Edgar Filing: DYNEGY INC /IL/

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

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Dynegy Inc.
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[LOGO] Dynegy

April 24, 2003

To our shareholders:

The 2003 annual meeting of shareholders of Dynegy Inc. will be held on
Thursday, June 5, 2003 at 10:00 a.m., local time, at the Doubletree Houston
Hotel - Allen Center, 400 Dallas Street, Houston, Texas 77002. At the meeting,
in addition to acting on the matters described in the attached proxy statement,
there will be an opportunity to discuss other matters of interest to you as a
shareholder.

It is important that your shares be represented and voted at the meeting.
Please sign, date and mail the enclosed proxy card in the envelope provided,
even if you plan to attend the meeting in person. You also may vote your shares
by telephone or through the Internet as described on the enclosed proxy card.
We look forward to seeing you in Houston on June 5th.

Sincerely,

/s/ Daniel L. Dienstbier /s/ Bruce A. Williamson
Daniel L. Dienstbier Bruce A. Williamson
Chairman of the Board President and Chief
Executive Officer

[LOGO] Dynegy

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, JUNE 5, 2003

To our shareholders:

NOTICE IS HEREBY GIVEN, that the 2003 annual meeting of shareholders of
Dynegy Inc., an Illinois corporation, will be held on Thursday, June 5, 2003 at
10:00 a.m., local time, at the Doubletree Houston Hotel - Allen Center, 400
Dallas Street, Houston, Texas 77002 for the following purposes:

1. To elect ten Class A common stock directors and two Class B common stock
directors to serve until the 2004 annual meeting of shareholders;

2. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as Dynegy's independent auditors for the
fiscal year ending December 31, 2003;

3. To consider and act upon the two shareholder proposals set forth in the
accompanying proxy statement; and

4. To consider and act upon any other matters that may properly come before
the meeting or any adjournment or postponement of the meeting.

The close of business on April 18, 2003 has been fixed as the record date
for the determination of shareholders entitled to receive notice of and to vote
at the annual meeting or any adjournment or postponement of the meeting.

You are cordially invited to attend the meeting. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED PROXY CARD AS
PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. ALTERNATIVELY, YOU MAY VOTE YOUR SHARES BY TELEPHONE OR
THROUGH THE INTERNET AS DESCRIBED ON THE ENCLOSED PROXY CARD.

By Order of the Board of Directors,

/s/ Keith R. Fullenweider
Keith R. Fullenweider
Senior Vice President, Deputy General
Counsel and Secretary

April 24, 2003

DYNEGY INC.
1000 Louisiana, Suite 5800
Houston, Texas 77002
(713) 507-6400

-----------------

PROXY STATEMENT

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GENERAL INFORMATION

The enclosed proxy is solicited by the Board of Directors of Dynegy Inc. for
use at the annual meeting of shareholders to be held on Thursday, June 5, 2003
at 10:00 a.m., local time, at the Doubletree Houston Hotel - Allen Center, 400
Dallas Street, Houston, Texas 77002, or at any adjournment or postponement of
the meeting. This proxy statement, the Notice of Annual Meeting, the proxy card
and our Annual Report to Shareholders for the year ended December 31, 2002,
including financial statements, will be first mailed to shareholders on or
about May 5, 2003. The Annual Report to Shareholders does not constitute part
of the proxy soliciting material.

Quorum and Vote Required

Quorum. The presence of a majority of the votes of the shares of our Class
A common stock and our Class B common stock, counted together, represented in
person or by proxy at the annual meeting and entitled to vote on a matter, will
constitute a quorum for consideration of that matter at the meeting.
Abstentions and broker non-votes are counted in determining the number of
shares present at the meeting. A "broker non-vote" occurs if a broker or other
nominee who holds shares in "street" name for customers who are beneficial
owners of those shares does not have discretionary authority with respect to
the voting of the shares and has not received instructions with respect to a
particular item from the customer. Broker non-votes as to a particular matter
do not count toward the determination of the shares represented in person or by
proxy on that matter.

Election of Directors. There are twelve persons nominated for election to
serve as directors of Dynegy for a one-year term. In accordance with our
Amended and Restated Articles of Incorporation (our "Articles of
Incorporation"), of the twelve director nominees, ten are to be elected by the
holders of our Class A common stock and two are to be elected by the holder of
our Class B common stock. The affirmative vote of a majority of the votes of
the shares of Class A common stock represented in person or by proxy and
entitled to vote is required to elect a Class A common stock director. Under
Illinois law, our Articles of Incorporation and our Bylaws, abstentions have
the effect of votes against the election of the director nominees.

Under Illinois law and our Articles of Incorporation, holders of Class A
common stock are entitled to cumulate their votes in the election of the Class
A common stock directors. All holders of Class A common stock are entitled to
ten votes (the number of Class A common stock directors to be elected) for each
of their shares for candidates nominated to serve as Class A common stock
directors. Holders of Class A common stock may:

. cast their votes equally for all candidates;

. cast all of their votes for any one candidate whose name has been placed
in nomination prior to voting; or

. distribute their votes among two or more candidates in any proportion.

The affirmative vote of a majority of the votes of the shares of Class B
common stock represented in person or by proxy and entitled to vote is required
to elect a Class B common stock director. Chevron U.S.A. Inc., as the holder of
all our outstanding shares of Class B common stock, will be entitled to one
vote for each share it holds

in the election of the Class B common stock directors. Holders of our Class A
common stock do not vote in the election of the Class B common stock directors.

