SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT, dated as of June 14, 1999 (the
'Agreement'), is made by and among Energy Convergence Holding Company, an
Illinois corporation ('Newco'), Illinova Corporation, an Illinois corporation
('Illinova'), Dynegy Inc., a Delaware corporation ('Dynegy'), and Chevron U.S.A.
Inc., a Pennsylvania corporation (the 'Shareholder').
WHEREAS, Shareholder owns a significant percentage of the outstanding
capital stock of Dynegy; and
WHEREAS, Newco, Illinova, Energy Convergence Acquisition Company, an
Illinois corporation ('ECAC'), Dynegy Acquisition Company, a Delaware
corporation ('DAC'), and Dynegy have entered into an Agreement and Plan of
Merger dated as of the date hereof (the 'Merger Agreement'), that provides for,
among other things, the merger of DAC with and into Dynegy (the 'Merger'),
pursuant to which shares of Newco's Class B Common Stock, no par value ('Class B
Shares'), shall be issued to Shareholder in exchange for its shares of Dynegy
stock, subject to the terms and conditions of the Merger Agreement; and
WHEREAS, on the closing date of the Merger, Shareholder will purchase
additional shares of Newco Class B Shares pursuant to the terms of a
Subscription Agreement dated as of the date hereof (the 'Subscription
Agreement') by and between Newco and the Shareholder; and
WHEREAS, as an inducement to Newco, Illinova and Dynegy to enter into
the Merger Agreement, Shareholder agreed to enter into this Agreement to provide
for certain agreements and obligations of the parties hereto prior to and
following the closing of the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual and
independent covenants hereinafter set forth and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, each of the following capitalized terms is
defined as follows:
'Affiliate' shall mean a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, another Person, and includes any Person acting in concert with
another Person.
'Auction' shall mean a sale process for 100% of the total combined
voting power of the outstanding voting securities of Newco conducted by an
investment banking firm of national reputation selected by Newco and reasonably
acceptable to Shareholder. An 'Auction' may include either (i) a broad or narrow
solicitation of interest and may or may not involve multiple rounds of bidding
as determined by Newco's Board of Directors or a committee thereof or (ii) any
recapitalization, combination, reverse merger or other similar transaction.
'Blocking Event' shall occur if either (a) all of the directors elected
to Newco's Board of Directors pursuant to the terms of the Class B Shares
present at the meeting where a Covered Transaction is considered vote against a
Covered Transaction and such Covered Transaction is otherwise approved by at
least a majority of the directors elected to Newco's Board of Directors then in
office, or (b) any of the Class B Shares are voted against a Covered Transaction
and such Covered Transaction is otherwise approved by at least two-thirds of
those shares entitled to vote on the transaction (other than the Class B Shares
and other than shares that are beneficially owned by members of Newco's Board of
Directors and the executive officers of Newco or any Subsidiary of Newco).
Notwithstanding the foregoing, no 'Blocking Event' shall be deemed to occur with
respect to (a) any Covered Transaction which is a substantially similar
transaction as a Covered Transaction previously acted upon, the intent of the
parties being that repetitive submissions of substantially similar proposals
shall not result in additional Blocking Events having occurred or (b) any event
that would otherwise constitute a Blocking Event pursuant to clause (a) or (b)
of the preceding sentence with respect to which a majority of the directors
elected to Newco's Board of Directors then in office (other than the directors
elected by the holders of the Class B Shares) determines that such event shall
not be deemed to be a Blocking Event.
'Buyout Event' shall occur upon the earlier of (a) the occurrence of a
second Blocking Event within a period of 24 consecutive months following the
occurrence of a prior Blocking Event or (b) the occurrence of a third Blocking
Event (regardless of the period of time between Blocking Events).
'Class A Shares' shall mean shares of Newco's Class A Common Stock, no
par value.
'Closing' shall mean the closing of the transactions contemplated by
the Merger Agreement.
'Covered Transaction' shall mean an event specified in Article III,
Section 7(B) (excluding clause (1) and (2) thereof) of the Bylaws of Newco.
'Effective Date' shall mean the effective date of the Merger.
'Exchange Act' shall mean the Securities and Exchange Act of 1934, as
amended.
'Governmental Authority' shall mean any governmental or regulatory
authority or agency.
'Governmental Order' shall mean any rule, regulation, order, writ or
decree of a Governmental Authority.
'Parent' shall mean any Person of which Shareholder is a 'subsidiary
company' as defined in PUHCA.
'Person' shall mean a natural person, a corporation, a limited
liability company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Authority.
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'Public Sale' shall mean (a) an underwritten public offering of Class B
Shares (or the Class A Shares into which they are convertible) pursuant to an
effective registration statement under the Securities Act or (b) a bona fide
public sale of Class B Shares in an open market transaction through a broker,
dealer or market maker under Rule 144 (or any successor rule thereto) of the
Securities Act.
'PUHCA' shall mean the Public Utility Holding Company Act of 1935, as
amended, including any regulations promulgated thereunder or any successor
statutes thereto.
'PUHCA Exemption' shall mean an exemption under Section 3(a)(3) of
PUHCA from the registration and other requirements of PUHCA.
'Qualified Offer' shall mean a written offer by Shareholder or any
Affiliate thereof to acquire all, but not less than all, of the outstanding
voting securities of Newco for consideration consisting solely of cash or freely
tradable securities listed on a national securities exchange or the NASDAQ
National Market (or successors thereto), which offer is accompanied by a
fairness opinion relating to such offer from an investment banking firm of
national reputation.
'Registration Rights Agreement' shall mean the Registration Rights
Agreement dated as of the date hereof between Shareholder and Newco.
