EXHIBIT 99.1
DYNEGY INC. and ss. IN THE DISTRICT COURT OF
DYNEGY HOLDINGS INC. ss.
ss.
ss.
VS. ss. HARRIS COUNTY, T E X A S
ss.
ss.
CGNN HOLDING COMPANY, INC. and ss.
MCTJ HOLDING CO. LLC ss. 129th JUDICIAL DISTRICT
PLAINTIFFS' ORIGINAL PETITION
Plaintiffs Dynegy Inc. and Dynegy Holdings Inc. (collectively,
"Dynegy") file this their original petition and complain of defendants CGNN
Holding Company, Inc. and MCTJ Holding Co. LLC as follows:
I.
INTRODUCTION
In this suit, Dynegy seeks specific performance of an option
agreement it obtained from the defendants as part of a merger transaction
between Dynegy and defendants' ultimate parent corporation, Enron Corp. On
November 9, 2001, at about the same time that the merger agreement was executed,
Dynegy invested $1.5 billion in a pipeline company, Northern Natural Gas
Company. The cash was intended to help provide Enron with sufficient liquidity
to sustain it through the closing of the merger.
In exchange for the cash infusion, Dynegy received preferred stock
in Northern Natural and the right to take ownership and control of the pipeline
upon written notice by Dynegy of termination of the merger agreement. In fact,
the deal was carefully structured to give Dynegy the right to automatic
possession, even if CGNN Holding disputed Dynegy's reasons for terminating the
merger agreement. In short, the parties expressly agreed that Dynegy, not CGNN
Holding, would possess Northern Natural while any disputes were resolved.
In order to accomplish that purpose, two new subsidiaries were
created: Defendant MCTJ Holding became the indirect owner of the common stock of
Northern Natural, and Defendant CGNN Holding, in turn, held the membership
interests in MCTJ Holding. All parties agreed and provided that CGNN Holding,
MCTJ Holding, and Northern Natural could never be placed into bankruptcy without
Dynegy's consent. CGNN Holding further agreed that Dynegy could, at its option,
purchase all the outstanding membership interests in MCTJ Holding, thereby
acquiring ownership and control of Northern Natural. The option agreement
unambiguously provides that Dynegy's right to exercise its option may be
triggered by Dynegy's merely GIVING NOTICE that the merger agreement is
terminated.
On November 28, 2001, Dynegy provided written notification that it
was terminating the merger agreement pursuant to section 9.4(a). Upon that
notice, Dynegy's right to exercise its option was triggered. Dynegy immediately
notified CGNN Holding that it was exercising its option to acquire MCTJ Holding,
as the parties had agreed. Despite the unambiguous requirements of the option
agreement, CGNN Holding refuses to comply with its obligations. With Dynegy's
$1.5 billion cash infusion apparently long gone, Enron (but not defendants) now
has filed for bankruptcy. Dynegy asks this Court for declaratory and injunctive
relief to compel CGNN Holding's performance under the option agreement to
protect Dynegy's investment in Northern Natural from disappearing as well.
Dynegy also seeks consequential damages for CGNN Holding's refusal to comply.
II.
DISCOVERY LEVEL
1. Discovery for this case should be conducted under Level 3. Dynegy
requests that the Court issue a discovery control plan granting expedited
discovery and an expedited trial setting.
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III.
PARTIES
2. Dynegy Inc. is an Illinois corporation with its principal office
in Houston, Harris County, Texas.
3. Dynegy Holdings Inc. is a Delaware corporation with its principal
office in Houston, Harris County, Texas.
4. CGNN Holding Company, Inc. is a Delaware corporation with its
principal office in Houston, Harris County, Texas. CGNN Holding owns 100% of the
membership interest in MCTJ Holding Co. LLC. Because CGNN Holding Company, Inc.,
has not appointed a registered agent in Texas, it can be served by serving its
registered agent, National Registered Agents, Inc., through the Texas Secretary
of State.
5. MCTJ Holding Co. LLC is a Delaware limited liability company with
its principal office in Houston, Harris County, Texas. MCTJ Holding owns 100% of
the common stock of NNGC Holding Company, Inc., which owns 100% of the common
stock of Northern Natural Gas Company. Because MCTJ Holding Co. LLC has not
appointed a registered agent in Texas, it can be served by serving its
registered agent, National Registered Agents, Inc., through the Texas Secretary
of State.
IV.
JURISDICTION AND VENUE
6. This Court has jurisdiction over this lawsuit because it is a
civil suit for monetary relief within the jurisdictional limits of the Court and
because plaintiffs seek injunctive relief.