Ratification of Independent Auditors. Under our Articles of Incorporation,
the holders of our Class A common stock and the holder of our Class B common
stock are entitled to vote together as a single class on the ratification of
auditors. The holders of our Class A common stock and Class B common stock are
entitled to one vote for each share they hold. A majority of the votes of the
shares of Class A common stock and Class B common stock, represented in person
or by proxy and entitled to vote, is required to ratify the selection of
auditors. Under Illinois law, an abstention has the same legal effect as a vote
against this proposal, but a broker non-vote is not counted for purposes of
determining shares represented in person or by proxy on the matter.

Shareholder Proposals. Under our Articles of Incorporation, the holders of
our Class A common stock and the holder of our Class B common stock are
entitled to vote together as a single class on the shareholder proposals and
are entitled to one vote for each share they hold. The affirmative vote of a
majority of the votes of the shares present in person or by proxy at the
meeting and entitled to vote on the shareholder proposals is necessary to
approve any shareholder proposal, including the two described in this proxy
statement. Under Illinois law, an abstention has the same legal effect as a
vote against the proposal, but a broker non-vote is not counted for purposes of
determining shares represented in person or by proxy on the relevant matter.

Record Date and Outstanding Shares

The Board of Directors has fixed the close of business on April 18, 2003 as
the record date for determining holders of outstanding shares of Class A common
stock and Class B common stock entitled to notice of and to vote at the meeting
or any adjournment or postponement of the meeting. As of the record date, there
were outstanding 275,422,829 shares of Class A common stock and 96,891,014
shares of Class B common stock. Class A common stock and Class B common stock
are the only classes of outstanding securities entitled to notice of and to
vote at the meeting.

Solicitation of Proxies

We will bear the cost of soliciting proxies. Proxies may be solicited by
mail or facsimile, or by our directors, officers or employees in person or by
telephone. We have retained Mellon Investor Services LLC to assist in the
solicitation of proxies for a fee of $12,500. We will reimburse brokerage
houses and other custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses for forwarding solicitation material to the beneficial
owners of common stock.

Questions concerning the proposals to be acted upon at the annual meeting
should be directed to our Secretary at (713) 507-6400. Additional copies of
this proxy statement or the proxy card may be obtained from our Investor
Relations Department at our principal executive office. The mailing address of
this office is 1000 Louisiana, Suite 5800, Houston, Texas 77002.

Revocation of Proxies

The enclosed proxy, even though executed and returned, may be revoked at any
time prior to the voting of the proxy by:

. executing and submitting a revised proxy (including an Internet or
telephone vote);

. sending written notice to our Secretary at the address provided at the
beginning of this proxy statement; or

. voting in person at the meeting.

In the absence of a revocation, shares represented by proxies will be voted at
the meeting.

Voting by Telephone or Internet

Shareholders of record can simplify their voting and reduce our costs by
voting their shares by telephone or through the Internet. The telephone and
Internet voting procedures are designed to authenticate shareholders'
identities, allow shareholders to vote their shares and confirm that their
instructions have been properly recorded. If your shares are held in the name
of a bank or broker, the availability of telephone and Internet voting will
depend upon the voting processes of the bank or broker. Accordingly,
shareholders should follow the voting instructions on the form they receive
from their bank or broker. If you choose to cumulate your votes other than
equally for directors, you MAY NOT use telephone or Internet voting. Rather,
you MUST vote by returning the enclosed proxy card in the envelope provided or
by voting in person at the annual meeting.

Shareholders who elect to vote through the Internet may incur
telecommunications and Internet access charges and other costs for which they
are solely responsible. The Internet and telephone voting facilities for
shareholders of record will close at 11:00 p.m., Eastern Daylight Time, on the
evening before the meeting. Instructions for voting by telephone or through the
Internet are contained on the enclosed proxy card.

Voting by Mail

Shareholders who elect to vote by mail are asked to sign, date and return
the enclosed proxy card using the postage-paid envelope provided. The persons
named as proxies on the proxy card were designated by the Board of Directors.
Any proxy given pursuant to this solicitation and received prior to the meeting
will be voted as specified in the proxy card. Unless you withhold authority to
vote or instruct otherwise, proxies will be voted FOR the election of the
nominees to the Board of Directors, equally or cumulatively as the proxies may
determine; FOR ratification of the appointment of PricewaterhouseCoopers LLP;
AGAINST the shareholder proposal relating to auditor conflicts; AGAINST the
shareholder proposal relating to indexed options; and in accordance with the
judgment of the persons named on the proxy card on such other matters as may
properly come before the meeting or any adjournment or postponement of the
meeting.

Meeting Attendance

Because of limited seating, only shareholders, their proxy holders and our
guests may attend the meeting. If you plan to attend, you must be a shareholder
of record as of April 18, 2003 or you must bring with you a brokerage statement
or other evidence of beneficial ownership showing ownership of common stock on
April 18, 2003. Directions to the meeting site are located on the back cover of
this booklet. Complementary valet parking will be provided at the meeting site.

Form 10-K

Shareholders may obtain, without charge, a copy of our 2002 Annual Report on
Form 10-K as filed with the Securities and Exchange Commission. For copies,
please contact our Investor Relations Department at our principal executive
office address: Dynegy Inc., 1000 Louisiana, Suite 5800, Houston, Texas 77002.
The Form 10-K is also available to the public at the SEC's website at
www.sec.gov.

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our capital stock as of March 24, 2003, except as otherwise noted,
by (i) each person who we know to own beneficially 5% or more of our Class A
common stock or Class B common stock, (ii) each director or nominee for
director, (iii) each current or former executive officer named in the Summary
Compensation Table set forth below and (iv) all directors, nominees for
director and current or former executive officers named in the Summary
Compensation Table as a group. Share amounts and percentages shown for each
individual or group in the table are adjusted to give effect to the exercise of
all options exercisable by such individual or group within 60 days of March 24,
2003, regardless of whether such options are currently in the money.