'SEC' shall mean the Securities and Exchange Commission or any
successor organization.
'Securities Act' shall mean the Securities Act of 1933, as amended.
'Third Party Offer' shall mean a bona fide cash offer from any Person
to acquire all or any part of the Class B Shares (or the Class A Shares into
which they are convertible).
'Third Party Offeror' shall mean a Person who makes a Third Party
Offer.
'Transfer' shall mean: (a) when used as a noun, any direct or indirect
transfer, sale, assignment, conveyance, pledge, hypothecation, encumbrance or
other disposition; and (b) when used as a verb, to directly or indirectly
transfer, sell, assign, convey, pledge, hypothecate, encumber or otherwise
dispose of; provided that 'Transfer' shall not include any such transfer to a
'Permitted Transferee' (as defined in Newco's Articles of Incorporation)
provided that such Permitted Transferee agrees in writing to become a party to
this Agreement and to be bound by the provisions hereof; provided, further, that
'Transfer' shall include a change of control of any Person who holds, directly
or indirectly, Class B Shares (but shall not include a change of control with
respect to Chevron Corporation).
'Voting Agreement' shall mean the Voting Agreement dated as of the date
hereof between Shareholder and Illinova.
'Widely Disbursed Public Sale' shall mean a Public Sale in which no
purchaser and its affiliates (a) acquires Class B Shares (or the Class A Shares
or other securities into which the Class B Shares are convertible) representing
more than 3% of the total combined voting power of
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all voting securities of Newco then outstanding or (b) acquire any shares to the
extent that such acquisition will increase such purchaser's and its Affiliates'
combined voting power to more than 5% of the total combined voting power of all
voting securities of Newco then outstanding.
ARTICLE II
AGREEMENTS RELATING TO PUHCA AND ICC CERTIFICATION
2.1 Covenants of Shareholder and Newco. Shareholder and Newco covenant
and agree that:
(a) Within 30 days after the date hereof, Shareholder will
file with the SEC a good faith application seeking exemption or
exclusion (under such provisions of PUHCA as Shareholder shall elect)
from the registration requirements of PUHCA that would otherwise apply
to Shareholder by virtue of Shareholder's acquisition of Newco Common
Shares pursuant to the Merger Agreement and the Subscription Agreement.
Shareholder will coordinate its efforts to secure an exemption from the
registration requirements of PUHCA with Illinova and Dynegy and provide
Illinova the opportunity to join said application.
(b) In the event that the SEC grants the PUHCA exemption
application under Section 2.1(a) hereof conditioned upon modifications
to Shareholder's ownership interests or minority shareholder protection
rights (including governance and voting rights) pertaining to Newco or
that the staff of the SEC's Division of Investment Management at a
level of Assistant Director or higher conditions its willingness to
support the issuance of a final order granting the PUHCA exemption
application upon the inclusion in Shareholder's exemption application
of representations or undertakings concerning Shareholder's intended
exercise of its rights, Shareholder will take such steps as may be
reasonably required to implement (not including registration under
PUHCA) such modifications or representations; provided, however, that
Shareholder shall not be required to make any such modification or
representation that would effect a material change in Shareholder's
ownership interest or minority shareholder protection rights (including
governance and voting rights) pertaining to Newco except as required
under Section 2.1(e) hereof, or affect Shareholder's ability to acquire
'foreign utility companies' under Section 33 of PUHCA.
(c) In the event that prior to Closing (as defined in the
Merger Agreement) (i) the SEC denies the PUHCA exemption application to
be made under Section 2.1(a) hereof or a 'Staff Objection,' as defined
in the Merger Agreement, is received, the parties will mutually explore
appropriate modifications to their agreements and the basis for a
renewed or amended exemption application that is likely to address any
Staff Objection and receive favorable action and will cooperate in
making such amended application; provided, however, that Shareholder
shall not be required to make any modification or to make any
representation or undertaking to the SEC that would effect a material
change in Shareholder's ownership interests in or minority shareholder
protection rights (including governance and voting rights) pertaining
to Newco, except as may be required under Section 2.1(e) hereof or
affect Shareholder's ability to acquire 'foreign utility companies'
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under Section 33 of PUHCA. If the parties do not agree upon and
implement such modification to their agreements within 90 days, any
party hereto may terminate this Agreement by notice to the other
parties, which termination shall automatically terminate the Merger
Agreement, as provided in Section 9.3(f) thereof.
(d) In the event that after Closing (as defined in the Merger
Agreement), the SEC denies the PUHCA exemption application to be made
under Section 2.1(a) hereof or revokes or revises in a manner adverse
to Shareholder an exemption previously granted, and no action
Shareholder is required to take, or will agree to take, under this
Section 2.1 will enable Shareholder to obtain an exemption or to
restore the exemption previously granted, Newco shall have the sole
responsibility to take and will take the necessary actions to avoid
Shareholder becoming a holding company required to register under PUHCA
including, without limitation, one or more of the following: joining or
becoming subject to an independent system operator or a separate
transmission company, joining or contributing assets to a regional
transmission organization, functionally separating its lines of
business, or divesting utility assets or public utility companies, in
any such event only to the extent necessary to allow perfection of an
exemption or for Shareholder to avoid the requirement that Shareholder
register as a holding company pursuant to PUHCA. In such instances,
Shareholder shall cooperate with Newco in its efforts to obtain
perfection of an exemption from the registration requirements of PUHCA
for Shareholder, but will not be required to take any action materially
affecting Shareholder's ownership interest or minority shareholder
protection rights (including governance and voting rights) pertaining
to Newco, or Shareholder's ability to acquire 'foreign utility
companies' under Section 33 of PUHCA.
