Exhibit 10.4
SERIES B PREFERRED STOCK EXCHANGE AGREEMENT
This SERIES B PREFERRED STOCK EXCHANGE AGREEMENT dated as of July 28, 2003
(this "Agreement") is between CHEVRON U.S.A. INC., a Pennsylvania corporation
("CUSA"), and DYNEGY INC., an Illinois corporation ("Dynegy").
A. This Agreement is made with reference to the following agreements and
instruments:
(i) the Series B Preferred Stock Subscription Agreement dated November
9, 2001 (the "Series B Preferred Stock Subscription Agreement") between
ChevronTexaco Corporation, a Delaware corporation ("CVX"), and Dynegy,
pursuant to which there was issued and sold to CVX 150,000 shares of
Dynegy's Series B Mandatorily Convertible Redeemable Preferred Stock
(liquidation value $10,000 per share) (the "Series B Preferred Stock");
(ii) the Statement of Resolution Establishing Series of Series B
Mandatorily Convertible Redeemable Preferred Stock of Dynegy Inc. (the
"Series B Statement") adopted by the then board of directors of Dynegy on
November 7, 2001;
(iii) the Shareholder Agreement dated as of June 14, 1999 (the
"Shareholder Agreement") among Dynegy (under its then name "Energy
Convergence Holding Company"), Illinova Corporation, an Illinois
corporation ("Illinova"), Dynegy Holdings, Inc., a Delaware corporation
(under its then name "Dynegy, Inc.") ("DHI") and CUSA;
(iv) the Registration Rights Agreement dated as of June 14, 1999
between Dynegy (under its then name "Energy Convergence Holding Company")
and CUSA, as amended by the First Amendment to Registration Rights
Agreement dated as of November 9, 2001 (collectively, the "1999
Registration Rights Agreement"); and
(v) the Merger Agreement (as defined in the Series B Statement).
Capitalized terms used in these Recitals without definition shall have the
respective meanings specified in Article I hereof.
B. Dynegy does not currently expect to be able to redeem the Series B
Preferred Stock for $1.5 billion in cash on November 13, 2003. If the Series B
Preferred Stock is not redeemed on such date in accordance with the Series B
Statement, a holder of the Series B Preferred may pursue such remedies as may be
available to it under applicable law.
C. Dynegy and CUSA have discussed an exchange by CUSA of the Series B
Preferred Stock for the following: (a) a cash payment of $225 million, (b) $225
million principal amount of Dynegy's Junior Unsecured Subordinated Notes due
2016, and (c) 8 million shares of Series C Preferred Stock (liquidation value
$50 per share), in each case, as more fully provided herein (collectively, the
"Series B Exchange"). Dynegy intends to consummate a financing (the
"Financing") in which Dynegy or one or more of its Subsidiaries will issue
securities (other than the securities being issued pursuant to the Series B
Exchange) in one or more public or private sales resulting in gross proceeds to
the issuers of not less than $1.5 billion, with a portion of the proceeds to be
used to repay existing debt, for other corporate purposes and, if the Series B
Exchange shall occur, to make the Cash Payment.
D. This Agreement is being entered into in connection with the Series B
Exchange. In order to effectuate the Series B Exchange, the parties have agreed
to make certain modifications to the Shareholder Agreement, and to adopt certain
other agreements referenced herein.
NOW, THEREFORE, in consideration of the premises and mutual promises herein
made, and in consideration of the representations, warranties and covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"1934 Act" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act Filings" means periodic reports on Forms 10-K and 10-Q, and
current reports on Form 8-K filed by Dynegy or DHI with the SEC under the 1934
Act, in each case filed on and after January 8, 2003 through the Exchange Date.
"1999 Registration Rights Agreement" is defined in Recital A(iv).
"2003 Credit Agreement" means DHI's Credit Agreement dated as of April 1,
2003, with Dynegy as the parent guarantor thereunder and the other parties
thereto, as amended by the First Amendment dated as of May 15, 2003, the Second
Amendment dated as of June 27, 2003 and the Third Amendment.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
another Person.
"Agreement" is defined in the preamble.
"CA Participants" is defined in Section 6.5(a).
"Cash Payment" means immediately available funds in the amount of US $225
million.
"Class A Common Stock" means the Class A Common Stock, no par value, of
Dynegy.
"Class B Common Stock" means the Class B Common Stock, no par value, of
Dynegy.
"Class B Directors" has the meaning specified in the Dynegy Articles of
Incorporation and the Dynegy Bylaws.
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"Closing" is defined in Section 3.1(a).
"Commercial Addendum" shall mean Exhibit A hereto.
"Common Stock" means the Class A Common Stock and the Class B Common Stock.
"Common Stock Registration Rights Agreement" means the 1999 Registration
Rights Agreement, as amended and restated as provided in Exhibit H hereto.
"Conversion Shares" means those shares of Class A Common Stock or the Class
B Common Stock into which the Series C Preferred Stock are convertible subject
to adjustment as provided in the Series C Statement.
"CUSA" is defined in the preamble.
"CVX" is defined in Recital A(i).
"DHI" is defined in Recital A(iii).
"Dynegy" is defined in the preamble.
"Dynegy Articles of Incorporation" means the Amended and Restated Articles
of Incorporation of Dynegy Inc. adopted by the shareholders of Dynegy at a
meeting of shareholders held for such purpose, among others, on May 18, 2001, as
accepted for filing by the Secretary of State of the State of Illinois on July
3, 2001.
"Dynegy Board" means the Board of Directors of Dynegy acting in accordance
with the Dynegy Articles of Incorporation and the Dynegy Bylaws.
"Dynegy Bylaws" means the Amended and Restated Bylaws of Dynegy Inc., as
amended September 19, 2002 by Resolution 2002-41 of Dynegy's then board of
directors.
"Dynegy Shareholder Approval" means action taken by the shareholders of
Dynegy to approve issuance of the Conversion Shares as required by (i) Dynegy's
listing agreement with The New York Stock Exchange Inc. and the rules and
regulations of such exchange and (ii) any other applicable laws and regulations
listed on Schedule I hereto in connection therewith.
"Exchange Consideration" means, collectively, the Cash Payment, the Series
C Preferred Stock and the Exchange Notes.
"Exchange Date" means the date on which the Closing occurs.
"Exchange Indenture" means the Indenture to be dated the Exchange Date
between Dynegy, issuer, and the institution to be named as trustee thereunder
(to be selected by CUSA and reasonably satisfactory to Dynegy), in the form of
Exhibit B to this Agreement.
"Exchange Notes" means $225 million of Dynegy's Junior Unsecured
Subordinated Notes due 2016 issued under, and to be outstanding pursuant to, the
Exchange Indenture.
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"Exchange Notes Registration Rights Agreement" means the Registration
Rights Agreement (Exchange Notes) to be dated the Exchange Date between CUSA and
Dynegy, in the form of Exhibit F hereto.
"Exchange Securities" means the Exchange Notes and the Series C Preferred
Stock
"Financing" is defined in Recital C.
"GAAP" means generally accepted accounting principles in the United States
from time to time.
"Governmental Authority" means any governmental or regulatory authority or
agency, court or similar entity.
"Illinova" is defined in Recital A(iii).
"Implementation Documents" means the definitive documentation implementing
the Commercial Addendum as referenced in Sections 3.2(j) and 3.3(f).
"Indemnity Undertaking" means the Indemnity Agreement to be dated the
Exchange Date by Dynegy and DHI in favor of CUSA and its Affiliates, in the form
of Exhibit E hereto.