Number of Shares (1)
---------------------
Percent of
Class A Class B Class A
Common Common Common
Stock Stock Stock(2)
---------- ---------- ----------

ChevronTexaco Corporation(3).......................................... -- 96,891,014 26.1%(3)
Chevron U.S.A. Inc.
6001 Bollinger Canyon Road, Bldg. A4
San Ramon, CA 94583

Charles L. Watson(4).................................................. 5,036,475 -- 1.8%

Daniel L. Dienstbier(5)............................................... 63,352 -- *

Bruce A. Williamson................................................... -- -- *

Alec G. Dreyer(6)..................................................... 259,010 -- *

Louis J. Dorey(7)..................................................... 49,057 -- *

Kenneth E. Randolph(8)................................................ 2,125,706 -- *

R. Blake Young(9)..................................................... 202,204 -- *

Stephen W. Bergstrom(10).............................................. 4,988,426 -- 1.8%

Matthew K. Schatzman(11).............................................. 935,881 -- *

Charles E. Bayless(5)................................................. 392,830 -- *

David W. Biegler...................................................... -- -- *

Linda Walker Bynoe.................................................... 4,254 -- *

Barry J. Galt......................................................... 19,254 -- *

Patricia A. Hammick................................................... -- -- *

Robert C. Oelkers..................................................... 5,332 -- *

Joe J. Stewart(5)..................................................... 82,362 -- *

William L. Trubeck.................................................... -- -- *

J. Otis Winters(5).................................................... 59,915 -- *

Darald W. Callahan(12)................................................ -- -- *

John S. Watson(12).................................................... -- -- *

Current and former Executive Officers, Directors and Director Nominees
as a Group (24 persons)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)........... 14,804,938 -- 5.4%

--------
* Less than 1%.
(1) Unless otherwise noted, each person or entity listed has sole voting and
investment power with respect to the shares reported.
(2) Based upon 275,026,449 shares of Class A common stock and 96,891,014 shares
of Class B common stock outstanding at March 24, 2003.

(3) The shares are held of record by Chevron U.S.A. Inc. ("Chevron U.S.A.").
ChevronTexaco Corporation ("ChevronTexaco") beneficially owns 100% of the
capital stock of Chevron U.S.A. Consequently, ChevronTexaco may be deemed
to beneficially own all of the shares of Class B common stock owned of
record by Chevron U.S.A. The amount shown does not include 150,000 shares
of our Series B Mandatorily Convertible Redeemable Preferred Stock held by
ChevronTexaco. These shares are convertible into shares of Class B common
stock at a conversion price of $31.64. Each share of Class B common stock
may in certain circumstances be converted into Class A common stock. For
purposes of computing Chevron U.S.A.'s beneficial ownership, the percentage
of Class A common stock beneficially owned assumes conversion of all shares
of Class B common stock into Class A common stock but does not assume
conversion of any shares of our Series B Mandatorily Convertible Redeemable
Preferred Stock.
(4) Amount shown includes 4,269,506 shares of Class A common stock held by Mr.
Watson issuable upon the exercise of employee stock options at a weighted
average exercise price of approximately $20.09 per share and approximately
7,476 shares of Class A common stock held by the Trustee of the Dynegy Inc.
Profit Sharing/401(k) Savings Plan (the "401(k) Plan") for the account of
Mr. Watson, based on the market value of units held by Mr. Watson in the
401(k) Plan's Dynegy stock fund divided by the closing price of our Class A
common stock as of February 28, 2003.
(5) Amounts shown include 16,000 shares of Class A common stock issuable upon
the exercise of director stock options held by Mr. Dienstbier and 22,000
shares of Class A common stock issuable upon the exercise of director stock
options held by each of Messrs. Bayless, Stewart and Winters. Does not
include certain stock units held by Messrs. Bayless and Stewart through the
Dynegy Deferred Compensation Plan for Certain Directors. Participants in
the Deferred Compensation Plan receive cash equal to the number of stock
units in their account times the last sales price of our Class A common
stock on the last business day of the month preceding the termination of
their service as a director. For Mr. Bayless, also includes 352,000 shares
of Class A common stock issuable upon the exercise of employee stock
options held by Mr. Bayless. Such options were granted to Mr. Bayless
during his prior service as an officer of Illinova Corporation, a company
we acquired in February 2000. For Mr. Stewart, amount shown includes 3,177
shares of Class A common stock held in two living trusts for the benefit of
Mr. Stewart and his wife and 57,185 shares held in a family limited
partnership of which Mr. Stewart and his wife are the general partners and
the aforementioned trusts are the limited partners.
(6) Amount shown includes 201,486 shares of Class A common stock issuable upon
the exercise of employee stock options held by Mr. Dreyer and 21,392 shares
of restricted Class A common stock which vest on February 2, 2005. Amount
shown also includes approximately 8,961 shares of Class A common stock held
by the Trustee of the 401(k) Plan for the account of Mr. Dreyer, based on
the market value of units held by Mr. Dreyer in the 401(k) Plan's Dynegy
stock fund divided by the closing price of our Class A common stock as of
February 28, 2003.
(7) Amount shown includes 42,780 shares of Class A common stock issuable upon
the exercise of employee stock options held by Mr. Dorey and approximately
6,277 shares of Class A common stock held by the Trustee of the 401(k) Plan
for the account of Mr. Dorey, based on the market value of units held by
Mr. Dorey in the 401(k) Plan's Dynegy stock fund divided by the closing
price of our Class A common stock as of February 28, 2003.
(8) Amount shown includes 468,789 shares of Class A common stock issuable upon
the exercise of employee stock options held by Mr. Randolph and
approximately 9,313 shares of Class A common stock held by the Trustee of
the 401(k) Plan for the account of Mr. Randolph, based on the market value
of units held by Mr. Randolph in the 401(k) Plan's Dynegy stock fund
divided by the closing price of our Class A common stock as of February 28,
2003.
(9) Amount shown includes 154,500 shares of Class A common stock issuable upon
the exercise of employee stock options held by Mr. Young and approximately
5,388 shares of Class A common stock held by the Trustee of the 401(k) Plan
for the account of Mr. Young, based on the market value of units held by
Mr. Young in the 401(k) Plan's Dynegy stock fund divided by the closing
price of our Class A common stock as of February 28, 2003.
(10) Amount shown includes 601,174 shares of Class A common stock that are
owned by trusts established by Mr. Bergstrom for the benefit of his minor
children. Mr. Bergstrom's father is the sole trustee of such trusts.
Amount shown also includes 149,190 shares of Class A common stock held by
the Bergstrom Family Foundation, of which Mr. Bergstrom is the President.
Mr. Bergstrom disclaims beneficial ownership of all of the shares of Class
A common stock held by the referenced trusts and the family foundation.
Amount shown also includes 2,541,537 shares of Class A common stock
issuable upon the exercise of employee stock options held by Mr. Bergstrom
at a weighted average exercise price of approximately $18.88 per share.
Amount shown also includes 7,377 shares of Class A common stock held by
the Trustee of the 401(k) Plan for the account of Mr. Bergstrom, based on
the market value of units held by Mr. Bergstrom in the 401(k) Plan's
Dynegy stock fund divided by the closing price of our Class A common stock
as of February 28, 2003.
(11) Amount shown includes 886,537 shares of Class A common stock issuable upon
the exercise of employee stock options held by Mr. Schatzman and
approximately 7,415 shares of Class A common stock held by the Trustee of
the 401(k) Plan for the account of Mr. Schatzman, based on the market
value of units held by Mr. Schatzman in the 401(k) Plan's Dynegy stock
fund divided by the closing price of our Class A common stock as of
February 28, 2003.
(12) Messrs. Callahan and Watson disclaim beneficial ownership of all shares of
record held by Chevron U.S.A.
(13) Amount shown includes 580,880 shares beneficially owned by four current
executive officers who are not included in the Summary Compensation Table.