7. Venue is proper in Harris County both because all or a
substantial part of the events or omissions giving rise to the claims occurred
in Harris County and because the defendants' principal office is in Harris
County. Venue is also proper in Harris County because the defendants are
domiciled in Harris County.
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V.
BACKGROUND FACTS
8. In late October 2001, Dynegy and Enron began exploring a possible
merger. But even as the terms were being negotiated, it became apparent that
Enron needed additional capital to finance its operations until the merger could
be accomplished.
9. Dynegy agreed to provide an immediate cash infusion of $1.5
billion as part of the larger merger transaction. As an inducement to Dynegy to
make the $1.5 billion cash investment, Dynegy was given an ownership interest in
Northern Natural, and the option to acquire complete ownership and control.
Under the terms of the agreement, Dynegy would pay $1.5 billion cash for 100% of
the preferred stock of Northern Natural. At the same time, Northern Natural's
common stock would be transferred to a subsidiary created expressly for that
purpose. MCTJ Holding became the indirect owner of the common stock of Northern
Natural. In turn, the membership interests in MCTJ Holding were held in CGNN
Holding. The transaction was structured so that CGNN Holding, MCTJ Holding, and
Northern Natural could never be placed in bankruptcy without Dynegy's consent.
Dynegy then paid CGNN Holding an additional $1 million for an option to acquire
100% of MCTJ Holding. This arrangement afforded CGNN Holding not only immediate
use of Dynegy's $1.5 billion, but allowed it to receive the revenue generated by
Northern Natural while the merger agreement was being implemented.
10. To protect its investment, Dynegy insisted that, upon notice of
Dynegy's termination of the merger agreement, Dynegy could take prompt ownership
and control of MCTJ Holding, and thereby Northern Natural.
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11. On November 9, 2001, Dynegy and Enron entered into an Agreement
and Plan of Merger ("Merger Agreement"). Under section 9.4(a) of the Merger
Agreement, Dynegy had the right to terminate if Enron breached its
representations, warranties, or agreements or if a representation or warranty
became untrue.
12. Also on November 9, 2001, Dynegy, Dynegy Holdings Inc., CGNN
Holding, and MCTJ Holding entered into an Option Agreement. (The Option
Agreement is attached as Exhibit A.) Under the agreement, Dynegy paid $1 million
to CGNN Holding for the option to acquire all the outstanding membership
interests in MCTJ Holding after the occurrence of an Exercise Event. (Ex. A,
Option Agr't,ss.2.1.) An Exercise Event is defined as follows:
2.5.1 The Option may be exercised at any time after:
2.5.1.1 the Merger Agreement has been terminated pursuant to
Section 9.2(b);
2.5.1.2 the Merger Agreement has been terminated pursuant to
Section 9.2(c);
2.5.1.3 the Merger Agreement has been terminated pursuant to
Section 9.2(d);
2.5.1.4 Dynegy NOTIFIES Enron that it is terminating the Merger
Agreement pursuant to Section 9.4(a) of the Merger
Agreement (such notice constituting a representation by
Dynegy to Enron that Dynegy is validly entitled to
terminate the Merger Agreement under such Section
9.4(a)).
(Ex. A, Option Agr'tss.2.5.1 (emphasis added.)
13. By the plain terms of the Option Agreement, the Exercise Event
defined in section 2.5.1.4 occurs when Dynegy merely delivers notice pursuant to
section 9.4(a) of the Merger Agreement. The parties well understood that by
tying the Exercise Event to "notice" of termination in this provision, rather
than to actual termination, Dynegy would have the right to take ownership and
control of the pipeline EVEN IF CGNN HOLDING DISPUTED DYNEGY'S RIGHT TO
TERMINATE THE MERGER AGREEMENT. Indeed, where the parties intended for Dynegy's
right to exercise its option to be conditioned upon an actual and effective
termination, rather than upon mere notice, they defined the Exercise Event
accordingly, as in sections 2.5.1.1, 2.5.1.2, and 2.5.1.3.
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14. Thus, CGNN Holding's remedy if it contests Dynegy's right to
terminate under section 9.4(a) of the Merger Agreement is NOT to withhold
ownership and control of Northern Natural. Rather, the parties expressly
provided other remedies and agreed that Dynegy would hold Northern Natural while
all such disputes were resolved. That is why, for example, the Option Agreement
provides that Dynegy's notice of termination under section 9.4(a) constitutes a
representation that termination is valid, giving CGNN Holding the right to
damages if the representation is false. Similarly, a related Purchase Option
Agreement gives CGNN Holding the right to repurchase Northern Natural within 180
days of the Merger Agreement. But nowhere does the Option Agreement or any other
agreement authorize CGNN Holding to retain the membership interests in Northern
Natural's ultimate parent, MCTJ Holding, once an Exercise Event occurs and
Dynegy has elected to exercise its option.