"Merger Agreement" is defined in the Series B Statement.
"Mergers" is defined in the Series B Statement.
"New Money Offering Material" means, (i) with respect to DHI's proposed
offering of its second priority senior secured notes, (A) the preliminary
confidential offering circular dated July 25, 2003, (B) the definitive offering
circular with respect to such DHI offering and (C) all supplements (if any) to
the foregoing, in each case in connection with the offering of such securities
as part of the Proposed Recapitalization, and (ii) with respect to Dynegy's
proposed offering of its convertible subordinated debentures due 2023, (A) the
preliminary confidential offering circular dated July 25, 2003, (B) the
definitive offering circular with respect to such Dynegy offering and (C) all
supplements (if any) to the foregoing, in each case in connection with the
offering of such securities as part of the Proposed Recapitalization.
"New Shareholder Agreement" means the Shareholder Agreement, as modified
and amended and restated as provided in Exhibit D hereto.
"Offer to Purchase" means the Offer to Purchase and Solicitation of
Consents dated July 14, 2003 made by DHI with respect to its senior notes
scheduled to mature in 2005 and 2006, as such offer and solicitation may be
amended or modified from time to time.
"Opinions" is defined in Section 3.3(d).
"Person" means a natural person, a limited liability company, a
partnership, a trust or any other entity or organization, including a
Governmental Authority.
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"Prepayment Adjustment Schedule" is defined in Section 6.5(b).
"Prepayment Settlement Amount" has the meaning specified in Section 6.5(b).
"Pricing Meeting" means the meeting of the Dynegy Board, or a committee
thereof, at which will occur, among other actions, approval of the final terms
relative to the second-priority senior secured notes to be issued as part of the
Financing.
"Pro Forma Date" is defined in Section 6.5(b).
"Proposed Recapitalization" means the following associated transactions:
(i) consummation of the related transactions contemplated by the Third
Amendment, (ii) the Financing, (iii) the Offer to Purchase and (iv) the other
transactions, financings and refinancings to occur in connection therewith
(other than the Series B Exchange), in each case as authorized by the Dynegy
Board.
"Qualified Capital Stock" is defined in the Series C Statement.
"Restriction Expiration Date" has the meaning specified in Section 7.1.
"Schedule I Actions" mean filings with Governmental Authorities and other
Persons, and necessary authorizations, consents and approvals from such
authorities or Persons (including, but without limitation, the Third Amendment),
in each case identified on Schedule I hereto.
"Scope of Business Agreement" means the Scope of Business Agreement dated
as of May 22, 1996 between DHI (under its then name "Midstream Combination
Corp.") and CVX (under its then name "Chevron Corporation").
"SEC" means the United States Securities and Exchange Commission.
"Series B Certificate" means certificate number 2 dated May 1, 2002
evidencing the 150,000 shares of Series B Preferred Stock.
"Series B Exchange" has the meaning specified in Recital C.
"Series B Preferred Stock" is defined in Recital A(i).
"Series B Preferred Stock Subscription Agreement" is defined in Recital
A(i).
"Series B Statement" means the Series B Statement referenced in Recital
A(ii).
"Series C Preferred Stock" means eight (8) million shares of Dynegy's
Series C Convertible Preferred Stock (liquidation value $50 per share).
"Series C Preferred Stock Registration Rights Agreement" means the
Registration Rights Agreement (Series C Preferred Stock) to be dated the
Exchange Date between CUSA and Dynegy, in the form of Exhibit G hereto.
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"Series C Statement" means the Statement of Resolution Establishing Series
C Convertible Preferred Stock of Dynegy Inc., in the form of Exhibit C to this
Agreement, to be adopted by the Board of Directors of Dynegy to establish the
terms of the Series C Preferred Stock.
"Shareholder Agreement" is defined in Recital A(iii).
"Solvency Letter" is defined in Section 3.3(e).
"Third Amendment" means the Third Amendment to the Loan Documents dated as
of July 15, 2003 (among other things, amending the 2003 Credit Agreement)
between DHI, borrower, Dynegy, parent guarantor, and the administrative agents
named therein, among others.
"Transaction Documents" means, collectively, this Agreement (including the
Commercial Addendum), the Exchange Notes, the Exchange Indenture, the Series C
Preferred Stock, the Series C Statement, the New Shareholder Agreement, the
Common Stock Registration Rights Agreement, the Exchange Note Registration
Rights Agreement, the Series C Preferred Stock Registration Rights Agreement,
the Indemnity Undertaking and each of the Implementation Documents.
"Transferred Claims" is defined in Section 8.11(a)
ARTICLE II
EXHIBITS
The Transaction Documents (other than this Agreement) shall be in the form
of the specified exhibit hereto.
Transaction Document Exhibit
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Commercial Addendum A
Exchange Indenture (form of Exchange Notes included) B
Series C Statement C
Amended and Restated Shareholder Agreement D
Indemnity Undertaking E
Exchange Notes Registration Rights Agreement F
Series C Preferred Stock Registration Rights Agreement G
Common Stock Registration Rights Agreement H
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ARTICLE III
SERIES B EXCHANGE; CONDITIONS; TERMINATION; INTERIM EXCHANGE
3.1 Series B Exchange; Exchange Date. On and subject to the terms of this
Agreement, CUSA and Dynegy agree to effect the Series B Exchange as follows:
(a) Dynegy shall give CUSA, at the address for notices specified in
Section 8.6, written notice no later than three business days prior to the
date on which it expects to be able to effect the Series B Exchange. The
closing of the Series B Exchange (the "Closing") shall take place
simultaneously with the closing of the portions of the Proposed
Recapitalization which, when consummated, will enable Dynegy to make the
Cash Payment and issue the Exchange Securities without being in default
under the 2003 Credit Agreement.
(b) The Closing shall occur at such place in New York City and at such
time as the parties shall mutually agree.
(c) At the Closing, (i) CUSA shall deliver the Series B Certificate
duly endorsed in blank to, or upon the order of, Dynegy and (ii) Dynegy
shall (A) deliver the Cash Payment to CUSA in immediately available funds
to a bank account to be designated in writing by CUSA not later than two
business days prior to the Exchange Date and (B) deliver to CUSA (I) the
stock certificates representing the Series C Preferred Stock duly
registered in the name of CUSA and (II) the Exchange Notes duly registered
in the name of CUSA and duly authenticated by the trustee/authenticating
agent under the Exchange Indenture.