PROPOSAL 1
ELECTION OF DIRECTORS

Holders of Class A Common Stock

Ten Class A common stock directors will be elected at the annual meeting by
the holders of Class A common stock to serve one-year terms. The affirmative
vote of a majority of the votes of the shares of Class A common stock
represented in person or by proxy and entitled to vote is required to elect a
Class A common stock director. Under Illinois law, our Articles of
Incorporation and our Bylaws, abstentions have the effect of votes against the
election of the director nominees.

Under Illinois law and our Articles of Incorporation, holders of Class A
common stock are entitled to cumulate their votes in the election of the Class
A common stock directors. All holders of Class A common stock will be entitled
to ten votes (the number of Class A common stock directors to be elected) for
each of their shares. Holders of Class A common stock may:

. cast their votes equally for all candidates;

. cast all of their votes for any one candidate whose name has been placed
in nomination prior to voting; or

. distribute their votes among two or more candidates in any proportion.

If you choose to cumulate your votes other than equally, you MAY NOT use
Internet or telephone voting. Rather, you MUST vote by signing, dating and
returning the enclosed proxy card in the envelope provided or by attending the
annual meeting and voting in person.

Unless you withhold authority to vote or instruct otherwise, the enclosed
proxy will be voted FOR the election of the nominees listed below equally or
cumulatively, as the proxies may determine. Although the Board of Directors
does not contemplate that any of the nominees will be unable to serve, if such
a situation arises prior to the annual meeting, the persons appointed in the
enclosed proxy card will vote for the election of such other persons that may
be nominated by the Board of Directors.

Holders of Class B Common Stock

Two Class B common stock directors will be elected at the annual meeting by
the holders of our Class B common stock to serve one-year terms. The
affirmative vote of a majority of the votes of the shares of Class B common
stock represented in person or by proxy and entitled to vote is required to
elect a Class B common stock director. Under our Articles of Incorporation,
Chevron U.S.A., as the sole holder of Class B common stock, is entitled to
nominate and elect all of our Class B common stock directors.

Director Information

All of the nominees for Class A common stock director and Class B common
stock director are currently directors of Dynegy. Mr. Winters will not be
standing for re-election as a Class A common stock director. The following
table sets forth information regarding the names, ages and principal
occupations of the current directors, other directorships held by them in
certain companies and the length of their service as a director of Dynegy.

Age as
of Director
Directors and Nominees Principal Occupation and Directorships 3/31/03 Since
---------------------- ------------------------------------------------- ------- --------

Class A Common Stock Directors

Daniel L. Dienstbier.......... Non-Executive Chairman of the Board of Dynegy 62 1995

Bruce A. Williamson........... Chief Executive Officer and President of Dynegy 43 2002

Charles E. Bayless............ Retired Chairman and Chief Executive Officer of 60 2000
Illinova Corporation and Illinois Power

David W. Biegler.............. Retired Vice Chairman of TXU Corporation; 56 2003
Director of Trinity Industries, Inc.

Linda Walker Bynoe............ President and Chief Executive Officer of Telemat 50 2002
Ltd; Director of CitiStreet Funds, Inc., Angelo &
Maxie's, Inc. and Fidelity Life Association

Barry J. Galt................. Director of Ocean Energy, Inc., Friede, Goldman 69 2002
Halter Inc., Standard Financial Group, Inc. and
Trinity Industries, Inc.