(e) Notwithstanding any other provision of this Section 2.1,
in the event that Shareholder acquires (other than through Newco) a
direct or indirect interest in any public utility company other than
Illinois Power Company or acquires voting stock in Newco in addition to
the stock to be acquired under the Merger Agreement and the
Subscription Agreement: (i) Newco shall not be required to undertake
any action to remedy the legal consequences under PUHCA of any such
acquisition, and (ii) Shareholder shall have the sole responsibility to
take (if it elects to do so) the necessary actions to avoid Shareholder
becoming a holding company required to register under PUHCA including,
without limitation, divestiture of the additional interests acquired by
Shareholder and modification of Shareholder's minority shareholder
protection rights (including governance and voting rights) in any of
Shareholder's direct or indirect interests in a public utility company.
(f) Newco agrees that it will not (nor allow any subsidiary
to) enter into transactions or to take other action that would put the
exemptions from the registration requirements of PUHCA held by Newco or
Shareholder at risk or restrict Shareholder's ability to invest in or
acquire interests in 'foreign utility companies' as defined by section
33(a)(3) of PUHCA.
(g) Newco agrees to obtain or cause to be obtained from the
ICC a certification under Section 33 of PUHCA which has the effect of
allowing Shareholder,
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any Parent, or any 'subsidiary company' (as defined in PUHCA) of such
Parent to acquire and maintain an interest in the business of one or
more 'foreign utility companies' as defined in Section 33 of PUHCA,
unless Illinova shall have provided evidence reasonably satisfactory to
Dynegy and Shareholder that such certification is unnecessary for
acquiring or maintaining such an interest.
(h) Newco, Illinova and Dynegy shall furnish such information
and provide such assistance, as Shareholder may reasonably request for
purposes of implementing the provisions of this Section 2.1.
ARTICLE III
LIMITATIONS ON ACQUISITIONS AND TRANSFERS
3.1 Limitations on Certain Acquisitions by Shareholder. Newco and
Shareholder covenant and agree that:
(a) Shareholder may freely acquire, or permit any Affiliate of
Shareholder to acquire, by purchase or otherwise, any securities of
Newco or become affiliated with any Person who owns securities of
Newco, so long as Shareholder and its Affiliates do not collectively
beneficially own (including any securities of other Persons with whom
Shareholder or its Affiliates are affiliated) securities representing
more than 40% of the total combined voting power of the outstanding
voting securities of Newco.
(b) From the date hereof until the first anniversary of the
Closing, Shareholder shall not, directly or indirectly, acquire, offer
or propose to acquire, solicit an offer to sell, become a 'participant'
in a 'solicitation' of proxies, as those terms are defined in Rule
14a-11 and 14a-1, respectively, under the Exchange Act, in respect of
any voting securities of Newco that may be outstanding and entitled to
vote relating to any of the foregoing, or otherwise agree to acquire by
purchase or otherwise (or permit any Affiliate of Shareholder to
undertake any of such actions) any securities of Newco in excess of 40%
of the total combined voting power of the outstanding voting securities
of Newco; provided, however, that Shareholder may (i) make a Qualified
Offer in accordance with Section 3.1(d) if, and only if, any Person or
group of Persons (other than an Affiliate of Shareholder) acquires,
offers, solicits an offer to sell, or otherwise seeks or agrees to
acquire by purchase or otherwise beneficial ownership (as such term is
defined in Rule 14d-1 of the Exchange Act) of any securities of Newco
representing 15% or more the total combined voting power of the
outstanding voting securities of Newco or (ii) exercise its preemptive
rights pursuant to Article VI hereof.
(c) From and after the first anniversary of the Closing,
Shareholder shall not, directly or indirectly, acquire, offer or
propose to acquire, solicit an offer to sell, become a 'participant' in
a 'solicitation' of proxies, as those terms are defined in Rule 14a-11
and 14a-1, respectively, under the Exchange Act, in respect of any
voting securities of Newco that may be outstanding and entitled to vote
relating to any of the foregoing, or otherwise agree to acquire by
purchase or otherwise (or permit any Affiliate of Shareholder to
undertake any of such actions) any securities of Newco in excess of 40%
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of the total combined voting power of the outstanding voting securities
of Newco; provided, however, that Shareholder shall be entitled to make
a Qualified Offer in accordance with Section 3.1(d).
(d) (i) In connection with any Qualified Offer, Shareholder
shall deliver the Qualified Offer in writing to Newco. In the
event that Newco does not accept such offer in writing within
30 days after receipt, such offer shall be deemed withdrawn
and Shareholder shall elect for Newco to either: (A) conduct
an Auction in which Shareholder may participate but shall have
no special priority or other rights vis-a-vis other bidders,
or (B) conduct an Auction in which Shareholder shall not
participate but at the conclusion thereof Shareholder shall
have the right to acquire all of the outstanding voting
securities of Newco at a purchase price per share equal to
105% of the purchase price per share set forth in the bid
selected by Newco's Board of Directors and in such event,
Newco's Board of Directors shall approve promptly and in any
case within 10 days of Shareholder's request in writing made
within 10 days of the conclusion of any such Auction (written
notice of such conclusion to be given immediately by Newco to
Shareholder) entering into a definitive agreement with
Shareholder for such a transaction containing customary terms
and conditions, and Newco shall, within 2 days of the approval
of its Board of Directors of such an agreement, execute and
deliver the same to Shareholder; such terms and conditions
shall include a termination fee of 5 percent of the aggregate
value of Newco as evidenced by the per share value payable by
Shareholder under the agreement and a right of Newco to
terminate the transaction and pay such termination fee to
Shareholder if Newco's Board of Directors determines that it
is necessary for Newco to so terminate the agreement in order
for the Board to properly discharge its fiduciary duties. In
the event of any such termination by Newco, Shareholder may,
in its discretion, proceed with a tender or exchange offer for
all of the common stock of Newco which Shareholder does not
own at such price as it shall choose irrespective of any other
provisions of this Agreement and shall be free to pursue any
other rights and remedies which it may then have against Newco
arising from such termination; Shareholder shall not be
obligated to tender its shares to such other bidder nor to
vote in favor of any other transaction in the event of such
termination.