3.2 Conditions to Obligation of CUSA. The obligation of CUSA to consummate
the transactions contemplated hereby and to perform its obligations hereunder in
connection with the Series B Exchange is subject to satisfaction of the
following conditions:
(a) the representations and warranties set forth in Article IV hereof
shall be true and correct as of the date hereof, and shall be true and
correct as of the Exchange Date (unless stated to relate to a specific
date, in which case such representations and warranties shall be true and
correct as to such specific date) in all material respects; and CUSA shall
have received a certificate from a duly authorized officer of Dynegy as to
the satisfaction of this condition;
(b) Dynegy shall have performed and complied with all of its covenants
hereunder in all material respects prior to the Series B Exchange; CUSA
shall have received a certificate from a duly authorized officer of Dynegy
as to the satisfaction of this condition;
(c) Dynegy shall be prepared to make the Cash Payment and deliver the
Exchange Securities upon receipt of the Series B Certificate;
(d) CUSA shall have received a certificate from the secretary of
Dynegy, certifying that the Dynegy Articles of Incorporation and Dynegy
Bylaws have not been
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amended, since the date hereof (other than pursuant to the Series C
Statement); and such certificate shall also contain customary
certifications as to attached copies of the Dynegy Articles of
Incorporation, the Dynegy Bylaws, the incumbency of Dynegy officers signing
or attesting any Transaction Documents and Dynegy Board resolutions with
respect to the Series B Exchange and Proposed Recapitalization;
(e) not later than two (2) business days prior to the Exchange Date,
Dynegy shall have filed the Series C Statement with the Secretary of State
of the State of Illinois and shall have furnished proof of acceptance of
such filing reasonably satisfactory to CUSA not later than the Exchange
Date;
(f) the New Shareholder Agreement and the Common Stock Registration
Rights Agreement shall have each been executed and delivered by Dynegy in
the form of Exhibits D and H hereto and such instruments, in such forms,
shall (assuming due execution by the other party thereto) be in full force
and effect;
(g) the Exchange Notes Registration Rights Agreement, the Exchange
Indenture, the Series C Preferred Stock Registration Rights Agreement and
the Indemnity Undertaking shall have each been executed and delivered by
Dynegy (and DHI, in the case of the Indemnity Undertaking) in the form of
Exhibits F, B, G and E hereto and such instruments, in such forms, shall
(assuming due execution and delivery by CUSA) be in full force and effect;
(h) CUSA shall have received a copy of the Solvency Letter and it
shall be in customary form;
(i) CUSA shall have received true and correct copies of term sheets
and material definitive documentation (including, but without limitation,
the Third Amendment) implementing the portions of the Proposed
Recapitalization that are to be consummated prior to, or in connection
with, the Series B Exchange;
(j) with respect to the modifications to certain commercial
arrangements contemplated by the Commercial Addendum, definitive
documentation reasonably acceptable to CUSA implementing such modifications
shall have been executed and delivered by the Dynegy Affiliates to be party
thereto;
(k) CUSA shall have received customary opinions of counsel to Dynegy
with respect to legal matters relating to the Exchange Securities in form
and substance reasonably satisfactory to CUSA;
(l) CUSA shall have received certifications addressed to it from
Dynegy with respect to Dynegy's Annual Report on Form 10-K/A (Amendment No.
1) for the year ended December 31, 2002 (as filed on July 25, 2003 and its
Quarterly Report(s) on Form 10-Q for the Quarter ended March 31, 2003 and
June 30, 2003 (if filed with the SEC on or prior to the Exchange Date), in
each case in the same form as the certifications set forth in Exhibits 99.1
and 99.2 to such 10-K/A, Exhibits 99.1 and 99.2 to such 10-Q(s) and the
section 302 certifications which are part of such 10-Q(s), as the case may
be;
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(m) the Schedule I Actions identified as Items 2.A and 2.B in Schedule
I shall have been obtained and shall be in full force and effect; and CUSA
shall have received copies of each such Schedule I Action;
(n) transactions with respect to the Proposed Recapitalization shall
have been consummated or shall be consummated simultaneously with the
Series B Exchange; and
(o) as of the Closing, CUSA shall be satisfied that the Series B
Exchange meets the requirements of Illinois law and all other necessary
legal requirements, in any case the failure of which could reasonably
result in liability for CUSA or any of its Affiliates or deprive CUSA of
any substantial benefit of this Agreement.
CUSA may waive any condition specified in this Section 3.2 only if it executes a
writing expressly so stating at or prior to the Series B Exchange. A waiver by
Dynegy of the condition specified in Section 3.3(e) shall not be deemed to be a
waiver by CUSA of the condition specified in Section 3.2(h).
3.3 Conditions to Obligation of Dynegy. The obligation of Dynegy to
consummate the transactions contemplated hereby and to perform its obligations
hereunder in connection with the Series B Exchange is subject to satisfaction of
the following conditions:
(a) the representations and warranties set forth in Article V hereof
shall be true and correct as of the date hereof, and shall be true and
correct as of the Exchange Date (unless stated to relate to a specific
date, in which case such representations and warranties shall be true and
correct as of such specific date) in all material respects; and Dynegy
shall have received a certificate from a duly authorized signatory for CUSA
as to the satisfaction of this condition;
(b) CUSA shall have performed and complied with all of its covenants
hereunder in all material respects prior to the Series B Exchange; and
Dynegy shall have received a certificate from a duly authorized officer of
CUSA as to the satisfaction of this condition;
(c) CUSA is prepared to deliver the Series B Certificate against
receipt of the Exchange Consideration;
(d) the Dynegy Board shall have received written opinions from Credit
Suisse First Boston LLC concerning valuation matters and from Greenhill &
Co., LLC concerning the fairness of the Exchange Consideration from a
financial point of view to Dynegy, in each case in form and substance
acceptable to the Dynegy Board (collectively, the Opinions");
(e) Dynegy shall have received a written solvency opinion of Houlihan
Lokey Howard & Zukin Financial Advisors, Inc., in form and substance
acceptable to the Dynegy Board (the "Solvency Letter");
(f) with respect to the modifications to certain commercial
arrangements contemplated by the Commercial Addendum, definitive
documentation reasonably
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acceptable to Dynegy implementing such modifications shall have been
executed and delivered by the CUSA Affiliates to be party thereto;
(g) Dynegy shall have received immediately available funds in an
amount equal to any Prepayment Settlement Amount due on the date of
Closing;
(h) the Third Amendment shall remain in full force and effect and all
conditions specified therein as a condition to the Series B Exchange or to
the other portions of the Proposed Recapitalization to occur at or prior to
the Series B Exchange shall have been satisfied, shall be satisfied on the
Exchange Date or shall have been duly waived;
(i) all Schedule I Actions shall have been taken or obtained and shall
be in full force and effect;
(j) the transactions with respect to the Proposed Recapitalization
shall have been consummated or shall be consummated simultaneously with the
Series B Exchange;
(k) the New Shareholder Agreement and the Common Stock Registration
Rights Agreement shall each have been executed and delivered by CUSA in the
form of Exhibits D and H hereto and such instruments, in such forms, shall
(assuming due execution and delivery by Dynegy) be in full force and
effect;
(l) the Exchange Notes Registration Rights Agreement, the Series C
Preferred Stock Registration Rights Agreement and the Indemnity Undertaking
shall have been executed and delivered by CUSA in the form of Exhibits F,
B, G and E hereto and such instruments, in such forms, shall (assuming due
execution and delivery by Dynegy) be in full force and effect; and
(m) the Dynegy Board shall have made a good faith determination (and
such determination shall not have been changed or altered prior to Closing)
that the Series B Exchange is entirely fair to Dynegy (including holders of
the Class A Common Stock) and otherwise meets the requirements of Illinois
law or other law applicable to transactions like the Series B Exchange.
Dynegy may waive any condition specified in this Section 3.3 only if it executes
a writing expressly so stating delivered to CUSA at or prior to the Series B
Exchange.
3.4 Termination. This Agreement may be terminated and the Series B Exchange
abandoned at any time prior to consummation of the Series B Exchange, (i) by
written mutual consent of the parties, or (ii) by either party if the Closing
shall not have occurred on or prior to October 10, 2003. In the event of
termination of this Agreement and the abandonment of the Series B Exchange
pursuant to this Section 3.4, this Agreement shall become null and void and of
no effect with no liability on the part of any parties hereto; provided,
however, that no such termination and abandonment shall relieve any party hereto
of any liability for damages resulting from any breach of this Agreement.