15. The parties also expressly agreed on the availability of
specific performance and injunctive relief, including temporary relief, in the
event that either party refused to comply with the Option Agreement--so that
Dynegy could promptly obtain ownership and control of Northern Natural. Section
9.10 of the Option Agreement expressly provides:
. . . The parties hereto hereby acknowledge and agree that the
failure of any party to this Agreement to perform its agreements and
covenants hereunder will cause irreparable injury to the other party
to this Agreement for which damages, even if available, will not be
an adequate remedy. Accordingly, each of the parties hereto hereby
consents to the granting of equitable relief (including specific
performance and injunctive relief) by any court of competent
jurisdiction to enforce any party's obligations hereunder. The
parties further agree to waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any
other rights that the parties hereto may have for any failure to
perform this Agreement.
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(Ex. A, Option Agr't,ss.9.10.)
16. On November 19, 2001, Enron filed a quarterly report with the
Securities and Exchange Commission that contained additional material
disclosures not known to Dynegy regarding the extent of Enron's financial
difficulties. After this and other adverse developments, including a dramatic
meltdown of Enron's business and the downgrading of Enron's credit rating to
junk status, Dynegy gave notice on November 28, 2001 that it was terminating the
Merger Agreement pursuant to section 9.4(a) because of Enron's breaches of "its
representations, warranties, covenants and agreements in the Merger Agreement."
(Dynegy's termination notice is attached as Exhibit B.) Dynegy's written
notification alone constituted an Exercise Event under Dynegy's Option Agreement
with CGNN Holding and MCTJ Holding. Immediately thereafter, Dynegy Holdings
notified CGNN Holding that it was exercising its option to purchase all of the
outstanding membership interests of MCTJ Holding, and thereby taking ownership
and control of Northern Natural. (Dynegy's notice to exercise the option is
attached as Exhibit C.)
17. On information and belief, CGNN Holding has publicly declared
that Dynegy has no right to exercise its option to acquire MCTJ Holding.
18. All conditions precedent to Dynegy's right to acquire the
outstanding membership interests in MCTJ Holding have occurred or will occur by
the time of the closing.
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VI.
BREACH OF CONTRACT/ANTICIPATORY BREACH
19. The Option Agreement grants Dynegy an unambiguous and
irrevocable option to purchase all outstanding membership interests in MCTJ
Holding immediately upon Dynegy's notification that Dynegy is terminating the
Merger Agreement under section 9.4(a) of that agreement. Dynegy gave such notice
on November 28, 2001, thus triggering its right to demand CGNN Holding's and
MCTJ Holding's performance under the Option Agreement.
20. Despite their obligation under the Option Agreement, CGNN
Holding and MCTJ Holding have refused to honor that obligation.
21. CGNN Holding's and MCTJ Holding's expressed refusal to abide by
the clear, unambiguous language of the Option Agreement constitutes a breach of
that agreement.
VII.
TEMPORARY INJUNCTION
22. Dynegy seeks a temporary injunction requiring CGNN Holding to
transfer all of the outstanding membership interests in MCTJ Holding to Dynegy.
CGNN Holding and MCTJ Holding have expressly agreed to this temporary injunctive
relief pursuant to section 9.10 of the Option Agreement.
23. In any event, Dynegy has a probable right to recovery for breach
of contract and an immediate right to ownership and control. The Option
Agreement unequivocally requires CGNN Holding to transfer all outstanding
membership interests in MCTJ Holding to Dynegy, and its refusal to do so is a
breach of the agreement.
24. Under section 9.10, CGNN Holding, MCTJ Holding, and Dynegy
acknowledge and have agreed that CGNN Holding's failure to perform under the
Option Agreement constitutes irreparable injury for which damages are
inadequate.
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25. In any event, injury is irreparable, among other reasons,
because the Option Agreement is designed to give Dynegy--in exchange for its
$1.5 billion investment--the IMMEDIATE right to exercise its option upon notice
of termination under section 9.4(a). Dynegy specifically negotiated for this
immediate right, and to require protracted litigation to enforce that right
would eviscerate the agreement altogether.
26. Injury is also irreparable because Dynegy is entitled to
ownership, control, and management of Northern Natural. That right of ownership,
control, and management is an intangible right that cannot be measured by mere
monetary damages.
27. Injury is also irreparable because Dynegy is entitled to receive
the cash flow from Northern Natural. Due to the financial difficulties plaguing
CGNN Holding's corporate affiliates, there is no assurance that the cash flow
from the pipeline will not disappear.