(ii) Any Auction shall be subject to the following provisions:
(A) The Auction shall be completed within
120 days after Newco receives the Qualified Offer and
the corresponding sale shall close within 60 days
after completion of the Auction.
(B) If Newco does not receive an offer
acceptable to its Board of Directors in an Auction
conducted pursuant to Section 3.1(d)(i)(B) within 120
days after Newco receives a Qualified Offer,
Shareholder may either (I) proceed with its Qualified
Offer (which may take the form of a tender offer or
exchange offer) and close such purchase within 60
days
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thereafter, or (II) reinitiate the process by
submitting a new Qualified Offer.
(C) In the event that Shareholder is not the
successful bidder in an Auction conducted pursuant to
Sections 3.1(d)(i)(A) or (B) or does not elect to
purchase in the Auction, Shareholder agrees that it
shall vote its Class B Shares in favor of the
successful bidder's transaction and not exercise
dissenter's rights, shall tender its shares (in the
event of a tender offer), and otherwise shall
reasonably cooperate in consummating the transaction.
(D) Newco and Shareholder agree that the
purchase price set forth in a Qualified Offer is
highly confidential and, as such, Newco and
Shareholder (and each of their Affiliates) shall not,
to the extent legally permissible, disclose such
purchase price to any Person without the prior
written consent of the other party.
(E) To the extent that a successful bidder
proposes a purchase price that is not solely for
cash, the stock and cash components of such bid shall
be substantially equivalent in value (on a per share
basis) and the bid shall provide for sufficient cash
(or be on such other terms) such that Shareholder may
receive solely cash for its Class B Shares.
(F) In any Auction, Newco may be a bidder.
3.2 Transfer Restrictions. Newco and Shareholder covenant and agree
that commencing upon the Closing and for a period of one year thereafter (the
'Restricted Period'), Shareholder shall not Transfer any Class B Shares except
in a transaction pursuant to Section 3.1(d) hereof, Article IV hereof or a
Governmental Order. Following the Restricted Period, Shareholder shall not
Transfer or propose to Transfer any Class B Shares except in a transaction
pursuant to Article III, Article IV or a Governmental Order.
(a) Widely Disbursed Public Sale. Following the Restricted
Period, Shareholder may Transfer any Class B Shares in one or more
Widely Disbursed Public Sales.
(b) Other Transfers. Following the Restricted Period,
Shareholder may Transfer part or all of its Class B Shares in
accordance with this Section 3.2(b) and Newco shall first be given the
opportunity, in the following manner, to purchase (or cause a Person or
group designated by Newco (a 'Newco Designee') to purchase) all, but
not less than all, of such offered Class B Shares:
(i) Proposed Transfer in the Absence of a Third Party
Offer. If, from time to time, at any time when Shareholder is
not in receipt of a Third Party Offer, Shareholder desires to
Transfer some or all of the Class B Shares other than pursuant
to a Widely Disbursed Public Sale, Shareholder shall deliver a
written
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notice (the 'Offer Notice') to Newco of such intention and
stating the number of Class B Shares that Shareholder proposes
to Transfer and the cash purchase price per share for such
Transfer. Newco (or a Newco Designee) shall have the right for
thirty (30) days from the receipt of the Offer Notice,
exercisable by written notice in accordance with Section 8.4
hereof, to elect to purchase (or to designate the Newco
Designee to purchase) all, but not less than all, of the Class
B Shares specified in the Offer Notice for cash at a purchase
price per share as set forth therein.
(A) If Newco (or a Newco Designee) does not
provide Shareholder written notice of its election to
purchase within thirty (30) days from receipt of the
Offer Notice, Shareholder may, but is not obligated
to, Transfer all, but not less than all, of the Class
B Shares as specified in the Offer Notice at the cash
purchase price per share set forth therein (or at a
higher price), provided that such Transfer must be
completed within 180 days after Shareholder delivers
the Offer Notice.
(B) If Newco exercises its right to purchase
the Class B Shares specified in the Offer Notice, the
closing of the purchase of such Class B Shares shall
take place within 180 days after Shareholder delivers
the Offer Notice at a time and place reasonably
specified by Newco (or a Newco Designee). At the
closing, Newco (or a Newco Designee) shall deliver to
Shareholder cash or immediately available funds in an
amount equal to the total purchase price of the Class
B Shares set forth in the Offer Notice and
Shareholder (and its Affiliates) shall deliver to
Newco (or a Newco Designee) certificates representing
the Class B Shares, duly endorsed in blank or
accompanied by stock powers duly executed and
otherwise in form acceptable for transfer of the
shares on the books of Newco, free and clear of
liens, claims or other encumbrances of any nature.