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3.5 Notification. Each party shall promptly apprise the other party of any
facts or circumstances which could reasonably be expected to result in any
closing condition contained in Section 3.2 or 3.3 not being satisfied (without
regard to a permissible waiver of the affected condition) at or prior to
Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DYNEGY
Dynegy represents and warrants to CUSA as follows:
4.1 Organization of Dynegy. Dynegy is a corporation, duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
organization.
4.2 Due Authorization, etc. Except in respect of the Schedule I Actions,
the execution, delivery, and performance by Dynegy of this Agreement (including,
but without limitation, the Series B Exchange) and, as of the Closing, each of
the other Transaction Documents to which Dynegy is to be party:
(a) has been duly authorized by all necessary internal action and does
not require any consent, waiver, approval, order, authorization or permit
of, or registration, filing with or notification to any Person;
(b) does not conflict with or result in any material violation of or
the material breach of or constitute a material default (with notice or
lapse of time or both) under, or give rise to any right of termination,
purchase, first refusal, cancellation or acceleration or guaranteed
payments or a loss of a material benefit under, any order or judgment of
any Governmental Authority or any law or regulation, or any note, lease,
mortgage, license, agreement or other instrument or obligation to which
Dynegy is a party or by which it or its properties or assets may be bound;
and
(c) does not conflict with or result in any violation of or the breach
of or constitute a default (with notice or lapse of time or both) under, or
give rise to any right of termination, purchase, first refusal,
cancellation or acceleration or guaranteed payments or a loss of a material
benefit under, any of Dynegy's organizational documents.
4.3 Board Approval; Due Execution.
(a) At a meeting held on July 23, 2003, the Dynegy Board approved this
Agreement and the forms of each other Transaction Document as attached
hereto as exhibits (except that the form of the Series C Statement is to be
the subject of a further approval at the Pricing Meeting).
(b) This Agreement, and (as of the Closing) each of the other
Transaction Documents, has been duly executed and delivered by a duly
authorized officer of Dynegy.
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4.4 Legal, Valid and Binding Obligations. This Agreement constitutes the
legal, valid and binding obligation of Dynegy, enforceable against Dynegy in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium and other laws affecting the
rights of creditors generally and by general principles of equity.
4.5 No Litigation. There is no pending or, to the knowledge of Dynegy,
threatened action or proceeding before any court or other governmental entity,
or arbitrator by or against, or involving Dynegy or its Affiliates, which
questions or challenges the validity or enforceability of this Agreement or any
action taken or to be taken by Dynegy pursuant to this Agreement or in
connection with the transactions contemplated hereby.
4.6 Brokers' Fee. Dynegy does not have any liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated hereby for which CUSA or any Affiliate thereof could
become liable.
4.7 Organizational Documents. True and correct copies of the Dynegy
Articles of Incorporation and Dynegy Bylaws have heretofore been delivered by
Dynegy to CUSA.
4.8 Capitalization. The authorized capital stock of Dynegy consists of
900,000,000 shares of Class A Common Stock, 360,000,000 shares of Class B Common
Stock and 70,000,000 shares of preferred stock, no par value, of which 150,000
shares are designated as Series B Preferred Stock. As of May 2, 2003, (i)
275,763,865 shares of Class A Common Stock were issued and outstanding, (ii)
96,891,014 shares of Class B Common Stock were issued and outstanding, and (iii)
no shares of Preferred Stock (other than the Series B Preferred Stock) were
issued and outstanding. All such issued and outstanding shares are duly
authorized validly issued, fully paid, nonassessable, and free of statutory or
other preemptive rights. Except as described in this Agreement or in the 1934
Act Filings, there are no outstanding subscriptions, options, rights, warrants,
convertible securities, stock appreciation rights, phantom equity, or other
agreements or commitments obligating Dynegy to issue, transfer, sell, redeem,
repurchase or otherwise acquire any shares of its capital stock of any class.
4.9 Exchange Notes; Exchange Indenture; Series C Preferred Stock.
(a) The Exchange Notes to be issued by Dynegy to CUSA hereunder and
under the Exchange Indenture have been duly and validly authorized and,
when issued, delivered and authenticated as provided herein and in the
Exchange Indenture, will be validly issued and will constitute Dynegy's
legal, valid and binding obligations.
(b) The Exchange Indenture has been duly authorized, and when executed
and delivered will constitute a legal, valid and binding instrument
enforceable against Dynegy in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium
or other laws affecting the rights of creditors generally and by general
principles of equity.
(c) The Series C Preferred Stock to be issued by Dynegy to CUSA
hereunder has been (subject to filing of the Series C Statement with the
Secretary of State of the State of Illinois) duly and validly authorized
and, when issued and delivered as provided herein, will be duly and validly
issued and fully paid and nonassessable and free of
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restrictions on transfer other than as provided in a Transaction Document
or by applicable law and will not be subject to preemptive rights (whether
statutory or otherwise) or similar rights and, upon (i) conversion of the
Series C Preferred Stock and (ii) the Dynegy Shareholder Approval having
been obtained, the Conversion Shares will be duly and validly authorized
and upon conversion will be duly and validly issued and fully paid and
nonassessable and free of restrictions on transfer other than as provided
in a Transaction Document or by applicable law and will not be subject to
preemptive rights (whether statutory or otherwise) or similar rights.
4.10 Offer to Purchase Material. The Offer to Purchase material (as amended
or supplemented, if amended or supplemented), including the 1934 Act Filings
identified therein and other information incorporated therein by reference,
complies with or will comply in all material respects with the applicable
provisions of the 1934 Act, and the Offer to Purchase material does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The
consolidated financial statements of Dynegy and DHI and its subsidiaries
included in such Offer to Purchase material (including financial statements
incorporated therein by reference) (i) were prepared in accordance with GAAP in
effect on the date such statements were prepared and (ii) fairly present in all
material respects the consolidated financial condition of Dynegy or DHI and its
subsidiaries as of the date thereof and their results of operations for the
period covered thereby in accordance with GAAP in effect on the date such
statements were prepared.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CUSA
CUSA represents and warrants to Dynegy as follows:
5.1 Organization of CUSA. CUSA is a corporation, duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
organization.
5.2 Due Authorization, etc. The execution, delivery, and performance by
CUSA of this Agreement and, as of the Closing, each of the other Transaction
Documents to which CUSA is to be party:
(a) has been duly authorized by all necessary internal action and does
not require any consent, waiver, approval, order, authorization or permit
of or registration, filing with or notification to any Person; and
(b) does not conflict with or result in any violation of or the breach
of or constitute a default (with notice or lapse of time or both) under,
CUSA's organizational documents, any order or judgment of any Governmental
Authority or any law or regulation applicable to CUSA.
5.3 Due Execution. This Agreement, and (as of the Closing) each of the
other Transaction Documents to which CUSA is to be a party, has been duly
executed and delivered by a duly authorized officer of CUSA.
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5.4 Legal, Valid And Binding Obligations. This Agreement constitutes the
legal, valid and binding obligation of CUSA, enforceable against CUSA in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium and other laws affecting the
rights of creditors generally and by general principles of equity.
5.5 No Litigation. There is no pending or, to the knowledge of CUSA,
threatened action or proceeding before any court or other governmental entity,
or arbitrator by or against, or involving CUSA or its Affiliates, which
questions or challenges the validity or enforceability of this Agreement or any
action taken or to be taken by CUSA pursuant to this Agreement or in connection
with the transactions contemplated hereby.
5.6 Brokers' Fees. CUSA does not have any liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated hereby for which Dynegy or any of its Affiliates could
become liable.