Patricia A. Hammick........... Consultant and Adjunct Professor at George 56 2003
Washington University; Director of Consol Energy,
Inc.

Robert C. Oelkers............. Retired Vice President and Comptroller of Texaco 58 2002
Inc.

Joe J. Stewart................ Retired President of BWX Technologies, Inc. and 65 2000
Past President and Chief Operating Officer of The
Babcock and Wilcox Company; Retired Executive
Vice President of McDermott International, Inc.

William L. Trubeck............ Executive Vice President, Western Group of Waste 56 2003
Management Inc.; Director of Yellow Corporation

J. Otis Winters............... Director, Glass & Associates; Director of AMX 70 1993
Corporation

Class B Common Stock Directors

Darald W. Callahan............ Executive Vice President of Power, Chemicals and 60 1996
Technology of ChevronTexaco Corporation

John S. Watson................ Vice President and Chief Financial Officer of 46 2001
ChevronTexaco Corporation

Set forth below is additional biographical information with respect to our
current directors and director nominees.

Daniel L. Dienstbier has served as non-executive Chairman of the Board of
Dynegy since September 2002 and as a director of Dynegy since 1995. He served
as interim Chief Executive Officer of Dynegy from May 2002 until October 23,
2002 and as President of Northern Natural Gas Company, which was a Dynegy
subsidiary, from February 2002 until May 2002. Mr. Dienstbier has over
thirty-five years of experience in the oil and gas industry. He served as
President and Chief Operating Officer of American Oil & Gas Corp. from October
1993 through July 1994, President and Chief Operating Officer of Arkla, Inc.
from July 1992 through October 1993, and President of Jule, Inc., a private
company involved in energy consulting and joint venture investments in the
pipeline, gathering and exploration and production industries, from February
1991 through June 1992. Previously, Mr. Dienstbier served as President and
Chief Executive Officer of Dyco Petroleum Corp. and

Executive Vice President of Diversified Energy from February 1989 through
February 1991. In addition, he served as President of the Gas Pipeline Group of
Enron Corp. from July 1985 through July 1988. Mr. Dienstbier is a former
director of American Oil & Gas Corp., Arkla, Inc., Enron Corp. and Midwest
Resources. He is also a former member of the Audit and Compliance Committee of
Northern Border Partners, L.P.

Bruce A. Williamson has served as President, Chief Executive Officer and as
a director of Dynegy since October 2002. Prior to joining Dynegy, Mr.
Williamson served in various capacities with Duke Energy and its affiliates,
most recently serving as President and Chief Executive Officer of Duke Energy
Global Markets. In this capacity, he was responsible for all Duke Energy
business units with global communications and international business positions.
Mr. Williamson joined the Duke family of companies in 1997 following the Duke
Power and PanEnergy Corporation merger. Prior to the Duke-PanEnergy merger, he
served as PanEnergy's Vice President of Finance. Before joining PanEnergy, he
held positions of increasing responsibility at Shell Oil Company, advancing
over a 14-year period to Assistant Treasurer.

Charles E. Bayless served as Chairman of Illinova and Illinois Power from
August 1998 until his retirement in December 1999. Mr. Bayless served as Chief
Executive Officer of Illinova and President of Illinois Power from July 1998
until September 1999. He was Chairman, President and Chief Executive Officer of
Tucson Electric Power from 1992 to 1998. Mr. Bayless served as a Director of
Illinova from 1998 until the closing of the merger with Dynegy in February 2000.

David W. Biegler was elected to the Board in April 2003. He is the retired
Vice Chairman of TXU Corporation. From 1997 until 2001, he served as President
and Chief Operating Officer of TXU Corporation, which provides electric and
natural gas utility services, energy marketing, merchant energy trading and
other energy-related services. From 1993 to 1997, he served as Chairman,
President and Chief Executive Officer of ENSERCH Corp. He currently serves as
Chairman of the American Gas Foundation.

Linda Walker Bynoe was elected to the Board in September 2002. Ms. Bynoe has
served as President and Chief Executive Officer of Telemat Ltd., a project
management and consulting firm, since 1995 and previously as Chief Operating
Officer since 1989. From 1978 to 1989, Ms. Bynoe held various positions with
the Capital Markets division of Morgan Stanley, serving as Vice President from
1984 to 1989. Prior to 1976, Ms. Bynoe was a certified public accountant in the
audit and tax division of Arthur Andersen & Co.

Barry J. Galt was elected to the Board in September 2002. Mr. Galt has
served as a director of Ocean Energy, Inc. since his retirement in 1999. From
January 1999 until May 1999, he acted as Vice Chairman of Ocean Energy, Inc. He
served as Chairman and Chief Executive Officer of Seagull Energy Corporation,
the predecessor to Ocean Energy, from 1983 to 1998. Immediately prior to his
employment by Seagull, Mr. Galt acted as Chief Operating Officer of The
Williams Companies.

Patricia A. Hammick was elected to the Board in April 2003. She is currently
a consultant and adjunct professor in graduate studies at George Washington
University. Ms. Hammick served as Senior Vice President and a member of the
management committee of Columbia Energy Group from 1998 through 2000 and was
Vice President, Corporate Strategic Planning, for Columbia Energy Group from
1997 through 1998. From 1983 to 1996, she served as the Chief Operations
Officer for the National Gas Supply Association in Washington, D.C., and held a
management position with Gulf Oil Exploration and Production Company from 1979
through 1983. Prior to 1979, Ms. Hammick worked for the American Petroleum
Institute, the Center for Naval Analysis and the Naval Weapons Center.

Robert C. Oelkers was elected to the Board in August 2002. He served as
President of Texaco International Trading Inc. from April 1999 until his
retirement in October 2001. Mr. Oelkers served as Vice President and
Comptroller of Texaco Inc. from April 1994 until March 1999. Mr. Oelkers was
employed by Texaco Inc. from 1966 until his retirement.