If, for any reason other than a delay caused by
Shareholder, Newco (or a Newco Designee) fails to
complete the purchase of the Class B Shares in
accordance with this clause within 180 days after
Shareholder delivers the Offer Notice, then
Shareholder (and its Affiliates) may, but is not
obligated to, Transfer the Class B Shares at such
price as it shall deem appropriate, provided that
Shareholder shall complete such Transfer within 180
days thereafter. Shareholder and Newco expressly
agree that, with respect to the first failure of
Newco to complete the purchase of the Class B Shares
as required by this clause (B), Shareholder shall
have no remedies other than (1) the rights set forth
in the immediately preceding sentence and (2) a right
to recover from Newco on demand Shareholder's
reasonable out of pocket expenses related to the
proposed sale; provided, however that such limitation
on Shareholder's remedies shall only be applicable if
Newco exercised its right to purchase under this
clause (B) in good faith and with the written advice
of a nationally-recognized investment banking firm or
financial institution that sufficient financing would
be available for such transaction.
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(ii) Transfer Pursuant to a Third Party Offer. At any time
Shareholder receives and desires to accept an unsolicited Third Party
Offer, Shareholder shall deliver a written notice (the 'Third Party
Offer Notice') to Newco of such intention and stating the identity of
the Third Party Offeror, the number of Class B Shares that Shareholder
proposes to Transfer and the purchase price per share for such
Transfer. Following, receipt of the Third Party Offer Notice, Newco's
board of directors shall determine, in its sole discretion, whether the
sale to the Third Party Offeror is acceptable and shall deliver a
written notice to Shareholder stating whether the sale to the Third
Party Offeror is acceptable within thirty (30) days from the receipt of
the Third Party Offer Notice.
(A) If Newco advises Shareholder that the sale to the
Third Party Offeror is acceptable, then Shareholder may
proceed with the Transfer of Class B Shares in accordance with
the Third Party Offer Notice (or at a higher price).
(B) If Newco advises Shareholder that the sale to the
Third Party Offeror is not acceptable, then Shareholder shall
have the right to require Newco to purchase (or to designate a
Newco Designee to purchase) all, but not less than all, of the
Class B Shares specified in the Third Party Offer Notice for
cash at a purchase price equal to 105% of the purchase price
per share as set forth in the Third Party Offer Notice. If,
for any reason other than a delay caused by Shareholder, Newco
(or a Newco Designee) fails to complete the purchase within
180 days from its receipt of the Third Party Offer Notice,
Shareholder may, but is not obligated to, Transfer the Class B
Shares specified in the Third Party Offer Notice at such price
as it shall deem appropriate, provided that Shareholder shall
complete such Transfer within 180 days thereafter. Shareholder
and Newco expressly agree that, with respect to the first such
failure of Newco to complete the purchase of the Class B
Shares as required by this clause (B), Shareholder shall have
no remedies other than (1) the rights set forth in the
immediately preceding sentence and (2) a right to recover from
Newco on demand Shareholder's reasonable out of pocket
expenses related to the proposed sale; provided, however that
such limitation on Shareholder's remedies shall only be
applicable if Newco exercised its right to purchase under this
clause (B) in good faith and with the written advice of a
nationally-recognized investment banking firm or financial
institution that sufficient financing would be available for
such transaction.
3.3 Time Periods. Whenever a provision of Article III or IV provides
that an action is to be taken within a specified period of time, such period
shall be increased to the extent reasonable to accommodate obtaining any
required approvals from any Governmental Authorities.
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3.4 Additional Shareholder Covenants. Shareholder shall not seek,
directly or indirectly, to place representatives on the Board of Directors of
Newco or seek the removal of any member of the Board of Directors of Newco
except pursuant to the terms of the Class B Shares set forth in the Articles of
Incorporation of Newco.
3.5 Shares Subject to the Agreement. Except as otherwise provided for
herein, all Class B Shares now or hereafter owned by Shareholder or its
Affiliates shall be subject to the terms of this Agreement.
3.6 References to Class B Shares. With respect to any Transfer, a
reference to Class B Shares herein shall be deemed to include the Class A Shares
or other securities issuable upon conversion of the Class B Shares in accordance
with Newco's Articles of Incorporation upon the Transfer of such Class A Shares
or other securities to a third party.
3.7 Legend and Stop Transfer Order. To assist in effectuating the
provisions of this Agreement, Shareholder hereby consents:
(a) to the placement of the following legend on all
certificates certifying ownership of the Class B Shares until such
Class B Shares have been sold, transferred or disposed of pursuant to
the requirements of Article III hereof:
The shares represented by this certificate are subject to the
provisions of a Shareholder Agreement between and among Newco
and Chevron U.S.A. Inc. (and certain other parties) and may
not be sold, transferred, pledged, hypothecated or otherwise
disposed of except in accordance therewith. A copy of said
Agreement is on file at the office of the Secretary of Newco;
and
(b) to the entry of a stop transfer order with the transfer
agent or agents of Newco securities against the transfer of Class B
Shares except in compliance with the requirements of this Agreement,
or, if Newco is its own transfer agent with respect to any Class B
Shares, to the refusal by Newco to transfer any such securities except
in compliance with the requirements of this Agreement.
ARTICLE IV
NEWCO'S BUYOUT RIGHTS
4.1 Buyout Rights. Subject to the limitations hereinafter set forth,
upon the occurrence of a Buyout Event, Shareholder's blocking rights under this
Agreement with respect to a Covered Transaction and pursuant to Article III,
Section 7 of Newco's Bylaws shall, subject to reinstatement under clause
(a)(iii) hereunder, terminate and Shareholder may, within 180 days after the
occurrence of a Buyout Event (or such longer period as may be required to avoid
disgorgement of short swing profits under Section 16 of the Exchange Act with
respect to Class B Shares owned at the time of the Buyout Event), Shareholder,
at its option shall either:
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(a) Sell (and cause its Affiliates to sell) all of the Class B Shares
(1) in a Widely Disbursed Public Sale or (2) to a third party in a private sale,
provided that any such private sale shall be subject to the following
provisions:
(i) As promptly as practicable, Shareholder shall deliver
written notice to Newco of any proposed buyer under clause (2) of this
Section 4.1(a) and the purchase price per share and other material
terms of such proposed sale.