5.7 Securities Laws. CUSA:
(a) has been furnished with such information about Dynegy and the
Exchange Securities as it has requested and, with such information as
necessary to comply with any and all applicable securities laws;
(b) has made its own independent inquiry and investigation into, and
based thereon, has formed an independent judgment concerning Dynegy and the
Exchange Securities;
(c) has adequate means of providing for its current needs and possible
contingencies and is able to bear the economic risks of this investment and
has a sufficient net worth to sustain a loss of its entire investment in
Dynegy in the event such loss should occur;
(d) has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of an
investment in Dynegy;
(e) is an "accredited investor" within the meaning of Regulation D of
the Securities Act of 1933, as currently in effect;
(f) is not an underwriter or dealer; and
(g) is acquiring the Exchange Securities for its own account and
without a view to distribution.
5.8 Title to Shares. CUSA is the record and beneficial owner of 150,000
shares of the Series B Preferred Stock. CUSA has full right, power and authority
to transfer and deliver to Dynegy record ownership of such shares of Series B
Preferred Stock. Except pursuant to this Agreement, CUSA has not, directly or
indirectly, granted any option, warrant or other right to any Person to acquire
any shares of Series B Preferred Stock, and there are no liens, pledges,
encumbrances or claims of others to such shares.
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ARTICLE VI
COVENANTS; OTHER MATTERS
6.1 Dynegy Shareholder Approval. Within twelve (12) months of the Exchange
Date, Dynegy will take, in accordance with applicable law and rules and
regulations, the Dynegy Articles of Incorporation and the Dynegy Bylaws all
necessary action for there to be duly placed before Dynegy's shareholders a
resolution seeking the Dynegy Shareholder Approval. The Dynegy Board shall (i)
subject to the fulfillment of its fiduciary duties, recommend that the Dynegy
Shareholder Approval be given and, (ii) at the sole cost of Dynegy, take all
reasonable lawful action to solicit such approval. CUSA shall, and shall cause
each of its Affiliates to, vote all of its respective shares of Dynegy voting
capital stock in favor of a resolution presented to shareholders of Dynegy
seeking the Dynegy Shareholder Approval.
6.2 Scope of Business Agreement. The parties acknowledge and agree that the
Scope of Business Agreement has heretofore terminated and that, therefore, the
provisions of Article 7, Paragraph 2, of Dynegy's Articles of Incorporation are
no longer of any force or effect (and Dynegy's Articles of Incorporation may be
amended, restated or supplemented to remove such provisions therefrom).
6.3 Publicity. The parties shall consult with each other prior to issuing
any press releases or otherwise making public announcements with respect to this
Agreement and the Series B Exchange and prior to making any filings with any
third party and/or any Governmental Authority with respect to this Agreement,
the Series B Exchange or the Proposed Recapitalization (or any portion thereof).
6.4 Provision of Materials. Dynegy shall promptly provide CUSA with copies
of all significant memoranda delivered to banks or other creditors and other
significant offering material prepared and made available to creditors or
investors by, or with the consent of, Dynegy or any of its Affiliates in
connection with the Series B Exchange or any aspect of the Proposed
Recapitalization (including, but without limitation, the New Money Offering
Material).
6.5 Adjustment to Prepayment Amounts. (a) Dynegy shall apprise CUSA of the
scheduled date of the Pricing Meeting as promptly as practicable upon such date
becoming determined. The parties shall keep the direct participants in
implementation of the Commercial Addendum (the "CA Participants") informed of
the schedule for the Pricing Meeting and Closing.
(b) Dynegy shall provide written notice as to the expected Exchange Date
(assuming, among other things, the Pricing Meeting occurs) (the "Pro Forma
Date"). The CA Participants shall thereafter promptly meet to discuss and
finalize a schedule (the "Prepayment Adjustment Schedule") specifying the amount
(if any) of the product pre-payments that will be returnable to Dynegy and its
Affiliates assuming that (i) the Exchange Date will coincide with the Pro Forma
Date, (ii) the Series B Exchange occurs and (iii) the conditions specified in
Sections 3.2(j) and 3.3(f) have been satisfied and not been waived. On the day
immediately preceding the date of the Closing, the CA Participants will adjust
the Prepayment Adjustment Schedule and reach agreement (taking into account the
Commercial Addendum and the Implementation Documents)
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on the amount (if any) of any product prepayments returnable to Dynegy and its
Affiliates on the date of the Closing (the "Prepayment Settlement Amount").
(c) The parties shall undertake the actions specified in this Section 6.5
in good faith and with a view to maximizing the amount of the Prepayment
Settlement Amount available to Dynegy upon consummation of the Series B Exchange
(subject, in all events, to the Commercial Addendum and the Implementation
Documents).
6.6 Certain Tax Matters. For 2003 and each subsequent year which CUSA or
its Affiliates continues to own Series C Preferred Stock of Dynegy, Dynegy shall
prepare and provide CUSA (at Dynegy's sole expense) an analysis of year-end
current and accumulated earnings and profits for Federal income tax purposes.
Such an analysis based on estimates shall be provided to CUSA by June 1 of the
year following the close of the taxable year. Dynegy will then provide a
reconciliation of the estimate to a revised calculation based on the taxable
income as filed within 60 days following the filing of the Dynegy Federal income
tax return. CUSA shall have the right to review the earnings and profits
calculations, including tax returns and other supporting documents. Dynegy shall
provide CUSA access to such documents upon reasonable notice. Dynegy shall have
no liability for tax return positions taken by the consolidated group of which
CUSA is part to the extent that such position is based on analyses, summaries,
estimates and other information provided by Dynegy pursuant to this Section 6.6
which have been prepared in good faith and with reasonable care.
6.7 New Money Offering Material. As of the Exchange Date, none of the New
Money Offering Material (including information incorporated therein by
reference) will contain any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The consolidated financial statements of Dynegy or DHI and
its subsidiaries to be included in the New Money Offering Material (including
financial statements incorporated therein by reference) will (i) be prepared in
accordance with GAAP in effect on the date such statements were prepared and
(ii) fairly present in all material respects the consolidated financial
condition of Dynegy or DHI and its subsidiaries as of the date thereof and their
results of operations for the period covered thereby in accordance with GAAP in
effect on the date such statements were prepared.
6.8 Provision of Certain Material. Copies of the 1934 Act Filings have been
and will be provided to CUSA with the intent and expectation that CUSA will rely
thereon in agreeing to participate in the Series B Exchange and in making its
representation and warranty in Sections 5.7(a).
6.9 HSR Act Compliance. Not later than thirty (30) days prior to the Series
C Preferred Stock first becoming convertible as provided in Section 5(l) of the
Series C Statement, either (i) the parties shall have made any filings necessary
in order to comply with any applicable requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), in connection
with a conversion of the Series C Preferred Stock into Class B Common Stock, or
(ii) the parties shall have determined, based on advice of their respective
counsel, that no such filing is necessary. The parties shall cooperate with each
other in making the filings contemplated by this Section 6.9. Anything in the
Series C Statement to the contrary
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notwithstanding, no conversion of the Series C Preferred Stock shall occur that
would fail to meet applicable HSR Act requirements.
6.10 Reservation of Series C Preferred Stock. Eight million shares of
Series C Preferred Stock will be issued on the Exchange Date. The remaining
eight million authorized but unissued shares of Series C Preferred Stock are
reserved solely for issuance by Dynegy in fulfillment of its obligation to
effect an exchange of certain shares of Series C Preferred Stock for other
shares of Series C Preferred Stock pursuant to the Series C Preferred Stock
Registration Rights Agreement.