28. Dynegy is entitled to a temporary injunction because this
irreparable harm is imminent. Without immediate relief, Dynegy will have lost
the very rights for which it contracted. The financial position of CGNN
Holding's various corporate affiliates is growing more precarious with each day.
Some of those entities have already sought bankruptcy protection. Immediate
relief is needed to preserve Dynegy's rights under the Option Agreement.
29. Pursuant to the parties' agreement, no bond need be posted in
order to award injunctive relief. (Ex. A, Option Agr't, ss. 9.10.) In the
alternative, the Court can set a nominal bond, which would comply with required
procedure since CGNN Holding and MCTJ Holding have agreed that no amount of
security is required.
VIII.
SPECIFIC PERFORMANCE
30. Dynegy is entitled to Specific Performance of the Option
Agreement. The parties to the Option Agreement (including CGNN Holding and MCTJ
Holding) have agreed to specific performance as the remedy for any failure to
perform under the Option Agreement.
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(Ex. A, Option Agr't, ss. 9.10.)
31. In any event, Dynegy has no adequate remedy by way of damages.
Dynegy contracted for the option to buy a unique company. Money cannot
compensate it for the loss of the company and the future right to own, manage,
and use that company and its assets.
32. Dynegy seeks a final order requiring CGNN Holding and MCTJ
Holding to comply with the Option Agreement.
IX.
DAMAGES
33. While damages are inadequate to compensate Dynegy for the breach
of the Option Agreement, Dynegy is nevertheless entitled to consequential
damages associated with the defendants' failure to provide Dynegy with immediate
ownership and control of Northern Natural.
X.
DECLARATORY JUDGMENT
34. Dynegy also seeks a declaratory judgment construing the Option
Agreement.
35. Dynegy seeks a declaration that the Option Agreement grants
Dynegy an option to acquire all outstanding membership interests of MCTJ Holding
immediately upon giving notice of termination under section 9.4(a) and that
because Dynegy has given such notice, it is entitled to exercise its option.
36. Dynegy also seeks a declaration that all conditions precedent
for closing under the Option Agreement have been satisfied.
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XI.
ATTORNEYS' FEES
37. Dynegy has retained attorneys to represent it in this action and
has agreed to pay reasonable and necessary attorneys' fees. Dynegy is entitled
to an award of its reasonable and necessary attorneys' fees under sections
37.009 and 38.001 of the Texas Civil Practice & Remedies Code.
VI.
PRAYER
WHEREFORE, Dynegy prays that it be granted a temporary injunction
requiring the transfer of the outstanding membership interests in MCTJ Holding
Co. LLC to Dynegy Holdings Inc. Dynegy further prays for a declaration
construing the Option Agreement and for specific performance of the Option
Agreement. Dynegy prays for damages in excess of the jurisdictional limits of
the Court and for its reasonable attorneys' fees. Dynegy further prays that the
Court grant it such other relief to which it may be entitled.
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Respectfully submitted,
BAKER BOTTS L.L.P.
By: /s/ B. DARYL BRISTOW
------------------------
B. Daryl Bristow
State Bar No. 03020000
Paul R. Elliott
State Bar No. 06547500
Rebecca L. Robertson
State Bar No. 00794542
Amy Douthitt Maddux
State Bar No. 00796483
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Telephone: 713.229.1234
Facsimile: 713.229.1522
ATTORNEYS FOR PLAINTIFFS
DYNEGY INC. AND DYNEGY
HOLDINGS INC.
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No. 2001-61378
DYNEGY INC. and ss. IN THE DISTRICT COURT OF
DYNEGY HOLDINGS INC. ss.
ss.
ss.
VS. ss. HARRIS COUNTY, T E X A S
ss.
ss.
CGNN HOLDING COMPANY, INC. and ss.
MCTJ HOLDING CO. LLC ss. 129th JUDICIAL DISTRICT
VERIFICATION
STATE OF TEXAS ss.
ss.
COUNTY OF HARRISss.
My name is Robert D. Doty Jr. I am Executive Vice President and
Chief Executive Officer for Dynegy Inc. I have read the Plaintiffs' Original
Petition filed by Dynegy Inc. and Dynegy Holdings Inc. in this matter. The facts
stated in that petition are true and correct and within my personal knowledge.
/s/ ROBERT D. DOTY, JR.
---------------------------------
Robert D. Doty Jr.
SUBSCRIBED AND SWORN TO BEFORE ME on this 2nd day of December, 2001,
to certify which witness my hand and official seal.
/s/ ANGELIA DEDEK
------------------------------------------
Notary Public in and for the State of Texas
[notary's seal]']
My commission expires: 8/31/2003
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