(ii) If, within 30 days after receipt of Shareholder's notice,
Newco's board of directors delivers written notice to Shareholder that
a proposed buyer or terms are not acceptable, in its sole discretion,
then Shareholder shall have the right to require Newco to purchase (or
find an acceptable buyer to purchase) all of the Class B Shares at a
purchase price equal to 105% of the purchase price agreed to between
Shareholder and the third party under clause (2) of this Section
4.1(a).
(iii) If, for any reason other than a delay caused solely by
Shareholder, Newco (or any acceptable buyer appointed by Newco) fails
to purchase the Class B Shares within 180 days after the date of the
Buyout Event, then Shareholder (and its Affiliates) shall be free to
Transfer the Class B Shares at such price as it shall deem appropriate,
provided that Shareholder shall complete such Transfer within 180 days
thereafter, provided, that if Shareholder chooses not to sell the Class
B Shares after such failure, then notwithstanding any of the provisions
of this Section 4.1, the Blocking Event triggering the Buyout Event
shall not be deemed to be a Blocking Event and Shareholder's blocking
rights under Article III, Section 7 of Newco's Bylaws shall thereupon
be reinstated. Shareholder and Newco expressly agree that, with respect
to the first failure of Newco to complete the purchase of the Class B
Shares as required by this clause (iii), Shareholder shall have no
remedies other than (1) the rights set forth in the immediately
preceding sentence and (2) a right to recover from Newco on demand
Shareholder's reasonable out of pocket expenses related to the proposed
sale; provided, however that such limitation on Shareholder's remedies
shall only be applicable if Newco exercised its right to purchase under
this clause (iii) in good faith and with the written advice of a
nationally-recognized investment banking firm or financial institution
that sufficient financing would be available for such transaction.
(b) Elect to retain the Class B Shares, by delivering a written
election to Newco, provided that such Class B Shares and the directors elected
by such Class B Shares shall no longer be entitled to any blocking rights under
Article III, Section 7 of Newco's Bylaws.
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ARTICLE V
CERTAIN AGREEMENTS RELATING TO
THE MERGER AGREEMENT AND NEWCO
5.1 Determination of Satisfaction of Certain Conditions. The parties
hereto covenant and agree that any determination by Dynegy that the conditions
to the closing of the Merger Agreement specified in Sections 9.1(h) or 9.3(e),
(f) or (g) of the Merger Agreement are satisfied shall not be deemed to be
effective unless such determination shall also be approved in writing by
Shareholder.
5.2 Sales of Class B Common Stock. Newco covenants and agrees that it
shall not issue or agree to issue to any Person other than Shareholder or its
Affiliates any Class B Shares (or any security convertible or exchangeable into
such Class B Shares or any option, warrant or other right to acquire such Class
B Shares) without the prior written consent of Shareholder.
5.3 Restraints on Shareholders Ownership. Newco covenants and agrees
that its shall not adopt a shareholder rights plan, 'poison pill' or similar
device that prevents Shareholder from exercising its rights under Section 3.1(c)
or Article IV.
5.4 Nuclear Facility. Newco covenants and agrees that, from and after
the Closing, it shall not acquire, own or operate (and shall prevent any
subsidiary or joint venture to which it is a party from acquiring, owning or
operating) a facility licensed by the Nuclear Regulatory Commission (a 'Nuclear
Facility'). This restriction shall not prohibit Newco and its subsidiaries from
owning up to 10% of the equity securities of any publicly-traded company that
owns or operates a Nuclear Facility.
5.5 Representatives on Newco's Board of Directors. Dynegy covenants and
agrees that it shall cause the three directors nominated by Shareholder to be
appointed to Newco's Board of Directors pursuant to Section 3.3(c)(i) of the
Merger Agreement.
ARTICLE VI
PREEMPTIVE RIGHTS
6.1 Employee Benefit Plans. In the event that Newco issues any equity
securities pursuant to stock option, restricted stock or other employee benefit
plans, within 30 days following the end of each fiscal quarter Newco shall
notify Shareholder in writing of all such issuances. Within 30 days after the
receipt of such notification, Shareholder may notify Newco of its intent to
purchase its 'proportionate share' of such securities, in which event Newco
shall issue such equity securities to Shareholder in exchange for the purchase
price. Notwithstanding the foregoing, in the event that Newco is subject to a
stock split, reverse split, merger, share exchange or other transaction in which
the rights of Shareholder may be adversely impacted in the event it is not able
to purchase its proportionate share in a timely fashion, the notice required by
this Section shall be given in sufficient time for Shareholder to elect to
purchase equity securities and participate in such transaction.
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6.2 Other Issuances. In the event that Newco issues any equity
securities other than as described in Section 6.1 hereof, promptly, but in all
events within 30 days following each such issuance, Newco shall notify
Shareholder in writing of such issuance. Within 30 days after the receipt of
such notification, Shareholder may notify Newco in writing of its intent to
purchase its proportionate share of such securities, in which event Newco shall
issue such equity securities to Shareholder in exchange for the purchase price.