ARTICLE VII
LIMITATION ON CERTAIN SALES
OF SERIES C PREFERRED STOCK
7.1 Limitation on Certain Sales of Series C Preferred Stock. Until the date
(the "Restriction Expiration Date") which is the earlier to occur of (i) the
eighteenth month anniversary of the Exchange Date and (ii) the 120th day
following the consummation by Dynegy or DHI of one or more public or private
sales of Qualified Capital Stock resulting in an aggregate amount of gross
proceeds of at least $250 million, CUSA agrees that, absent prior written
consent from Dynegy, CUSA will not (w) sell or otherwise transfer any shares of
the Series C Preferred Stock (or any Conversion Shares), (x) sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of any Series C Preferred Stock (or any Conversion
Shares), (y) sell or otherwise transfer any security convertible into, or
exchangeable or exercisable for, any Series C Preferred Stock (or any Conversion
Shares), or (z) enter into any short sales transactions with respect to the
Series C Preferred Stock (or any Conversion Shares), in any case to any Person
other than to an Affiliate of CUSA that has agreed in writing to be bound by
this Article VII.
ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. Each representation,
warranty and covenant of the parties contained in this Agreement (and each
certification in each certificate delivered hereunder) shall survive the Series
B Exchange, except that the Limited Provisions (as hereinafter defined) shall
survive only until the date which is the first anniversary of the Restriction
Expiration Date (but such representations and warranties shall nonetheless
continue to survive such anniversary date with respect to claims made or
asserted prior to such anniversary date). "Limited Provisions" means Section
4.10, Section 6.7, Section 6.8, and the certificate of Dynegy described in
Section 3.2(l).
8.2 Waiver of Compliance; Amendments; Consents. Any failure of a party to
comply with any obligation, covenant, agreement, or condition herein may be
waived by the other party; provided, however, that any such waiver may be made
only by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement, or condition shall not operate as a waiver of, or estoppel
with
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respect to, any subsequent or other failure. This Agreement may be amended,
restated, modified, or supplemented only by written agreement of Dynegy and
CUSA. Whenever this Agreement requires or permits consent by or on behalf of any
party hereto, such consent shall be given in writing in a manner consistent with
the requirements for a waiver of compliance as set forth in this Section 8.2,
with appropriate notice in accordance with Section 8.6.
8.3 Assignment; Third Party Beneficiaries. This Agreement and all of the
provisions hereof shall be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended or shall be construed to confer upon any Person other than
the parties hereto, and their respective successors and assigns any right,
remedy, or claim under or by reason of this Agreement or any provision herein
contained. CUSA has the right to assign (and each successive assignee may
further assign) its rights under this Agreement to any Person, which such Person
by acceptance of such assignment shall be deemed to assume all liabilities,
indebtedness and obligations included in the rights assigned provided that (i)
such Person is an Affiliate of CUSA and (ii) the assignment is undertaken in
connection with a transfer to such Affiliate of an interest in the Exchange
Securities that is otherwise permitted by the Transaction Documents. Dynegy may
not assign its rights or obligations under this Agreement.
8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Illinois (without regard to its conflicts of law
doctrines).
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument and shall become a binding
agreement when one or more of the counterparts have been signed by each of the
parties and delivered to the other party.
8.6 Notices. All notices or communications hereunder shall be in writing
(including facsimile or similar writing) addressed as follows:
If to Dynegy:
Dynegy Inc.
1000 Louisiana Street, Suite 6700
Houston, TX 77002
Attention of General Counsel
Tel: (713) 507-6400
Fax: (713) 507-6808
with a copy to (such copy not to constitute notice):
O'Melveny & Myers LLP
30 Rockefeller Plaza
New York, New York 10112
Attention of John J. Suydam, Esq.
Tel: (212) 408-2471
Fax: (212) 408-2420
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If to CUSA:
Chevron U.S.A., Inc.
c/o ChevronTexaco Corporation
6001 Bollinger Canyon Road
San Ramon, CA 94583
Attention of General Counsel
Tel: (925) 842-3232
Fax: (925) 842-7084
with a copy to (such copy not to constitute notice):
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94120-7880
Attention of Terry Michael Kee, Esq.
Tel: (415) 983-1000
Fax: (415) 983-1200
Any such notice or communication shall be deemed given (i) when made, if made by
hand delivery, and upon confirmation of receipt, if made by facsimile, (ii) one
business day after being deposited with a next-day courier, postage prepaid, or
(iii) three business days after being sent certified or registered mail, return
receipt requested, postage prepaid, in each case addressed as above (or to such
other address as such party may designate in writing from time to time).
8.7 Headings. The article and section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.8 Entire Agreement. This Agreement and the documents expressly referenced
herein embody the entire agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
8.9 No Severability. Dynegy acknowledges that an integral and fundamental
consideration for the agreement by CUSA to participate in the Series B Exchange
is the validity and enforceability of the Exchange Securities to be received by
CUSA and the receipt by it of the Cash Payment not being recoverable from CUSA
by anyone claiming by, through or under Dynegy, DHI or any creditor or security
holder of either (or any trustee acting for the benefit of any of the foregoing
or Person exercising similar voiding powers under Federal
bankruptcy/reorganization law or state law). In the event that any material
portion of the Exchange Consideration is determined to be void, voidable,
invalid, unenforceable and/or subject to being returned or otherwise disgorged
as having arisen from a void, voidable or similar transfer or conveyance, then
the Series B Exchange shall be deemed to have not occurred and the parties shall
be restored to their original respective positions (as nearly as may be) as
those positions existed immediately prior to the Series B Exchange; provided,
however, that the obligations of the parties under this Section 8.9 shall be
equitably adjusted in the event, and to
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the extent, that (i) CUSA and its Affiliates no longer own Exchange Securities
(it being the intent that this Section 8.9 shall not be applicable in respect of
Exchange Securities no longer owned by CUSA and its Affiliates); and (ii)
Dynegy's ability to comply with this Section 8.9 is constrained by Illinois or
other applicable law or by the provisions of any agreement, indenture or other
instrument to which Dynegy or any of its Affiliates are party. The parties shall
use their respective reasonable best efforts to effectuate the intent and
purpose of this Section 8.9.
8.10 Further Assurances. Each party to this Agreement agrees to execute
such documents or instruments, and to take such action, as the other party may
reasonably request after the date hereof in order to effectuate and perfect the
agreements contemplated hereby.
8.11 Transfer of Claims. (a) The parties hereby acknowledge and agree that,
upon consummation of the Series B Exchange, CUSA is transferring all right,
title and interest in the Series B Preferred Stock to Dynegy hereunder and such
transfer includes, without limitation, any and all claims, obligations, causes
of action, defenses, counterclaims, losses, damages or liabilities which CUSA
and its Affiliates ever have had, now have, or hereafter can, shall or may have
against Dynegy, its Affiliates and subsidiaries and all of its or their past,
present or future trustees, directors, officers, employees, agents, fiduciaries,
successors and assigns, whether now known or unknown, related to or arising from
the purchase and ownership of the Series B Preferred Stock, whether pursuant to
the Series B Preferred Stock Subscription Agreement or otherwise (the
"Transferred Claims").
(b) With respect to any and all Transferred Claims, the parties hereto
stipulate and agree that upon the consummation of the Series B Exchange, CUSA
shall expressly, for itself and on behalf of each of its Affiliates, waive any
and all provisions, rights and benefits conferred by any law of any state or
territory of the United States, or principle of common law, which is similar,
comparable or equivalent to Section 1542 of the Civil Code of California, which
provides:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor.