Joe J. Stewart served as President of BWX Technologies, Inc., Lynchburg,
Virginia, and Executive Vice President of McDermott International, Inc., New
Orleans, Louisiana, a diversified energy and environmental equipment and
services company, from 1995 until his retirement in 1998. He was President and
Chief Operating Officer of The Babcock & Wilcox Company and Executive Vice
President of McDermott International, Inc. from 1993 to 1995 and Executive Vice
President of the Power Generation Group of The Babcock and Wilcox Company from
1987 to 1993. Mr. Stewart served as a Director of Illinova from 1998 until the
closing of the merger with Dynegy in February 2000.

William L. Trubeck was elected to the Board in April 2003. He currently
serves as Executive Vice President of Waste Management Inc.'s Western Group. He
previously served Waste Management as Executive Vice President, Operations
Support and Chief Administrative Officer. He was Senior Vice President -
Finance and Chief Financial Officer of International Multifoods, Inc. from 1997
until March 2000, and President, Latin American Operations of International
Multifoods, Inc. from 1998 until March 2000.

J. Otis Winters served as Lead Director to the Board from May 2002 until
March 2003. In 1990, he co-founded The PWC Group, Inc. (formerly known as Pate,
Winters & Stone, Inc.), a consulting firm. He served as Chairman of The PWC
Group, Inc. until its merger with Glass & Associates, of which he now serves as
a director. Mr. Winters was formerly Executive Vice President and Director of
The Williams Companies, and Executive Vice President and Director of the First
National Bank of Tulsa. Mr. Winters also serves as a Director of AMX
Corporation, a designer of electronic equipment. Mr. Winters will not be
standing for re-election as a Class A common stock director.

Darald W. Callahan was named Executive Vice President of Power, Chemicals
and Technology of ChevronTexaco Corporation in October 2001. Previously, he
served as Executive Vice President of Chevron Corporation, a position he
assumed in August 2000. He was appointed President of Chevron Chemical Co. LLC,
a subsidiary of Chevron, in February 1999. He served as Senior Vice President
of Chevron Chemical from October 1991 through January 1999. Mr. Callahan has
been employed by ChevronTexaco and its affiliates since 1964.

John S. Watson was appointed Vice President and Chief Financial Officer of
ChevronTexaco in October 2001. Previously, he served as Vice President, Finance
and Chief Financial Officer of Chevron Corporation, a position he assumed in
August 2000. Mr. Watson joined Chevron in 1980 as a financial analyst. He was
appointed manager of investor relations in 1990. In 1993, Mr. Watson became
manager of credit card enterprises for Chevron U.S.A. Products Co. Mr. Watson
was appointed President of Chevron Canada Ltd. in January 1996 and in February
1998 was appointed Vice President of Chevron, responsible for strategic
planning.

The Board of Directors recommends that shareholders vote FOR the election of
the nominees to the Board of Directors.

Directors' Meetings and Committees of the Board of Directors

During 2002, our Board of Directors held 31 meetings. Each director attended
at least 75% of the total number of meetings of the Board of Directors during
the period for which he or she has been a director and at least 75% of the
total number of meetings held by all committees of the Board on which he or she
served during the period that he or she served. The Board of Directors has the
following committees:

Audit and Compliance Committee. The Audit and Compliance Committee, which
currently is comprised of Messrs. Oelkers (chairman), Bayless, Galt and Trubeck
and Messes. Bynoe and Hammick, met eight times during 2002. Mr. Trubeck and Ms.
Hammick were added to this committee following their election to the Board in
April 2003. Each of the members of the Audit and Compliance Committee satisfies
the independence requirements under the current New York Stock Exchange rules.
Further, at least one member of this committee is a financial expert as such
term is defined pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. The

Audit and Compliance Committee is responsible for meeting with the independent
auditors, internal auditors and senior executives of Dynegy to review and
inquire into matters affecting the financial reporting of Dynegy and appointing
the auditors to be ratified at the annual meeting of shareholders. Please read
"Audit and Compliance Committee Report."

Mr. Bayless served as Chairman of the Audit and Compliance Committee from
May 2002 to November 2002. In appointing Mr. Bayless to serve on the Audit and
Compliance Committee, the Board considered the rules of the New York Stock
Exchange that restrict directors who have relationships with Dynegy, including
employment by a predecessor or former parent company, that may interfere with
the exercise of their independence from management and Dynegy from serving on
the Audit and Compliance Committee. Mr. Bayless, as the former Chairman of the
Board and Chief Executive Officer of Illinova Corporation, could be deemed to
be an employee of a predecessor or former parent company in light of the
Dynegy-Illinova merger. The Board also considered the NYSE rules which provide
that a director with such relationships may, under certain circumstances, be
appointed to the Audit and Compliance Committee if the Board of Directors
determines in its business judgment that membership on the Audit and Compliance
Committee by Mr. Bayless is required by the best interests of Dynegy and its
shareholders. The Board determined that, in light of Mr. Bayless' significant
financial experience and expertise, his membership on the Audit and Compliance
Committee was required by the best interests of Dynegy and its shareholders.

Executive Committee. The Executive Committee, which currently is comprised
of Messrs. Dienstbier (chairman), Bayless, Callahan, Galt, Oelkers, Stewart,
Williamson and Winters, met two times during 2002. The Executive Committee
generally has been delegated the authority to approve any actions that the
Board of Directors could approve, except to the extent restricted by law, our
Articles of Incorporation or our Bylaws. This committee also is responsible for
maintaining an effective working relationship between the Board of Directors
and management.