6.3 Intended Issuances. Notwithstanding the provisions of Section 6.2,
in order to enable Newco to efficiently structure financings and other
securities issuances, to the extent that Newco notifies Shareholder in writing
of the material terms of an intended issuance of any equity securities, as
promptly as practicable thereafter Shareholder shall notify Newco in writing of
its election to purchase its proportionate share of such securities, in which
case Newco shall issue such equity securities to Shareholder in exchange for the
purchase price at the time of the issuance to others. In the event that the
material terms of the intended issuance change prior to issuance, Newco shall
promptly give Shareholder written notice thereof, and as promptly as practicable
thereafter Shareholder shall reconfirm (or reverse) its prior election in
writing.
6.4 Purchase Price. The purchase price for equity securities issued
pursuant to Section 6.1 or 6.2 shall equal: (a) in the event that the securities
are issued in an arms' length transaction based upon the market price of Newco's
securities, at the price of such issuance, (b) if clause (a) does not apply, at
the mean closing price on the New York Stock Exchange (or other primary market
for the relevant securities) over the twenty (20) trading days most immediately
preceding the issuance, (c) if neither clause (a) or (b) applies, at the fair
market value thereof as determined for purposes of complying with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, if a
notification is required pursuant to such Act, and (d) otherwise at the fair
market value thereof, in cash, as determined in good faith by Board of Directors
of Newco.
6.5 Proportionate Share. For purposes of the issuance of securities to
Shareholder pursuant to this Article VI, Shareholder's 'proportionate share'
shall be that number of shares or interests which preserves Shareholder's
proportionate interest in the equity value of Newco at the same level as prior
to the issuance that triggered Shareholder's rights.
6.6 Nature of Securities. To the extent that Shareholder is entitled to
purchase Class A Common Shares pursuant to this Article VI, it instead shall be
issued Class B Common Shares on a one-for-one basis. To the extent that
Shareholder is entitled to purchase any other voting securities, Newco and
Shareholder shall negotiate in good faith and agree upon the nature of the
securities and, if applicable, the restrictions on or privileges of, such
securities so that the purposes of this Agreement are effected. Shareholder
shall have no preemptive rights with respect to securities that do not
participate in the earnings of Newco or, absent a payment or other default, in
the election of directors of Newco.
6.7 Presumption. In order to facilitate future reviews of the books and
records of Newco, there shall be an irrefutable presumption that this Article VI
has been fully complied with by Newco: (a) absent a filing by Shareholder with
the SEC (for instance, on a Schedule 13D) within 180 days following the end of
any fiscal year of a document stating its belief that it was not issued the
securities that it was entitled to during such fiscal year, with respect to all
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issuances during such year, and (b) absent the institution of litigation against
Newco by Shareholder prior thereto, 180 days following the last date on which
there has been any Class B Shares outstanding, with respect to all issuances.
ARTICLE VII
EFFECTIVENESS; TERMINATION
7.1 Effectiveness and Term. The provisions of this Agreement shall be
effective and terminate as follows:
(a) The provisions of Articles I, II and VIII hereof shall be
effective as of the date hereof and shall terminate on the date
following the Effective Date on which Shareholder and its Affiliates
own less than 10% of the total combined voting power of all voting
securities of Newco; and
(b) The remaining provisions (other than Articles I, II and
VIII) of this Agreement shall be effective at the Effective Date and
shall terminate on the date Shareholder and its Affiliates cease to own
at least 15% of the total combined voting power of all voting
securities of Newco.
Notwithstanding the foregoing, if the Merger Agreement is terminated in
accordance with its terms, the provisions of this Agreement shall be null and
void and of no further force or effect and this Agreement shall be deemed
terminated; provided, however, that no termination of this Agreement shall in
any way relieve any party from any liability arising as a result of any breach
of this Agreement by such party prior to the effective date of such termination.
7.2 Issuance of New Certificates. Upon a termination of the provisions
of this Agreement contemplated by Section 7.1(b), all Class B Shares subject to
this Agreement shall be relieved from the terms and conditions contained herein,
and the stock certificates of Newco representing such Class B Shares may be
surrendered to Newco for cancellation and issuance of a new certificate without
the legend required pursuant to Section 3.7. Such new certificates shall be
issued and delivered to Shareholder as soon as practicable and the stop transfer
order provided for in Section 3.7 shall be rescinded immediately.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Intent and Interpretation. Each of parties hereto stipulates and
acknowledges that Newco has made, prior to the date hereof, a careful evaluation
of Shareholder, its investment objectives with regard to the Class B Shares and
its lack of intent to obtain control of Newco by its acquisition thereof, and
the compatibility of such objectives with the objectives of Newco; that such
factors were critical to Newco in the decision to consummate the Merger and
thereby issue a large block of voting securities to Shareholder; that, absent
the restrictions in this Agreement, ownership of the Class B Shares would
present an unusual opportunity for Shareholder to gain effective control of
Newco; that Newco might have reached a different decision with regard to the
Merger and the resulting issuance of the Class B Shares to a group of
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related persons had such persons been other than Shareholder; therefore, that
the restrictions set forth in this Agreement are a material part of the
consideration received by Newco for the issuance of the Class B Shares in the
Merger, and that the primary intent of such restrictions is to insure that such
block of securities does not come to rest in the hands or under the control of
any single holder or group of holders other than Shareholder and that the size
of such block of securities is not, except as otherwise herein provided,
increased over a prescribed amount, without the consent of Newco. Shareholder
acknowledges and agrees that such purpose and intent are reasonable and that the
restrictions set forth in this Agreement are reasonable in view of such purpose
and intent. Further, Shareholder and Newco agree that, should any disagreement
arise in the interpretation of any such restrictions as applied to any set of
facts, such disagreement shall be resolved by interpreting and applying each
restriction in the manner that will most nearly effectuate the purpose and
intent of such restrictions as herein stated.