(c) CUSA, for itself and on behalf of each of its Affiliates, acknowledges
that the inclusion of unknown Transferred Claims was separately bargained for
and was an element of the agreement among the parties set forth in this Section
8.11. CUSA and its Affiliates may hereafter discover facts in addition to or
different from those which they now know, suspect or believe to be true with
respect to the subject matter of the Transferred Claims, but CUSA intends, for
itself and on behalf of each of its Affiliates, the transfer of the Transferred
Claims to be effective without regard to the subsequent discovery or existence
of such different or additional facts and that it extends to any and all unknown
Transferred Claims. The transfer of the Transferred Claims is intended to be a
full and binding release of all Transferred Claims, including any and all
unknown Transferred Claims, and shall be construed broadly to effect that
purpose.
(d) In order to effectuate the provisions of this Section 8.11, CUSA shall
obtain from CVX, the initial holder of the Series B Preferred Stock and the
party to the Series B Preferred
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Stock Subscription Agreement, an assignment of all of CVX's rights, titles and
interest in and to the Transferred Claims.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
DYNEGY, INC.
By: /s/ Bruce Williamson
------------------------------------
Name: Bruce Williamson
Title: Chief Executive Officer
CHEVRON U.S.A., INC.
By: /s/ John W. McDonald
------------------------------------
Name: John W. McDonald
Title: Vice President
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SCHEDULE I to Series B Preferred
Stock Exchange Agreement
1. Other Applicable Laws and Regulations Relating to the Dynegy Shareholder
Approval.
A. Shareholder approval under Illinois law and New York Stock Exchange
regulations.
2. Certain Filings, Authorizations, Consents and Approvals.
A. The Third Amendment.
B. Filing of Series C Statement with Secretary of State of State of
Illinois and the recording of a copy thereof with the County Recorder
for the county where the registered office of Dynegy in the State of
Illinois is located.
C. Filing of report with Secretary of State of State of Illinois
regarding issuance of Series C Preferred Stock and related increase in
Dynegy's paid-in capital.
D. Filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
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EXHIBIT A to Series B
Preferred Stock Exchange Agreement
COMMERCIAL ADDENDUM
1. This addendum is made with reference to the following agreements and
instruments (capitalized terms used herein without definition having the
respective meanings specified in the Series B Preferred Stock Exchange Agreement
to which this addendum (this "Commercial Addendum" is attached as Exhibit A):
(i) (A) the Net Payment Agreement dated as of July 1, 2002 (as
heretofore amended, the "DLMT Net Payment Agreement") between Dynegy
Liquids Marketing and Trade ("DLMT"), CUSA, Texaco Natural Gas Inc. and
Four Star Oil and Gas Company, (B) the Contracts and Covered Contracts
referenced in the DLMT Net Payment Agreement and (C) the Second Prepayment
and Cash Deposit Agreement dated as of May 30, 2003 between DLMT, CUSA,
Texaco Natural Gas Inc. and Four Star Oil and Gas Company (the documents
referenced in the foregoing clauses (A), (B) and (C) being collectively
called the "DLMT Commercial Arrangements"); and
(ii) (A) the Net Payment Agreement dated as of July 1, 2002 (as
heretofore amended, the "DMS Net Payment Agreement") between Dynegy
Midstream Services, Limited Partnership ("DMS"), CUSA, Texaco Natural Gas
Inc. and Four Star Oil and Gas Company, (B) the Contracts and Covered
Contracts referenced in the DMS Net Payment Agreement, (C) the letter
agreement dated May 30, 2003 between DMS and ChevronTexaco Natural Gas, a
division of CUSA concerning Bank One irrevocable letter of credit no. SLT
341454 (issued April 29, 2003; expiring June 30, 2003) and an agreed
prepayment of $25.8 million, and (D) the Second Prepayment and Cash Deposit
Agreement dated as of May 30, 2003 between DMS, CUSA, Texaco Natural Gas
Inc. and Four Star Oil and Gas Company (the documents referenced in the
foregoing clauses (A), (B), (C) and (D) being collectively called the "DMS
Commercial Arrangements").
2. Upon consummation of the Series B Exchange (including, but without
limitation, receipt by CUSA of the full amount of the Cash Payment), the
prepayment requirements for DMS/DLMT net purchases of natural gas and natural
gas liquids from CUSA and its Affiliates under the respective DMS and DLMT
Commercial Arrangements shall be reduced from a single monthly prepayment to a
series of prepayments each month made on a weekly basis, as further set forth
below, while the Prepayment Agreements referenced in Section 1 (items referenced
in (i)(C) and (ii)(D) of Section 1) shall otherwise remain in effect, as
extended and modified herein, in accordance with their terms. The parties shall
conform the payment terms under the DMS Commercial Arrangements and the DLMT
Commercial Arrangements and current or future commercial agreements entered into
between CUSA or any of its Affiliates and DMS, DLMT or any of their Affiliates
covering the sale and purchase of natural gas or natural gas liquids with the
following subsections (i) through (xii), effective as of the consummation of the
Series B Exchange (the "Effective Date"):
A - 1
(i) The parties shall extend the term of the Prepayment Agreements to
remain in force and effect until such time as Dynegy's credit ratings
improve to an extent reasonably acceptable to CUSA such that DMS and DLMT
are no longer required to make prepayments to assure CUSA and the other
affected parties under the DMS and DLMT Commercial Arrangements.
(ii) In lieu of the current advance monthly prepayments, the Dynegy
entities will be required to make weekly advance prepayments during each
month, as more particularly described hereinafter, to cover the estimated
net exposure of CUSA and the other affected parties during the next seven
days following such payment.
(iii) On the Effective Date, the parties will make estimated
settlement of the existing payables and receivables and the existing
prepayments. After taking into consideration the estimation of all existing
payables and receivables as of the day immediately preceding the Effective
Date, and following the procedures outlined in Section 6.5 of the Series B
Preferred Stock Exchange Agreement, on the Effective Date CUSA shall return
to DMS and DLMT the net amount, if any, of the prepayments held by CUSA in
excess of the amounts that would have been held by CUSA as of the Effective
Date if the procedure outlined in subsection (iv) of this Section 2 had
been followed with respect to the month in which the Effective Date occurs.
It is the intent of the parties that, after making the aforementioned
adjustments as of the Effective Date, CUSA will be holding prepayments for
no more than seven days of estimated net exposure. Thereafter, on each
Wednesday, DMS and DLMT will prepay seven days of estimated net exposure in
accordance with the procedure described in subsection (iv) of this Section
2. A final true-up of all payables and receivables up to and including the
last day of the month prior to the month in which the Effective Date
occurs, after taking into consideration the aforementioned estimated
settlement, shall occur in accordance with the provisions of the applicable
DMS and DLMT Commercial Arrangements, and each month thereafter a further
monthly true-up shall occur in accordance with the provisions of the
applicable DMS and DLMT Commercial Arrangements.
(iv) The parties will agree prior to the last business day of each
month, in accordance with their current procedures, on the estimated net
exposure for the upcoming month (the "Monthly Net Exposure") for each of
DMS and DLMT. Such Monthly Net Exposure shall be divided by the number of
days during the month to establish a "Daily Net Exposure" amount. No later
than 2:00 p.m. Central Time on each Wednesday during the term of the
Prepayment Agreements, the Dynegy entities will each make a prepayment
covering the next seven days of exposure (i.e. covering the period Thursday
through the next Wednesday) which is calculated by multiplying the Daily
Net Exposure by seven. In the event that any Wednesday on which such a
prepayment is due falls on a bank holiday the payment shall be made on the
last day the applicable bank is open for business prior to such holiday.