Corporate Governance and Nominating Committee. The Corporate Governance and
Nominating Committee, which currently is comprised of Messrs. Bayless
(chairman), Biegler, Callahan, Oelkers, Stewart and Winters, met three times
during 2002. Mr. Biegler was added to this committee following his election to
the Board in April 2003. The Corporate Governance and Nominating Committee is
responsible for oversight of the composition, conduct and compensation of the
Board of Directors, with a strong emphasis on achieving and maintaining best
practices. In addition, the Corporate Governance and Nominating Committee is
charged with maintaining compliance with recently enacted corporate governance
legislation and regulation. The Corporate Governance and Nominating Committee
will consider director nominees recommended by shareholders. To submit a
recommendation for consideration, a shareholder must follow the process
described below in "Future Shareholder Proposals."

Compensation and Human Resources Committee. The Compensation and Human
Resources Committee, which currently is comprised of Messrs. Galt (chairman),
Stewart, Trubeck, Watson and Winters and Ms. Bynoe, met eight times during
2002. Mr. Trubeck was added to this committee following his election to the
Board in April 2003. The Compensation and Human Resources Committee reviews
recommendations for the appointment of persons to senior executive positions;
reviews and approves corporate compensation and benefits strategy; reviews and
approves terms of employment and compensation for senior executives; and is
generally responsible for the proper and orderly administration of our
retirement and savings plans.

Risk, Environment and Operations Committee. The Risk, Environment and
Operations Committee, which currently is comprised of Messrs. Stewart
(chairman), Biegler, Callahan and Winters and Ms. Hammick, met three times
during 2002. Mr. Biegler and Ms. Hammick were added to this committee following
their election to the Board in April 2003. The Risk, Environment and Operations
Committee is responsible for overseeing our environmental and occupational
health and safety practices as well as our operating performance.

Compensation of Directors

General. During 2002, each non-employee director was paid an annual
retainer of $30,000 per year, plus $1,500 per board meeting and $1,000 per
committee meeting attended. Chairpersons of the Audit and Compliance Committee,
the Compensation and Human Resources Committee, the Corporate Governance and
Nominating Committee and the Risk, Environment and Operations Committee were
paid an additional $10,000 chairpersons' fee. The annual retainer was payable
50% in Dynegy Class A common stock and the remaining 50%, as well as 100% of
meeting and committee chairperson fees, were payable in either Class A common
stock or cash, at the election of the individual director. In addition, each
director is entitled to reimbursement for his reasonable out-of-pocket expenses
incurred in connection with travel to and from, and attendance at, meetings of
the Board of Directors or its committees and related activities. Directors who
are employees of Dynegy or employees of ChevronTexaco are not compensated for
their services.

Generally, non-employee Class A directors were also entitled to receive
options to purchase 6,000 shares of Class A common stock with an exercise price
equal to the fair market value of our Class A common stock on the day of their
election at the annual meeting or appointment to the Board of Directors.
Additionally, in consideration of the significant time devoted by the members
of the Board of Directors relating to our terminated merger with Enron Corp., a
special grant of 4,000 stock options was made to each non-employee director in
January 2002.

The Corporate Governance and Nominating Committee adopted a new compensation
structure for our directors upon the successful completion of our bank
restructuring in April 2003. Under this new structure, which is effective as of
January 1, 2003, each non-employee director will continue to receive an annual
retainer of $30,000 per year, plus $2,000 per board meeting and $1,000 per
committee meeting attended. Chairpersons of the Audit and Compliance Committee
and the Compensation and Human Resources Committee shall receive chairpersons'
fees of $50,000 and $25,000, respectively, while the chairpersons of the
Corporate Governance and Nominating Committee and the Risk, Environment and
Operations Committee shall receive chairpersons' fees of $10,000. Further,
members of the Audit and Compliance Committee and the Compensation and Human
Resources Committee shall receive additional annual retainers of $5,000 and
$2,500, respectively. The annual board retainer and the meeting and committee
chairpersons' fees are payable in either Class A common stock or cash, at the
election of the individual director. Non-employee directors also will receive
annual stock units with a value of $50,000, such units to be awarded quarterly
in arrears based on the closing price of our Class A common stock on the last
trading day of the quarter. No annual stock option grants are currently
contemplated under this new structure.

Daniel L. Dienstbier Compensation Arrangements. We entered into a
consulting arrangement with Daniel L. Dienstbier effective as of February 1,
2002, the date of our acquisition of Northern Natural Gas Company ("Northern
Natural"). Mr. Dienstbier previously held various executive positions at
Northern Natural, including President, before being named President of Enron's
Gas Pipeline Group in 1985. Mr. Dienstbier agreed to serve as interim President
of Northern Natural through July 31, 2002. In connection with the execution of
this agreement, pursuant to which we compensated Mr. Dienstbier $30,000 per
month, Mr. Dienstbier resigned from the Audit and Compliance Committee of both
Dynegy and Northern Border Partners, L.P.

We subsequently entered into a replacement services agreement with Mr.
Dienstbier effective as of May 28, 2002, the date on which Mr. Dienstbier
assumed the position of interim Chief Executive Officer. His compensation
pursuant to this agreement was $83,333 per month, in the form of cash or common
stock at his election. Mr. Dienstbier served as interim Chief Executive Officer
from such date until October 23, 2002, when Bruce A. Williamson was elected
President and Chief Executive Officer. Mr. Dienstbier was elected non-executive
Chairman of the Board on September 19, 2002, and has continued to serve as
non-executive Chairman of the Board since Mr. Williamson's election on October
23rd. Mr. Dienstbier continues to serve as non-executive Chairman of the Board
and, pursuant to revisions to his earlier services agreement, we paid him
$83,333 per month through January 31, 2003 and have paid or expect to pay him
$41,667 per month from

February 1, 2003 through May 31, 2003. In addition, we paid Mr. Dienstbier a
cash bonus of $630,000 in November 2002 pursuant to the terms of his
replacement services agreement and in further consideration for his time and
service as Chairman and interim Chief Executive Officer.