8.2 Specific Enforcement. Each of the parties hereto acknowledges and
agrees that the other parties hereto would be irreparably damaged and that money
damages are not an adequate remedy in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached because, among other reasons, each such provision
relates to potential control of Newco. It is accordingly agreed that each party
hereto shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to specifically enforce this Agreement and the terms and
provisions hereof in any court of the United States or any state thereof, in
addition to any other remedy to which such party may be entitled, at law or in
equity. It is further agreed that none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
8.3 Severability. If any term of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and the application of such term to
the other parties or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law, provided that in
such event the parties shall negotiate in good faith in an attempt to agree to
another provision (in lieu of the term or application held to be invalid or
unenforceable) that will be valid and enforceable and will carry out the
parties' intentions hereunder.
8.4 Notices, Etc. All notices, requests, demands or other
communications required by or otherwise with respect to this Agreement shall be
in writing and shall be deemed given (i) when made, if made by hand delivery,
and upon confirmation of receipt, if made by facsimile, (ii) one business day
after being deposited with a next-day courier, postage prepaid, or (iii) three
business days after being sent certified or registered mail, return receipt
requested, postage prepaid, in each case to the applicable addresses set forth
below (or to such other address as such party may designate in writing from time
to time):
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If to Newco, Dynegy or Illinova:
Energy Convergence Holding Company
1000 Louisiana, Suite 5800
Houston, Texas 77002
Attention: President
Telecopy: (713) 507-6808
with copies (which shall not constitute notice) to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana; Suite 1900 South
Houston, Texas 77002
Attention: Robert B. Allen
Telecopy (713) 236-0822
If to Shareholder:
Chevron U.S.A. Inc.
1301 McKinney
Houston, TX 77010
Attention: President
Telecopy: (713) 754-5777
with a copy to:
Chevron Corporation
575 Market Street
San Francisco, CA 94105
Attention: General Counsel
Telecopy: (415) 894-6017
and to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street, Suite 1675
San Francisco, CA 94104
Attention: Terry M. Kee, Esq.
and Rodney R. Peck, Esq.
Telecopy: (415) 983-1200
or to such other address as such party shall have designated by notice so given
to each other party.
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8.5 Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated except by an
instrument in writing signed by all of the parties hereto (or their successors).
8.6 Entire Agreement. This Agreement (together with the Merger
Agreement, the Registration Rights Agreement, the Voting Agreement, the
Subscription Agreement and the Articles of Incorporation and Bylaws of Newco)
embodies the entire agreement and understanding among the parties relating to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. There are no representations, warranties or
covenants by the parties hereto relating to such subject matter other than those
expressly set forth in this Agreement, the Merger Agreement, the Registration
Rights Agreement, the Voting Agreement and the Subscription Agreement.
8.7 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
8.8 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of his or her right to exercise any such or other right, power or remedy or to
demand such compliance.
8.9 No Third Party Beneficiaries. This Agreement is not intended to be
for the benefit of and shall not be enforceable by any person or entity who or
which is not a party hereto.
8.10 Consent to Jurisdiction. Each party (a) consents to submit itself
to the personal jurisdiction of any federal court located in the State of
Delaware or any Delaware state court if any action, suit or proceeding arises in
connection with this Agreement, and (b) agrees that it will not attempt to
defeat or deny such personal jurisdiction by motion or other request for leave
from any such court.
8.11 Governing Law. This Agreement shall be construed, interpreted, and
governed in accordance with the laws of Delaware, without reference to rules
relating to conflicts of law other than to the extent this Agreement pertains to
the internal affairs of an Illinois corporation, in which event, and only with
respect to such event, the Illinois Business Corporation Act shall apply.
8.12 Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
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8.13 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, of
the parties hereto.
8.14 Expenses. Except as expressly provided herein, each of the parties
hereto shall each bear its own expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
8.15 Successors and Assigns. Shareholder shall not assign this
Agreement without the written consent of Newco, except to an Affiliate of
Shareholder as contemplated herein; Newco may assign this Agreement only to any
successor to substantially all of its business as a result of a merger,
consolidation or sale by Newco. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the successors
and assigns of the parties hereto.
8.16 Certain Agreements Relating to Newco's Articles of Incorporation.
In the event that the Illinois Secretary of State will not allow the provisions
of Article 7, Paragraph 2 of the Newco Articles of Incorporation as heretofore
agreed to by the parties to be included in the Articles, such provisions shall
be deemed to be incorporated by reference into this Agreement and shall be fully
binding upon Newco unless waived in writing by Shareholder.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
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IN WITNESS WHEREOF, the parties hereto have duly and validly executed
this Shareholder Agreement as of the day and year first above written.
ENERGY CONVERGENCE HOLDING COMPANY
By: /s/ Charles E. Bayless
---------------------------
Name: Charles E. Bayless
---------------------------
Title: President
---------------------------
CHEVRON U.S.A. INC.
By: /s/ P.J. Robertson
---------------------------
Name: P.J. Robertson
---------------------------
Title: Executive Vice President
---------------------------
ILLINOVA CORPORATION
By: /s/ Charles E. Bayless
---------------------------
Name: Charles E. Bayless
---------------------------
Title: Chairman, President and CEO
---------------------------
DYNEGY INC.
By: /s/ C. L. Watson
---------------------------
Name: C.L. Watson
---------------------------
Title: Chairman and
Chief Executive Officer
---------------------------
Shareholder Agreement - Dynegy Inc. and Chevron U.S.A. Inc.
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