(v) The parties hereto acknowledge that the final Wednesday payment
made during a particular Month may cover the remaining days left in the
current Month and the first few days of the following Month. With respect
to the "first few days of the following Month", the Daily Net Exposure
applicable for the prior Month shall be
A - 2
utilized in making the Wednesday payment covering the days in the prior
Month and the first few days of the following Month, which shall be subject
to being trued up at the time the first Wednesday payment is made in the
following Month based on the "Daily Net Exposure" applicable during such
following Month.
(vi) The intent of both parties is that the weekly prepayment amounts
will fully cover, but not exceed, the anticipated net weekly exposure of
CUSA and the other affected parties. If CUSA determines at any time during
a month that it and/or the other affected parties has or will have a net
exposure to DMS, DLMT or any other Dynegy Affiliate, or if the applicable
Dynegy entity determines at any time during a month that the amount it has
prepaid or will prepay exceeds the net amount due to CUSA and the other
affected parties under the applicable Commercial Agreements, with respect
to product delivered or to be delivered during such month, in each case due
to an error in the estimation of the Monthly Net Exposure or substantial
changes in prices or volumes used in the estimate, any party may require
that (A) the next prepayment due during such month be increased or
decreased, as applicable, to eliminate the existing net exposure or recoup
the excess prepayment, as applicable, and/or (B) the remaining prepayments
during such month be increased or decreased, as applicable, to eliminate
the projected net exposure or excess prepayment, as applicable. In
addition, if the parties when calculating the next month's Monthly Net
Exposure also determine that, as of the last day of the Beginning Month or
any subsequent month, the sum of the prepayments made by the applicable
Dynegy entity for such month are (C) not at least equal to the parties'
updated best estimate of the Monthly Net Exposure for such month or (D) in
excess of the parties' updated best estimate of the Monthly Net Exposure
for such month, then the next weekly prepayment made by the applicable
Dynegy entity shall (1) in the case addressed in clause (C) of this Section
2 (vi), include an upward adjustment equal to the full amount of the
estimated shortfall or (2) in the case addressed in clause (D) of this
Section 2 (vi), include a downward adjustment equal to the full amount of
the estimated excess.
(vii) Any disagreement between CUSA and any Dynegy entity regarding
the determination of the Monthly Net Exposure, the calculation of the
prepayments, or any other similar determination that must be made in order
to implement the procedures outlined herein shall be referred to the
President of ChevronTexaco Natural Gas and the President of DMS or DLMT, as
applicable. At the time of such referral, DMS and DLMT shall prepay to CUSA
the amount that CUSA, acting in good faith, reasonably believes should be
prepaid under the applicable Commercial Arrangements as modified hereby.
The Presidents, or one of their designated direct reports if the President
is unavailable for any reason, shall meet at the earliest opportunity and
use all reasonable efforts to promptly resolve the dispute. If any such
dispute cannot be resolved through discussion and negotiation between such
persons, then either party may refer the matter to arbitration in
accordance with the terms of any Contract subject to the Commercial
Arrangements described in Section 1 above. In the event it is determined by
agreement or through arbitration that DMS and/or DLMT prepaid more than
should have been required under the Commercial Arrangements as hereby
modified, DMS and/or DLMT shall be entitled to receive (A) interest from
CUSA at the prime rate plus two percent on the amount of the overpayment so
determined or agreed, and (B) a refund of the excess
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prepaid amount (unless such amount has already been credited back to DMS
and/or DLMT in the normal monthly settlement process).
(viii) No interest shall be paid on prepayments received by CUSA
and/or its Affiliates, except as specifically provided in Section 2 (vii).
(ix) In the event that Dynegy's credit ratings shall change materially
from their levels as of July 15, 2003, CUSA and the other affected parties
shall make a further assessment of the prepayment requirements and/or other
payment terms for DMS/DLMT net purchase of natural gas and natural gas
liquids from CUSA and the other affected parties under the Commercial
Arrangements and shall determine which (if any) reasonable changes thereto
are warranted, it being understood and agreed that nothing herein shall be
construed as a waiver of (A) Dynegy's right to object to any such changes,
or (B) the right of CUSA or any other affected party to exercise any legal
rights or remedies that may be available to such parties, including,
without limitation, any right such parties may have under the Commercial
Arrangements or applicable law to suspend deliveries natural gas or natural
gas liquids.
(x) In the event of any material default by any Dynegy Affiliate in
connection with these revised credit and payment terms, and if such default
is not fully remedied within three business days after Dynegy's receipt of
written notice from CUSA, CUSA may by further written notice immediately
revoke the changes effected pursuant to this Commercial Addendum, with the
applicable pre-existing prepayment and other terms becoming again
applicable.
(xi) Subsisting netting and net payment arrangements (including but
without limitation, the Net Payment Agreements specified in Section 1
above) shall remain in place; in the event that the other provisions of
this Section 2 create imbalances on such arrangements, the parties will
negotiate in good faith to align netting and net payment arrangements with
the other provisions of this Section 2.
(xii) If Dynegy, DMS or DLMT undergoes a Change of Control (as defined
in Section 4 below), the changes effected by this Section 2 shall cease to
have any force or effect with respect to the entity that underwent such
Change of Control; any and all subsequent credit decisions concerning the
entity that underwent such Change of Control shall be based on the
succeeding entities' credit worthiness, the evaluation of which shall be in
the sole discretion of CUSA.
3. Notwithstanding anything contained in this Commercial Addendum to the
contrary, it is understood and agreed that the credit and payment provisions set
forth in Section 2 above shall also apply to all other current or future
agreements pursuant to which Dynegy or any of its Affiliates purchases gas or
natural gas liquids from CUSA or its Affiliates, whether or not such other
agreements are covered by such Commercial Agreements; provided, however, that
nothing in this Commercial Addendum shall obligate CUSA, or any of its
Affiliates, or DMS or DLMT, or any of their Affiliates, to (a) continue, extend,
or expand the scope of, any commercial agreements with Dynegy or any of its
Affiliates, or (c) enter into any new commercial agreements with Dynegy or any
of its Affiliates.
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4. "Change of Control" means (i) as to Dynegy, a Change of Control as
defined in the Exchange Indenture and, (ii) as to DMS or DLMT, any failure by
Dynegy to (A) own, directly or indirectly, in excess of 50% of the equity
interests in such entity, and (B) control, in its discretion, decision-making
and day-to-day operations of such entity.
5. The parties will prepare and execute (not later than the Exchange Date)
amendments to the DLMT Commercial Arrangements and the DMS Commercial
Arrangements as appropriate to implement this Commercial Addendum. The parties
agree that none of the amounts to be transferred to CUSA and its Affiliates
pursuant to the Series B Preferred Stock Exchange Agreement are in consideration
for such amendments and that Dynegy and its Affiliates, on the one hand, and
CUSA and its Affiliates, on the other hand, will each file all income tax
returns consistent with this sentence. CUSA represents that Four Star Oil and
Gas Company has consented, in principle, to the proposed amendments described
herein, subject to review and approval of the formal amendments.
6. In the event Dynegy elects to propose changes to the existing prepayment
arrangements between DLMT and Venice Energy Services Company LLC ("VESCO") to
conform such existing arrangements to those described above, CUSA and its
Affiliates will support such changes, provided that such changes also receive
the consent of at least one other member of VESCO, excluding any Affiliates of
Dynegy or CUSA. CUSA and DLMT each agree to use commercially reasonable efforts
to effectuate the intent and purposes of this Section 6.
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