY INC.
1000 LOUISIANA, SUITE 5800, HOUSTON, TX 77002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DYNEGY INC.
The undersigned hereby appoints C.L. Watson, Kenneth E. Randolph and Robert D.
Doty, Jr., and each of them, as proxies, each with the power to appoint his
substitute and hereby authorizes each of them to represent and vote, as
designated on the reverse side, all the shares of Class B Common Stock of Dynegy
Inc. held of record by the undersigned on March 26, 2002 at the Annual Meeting
of Shareholders to be held at Dynegy's Headquarters, The Wells Fargo Bank
Building, 1000 Louisiana, 71st Floor, Houston, TX 77002 at 10:00 A.M., local
time, on Friday, May 17, 2002, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDESIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 AND 3. THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO
VOTE IN THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING.
(CONTINUED ON REVERSE SIDE)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3. Please mark [X]
your votes as
indicated in
this example
1. Election of Directors
WITHHOLD Nominees - Class B Common Stock
AUTHORITY (Instructions: To withhold authority for any individual
FOR all nominees for all nominees nominee, strike a line through the nominee's name below)
listed to the right. listed to the right 1. Darald W. Callahan
[ ] [ ] 2. Glenn F. Tilton
3. John S. Watson
2. Proposal to approve Dynegy Inc. FOR AGAINST ABSTAIN
2002 Long Term Incentive Plan. [ ] [ ] [ ]
3. Proposal to ratify the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as independent
auditors for Dynegy for the fiscal
year ending December 31, 2002.
4. In their discretion, the proxies are authorized to vote upon such other business as may properly
come before the meeting or any adjournment thereof.
Yes
I PLAN TO ATTEND THE MEETING [ ]
SIGNATURE_____________________________________________ SIGNATURE________________________________________ DATE______________________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.