Effective as of June 1, 2003, in his capacity as non-executive Chairman of
the Board, Mr. Dienstbier will be paid an annual retainer of $150,000. He
otherwise will be eligible to receive meeting fees and stock unit grants, but
he will not be entitled to additional director or related fees other than
reasonable expense reimbursements.

Special Director Payments to J. Otis Winters and Charles E. Bayless. In
November 2002, we paid approximately $480,000 and $315,000, respectively, in
additional director fees to Messrs. Winters and Bayless. The additional fees
were paid in consideration of the unusual additional duties performed by
Messrs. Winters and Bayless in carrying out their respective roles as our Lead
Director and Audit and Compliance Committee Chairman, respectively. The Board
requested that Messrs. Winters and Bayless assume these duties in consideration
of their knowledge and expertise in such matters and the challenges facing
management during 2002 and late 2001. These additional duties included
oversight of and guidance to management in connection with various lawsuits and
governmental investigations. We believe that the fees paid are at or below
those that would have been paid to other persons performing similar services.

Certain Transactions and Other Matters

For a description of certain transactions with management and others,
certain business relationships, indebtedness of management and compliance with
Section 16(a) of the Securities Exchange Act of 1934, see "Executive
Compensation--Employment Agreements," "--Certain Relationships and Related
Transactions" and "--Section 16(a) Beneficial Ownership Reporting Compliance."

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation earned by or awarded to each individual who served as our Chief
Executive Officer during 2002 and our four other most highly compensated
executive officers at the end of 2002 (the "Named Executive Officers") in
combined salary and bonus earned in 2002, as well as amounts earned by or
awarded to such individuals in their capacities as executive officers, if any,
during 2001 and 2000. Also included are the amounts earned by two additional
individuals who would have been among the four highest paid executive officers
had they been serving as such at the end of 2002.

SUMMARY COMPENSATION TABLE

Long-Term
Annual Compensation Compensation Awards
---------------------------------------------- ---------------------
Shares
Restricted Underlying
Fiscal Cash Other Annual Stock Stock All Other
Name and Position Year Salary Bonus(1) Compensation(2) Awards Options(3) Compensation(4)
----------------- ------ ---------- ---------- --------------- ---------- ---------- ---------------

Bruce A. Williamson........ 2002(5) $ 191,335 $2,250,000 -- -- 2,000,000 $ 296,584
Chief Executive Officer,
President and Director

Charles L. Watson.......... 2002(6) $ 650,000 -- $8,851,523 -- -- $ 478,200
Former Chief 2001 $1,528,756 $5,000,000 $1,484,493 -- 1,009,347 $ 27,200
Executive Officer 2000 $1,527,500 $4,632,814 -- -- 681,924 $ 26,000

Daniel L. Dienstbier....... 2002(7) $ 500,000 $ 630,000 -- -- -- --
Former Interim Chief 2001 -- -- -- -- -- --
Executive Officer 2000 -- -- -- -- -- --

Kenneth E. Randolph........ 2002 $ 422,145 -- $ 54,460 -- -- $ 27,000
Former Executive Vice 2001 $ 372,000 $ 550,000 $ 50,632 -- 162,371 $ 27,200
President and General 2000 $ 356,417 $ 525,000 -- -- 61,463 $ 27,427
Counsel

R. Blake Young............. 2002 $ 324,400 $ 822,011 -- -- 90,000 $ 22,000
Executive Vice President 2001 $ 306,667 $ 450,000 $ 25,316 -- 144,814 $ 27,200
of Administration and 2000 $ 270,000 $ 490,000 -- -- 60,000 $ 28,646
Technology

Louis J. Dorey............. 2002(8) $ 322,752 -- -- -- -- $1,346,004
Former Chief Financial
Officer

Alec G. Dreyer............. 2002(8) $ 309,160 $ 126,105 -- -- 90,000 $ 22,000
President and Chief
Executive Officer of
Dynegy Generation

Stephen W. Bergstrom....... 2002(6) $ 714,738 -- $ 63,797 -- -- $3,136,218
Former President and 2001 $ 886,493 $5,000,000 $ 222,784 -- 475,283 $ 27,200
Chief Operating Officer 2000 $ 865,580 $2,628,962 -- -- 450,000 $ 25,500

Matthew K. Schatzman....... 2002(8) $ 393,631 -- -- -- -- $3,515,147
Former President and
Chief Executive Officer
of Wholesale Energy
Network Segment

--------
(1) Bonus awards for 2001 and 2000, which were paid in 2002 and 2001,
respectively, generally were determined under the terms of our Incentive
Compensation Plan. No bonus payments were made for 2002 under our Incentive
Compensation Plan. The bonus shown for 2002 for Mr. Williamson was paid
upon execution of his employment agreement in October 2002. The bonus shown
for Mr. Dienstbier was paid in November 2002 pursuant to the terms of his
replacement services agreement and in further consideration for his time
and service as Chairman and interim Chief Executive Officer. See
"Compensation of Directors--Daniel L. Dienstbier Compensation
Arrangements." The bonus shown for 2002 for Mr. Young was paid upon
execution of a new employment agreement in September 2002. The bonus shown
for 2002 for Mr. Dreyer relates to the payment of principal and interest on
a relocation loan made to Mr. Dreyer in connection with the consummation of
the Dynegy-Illinova merger, as well as the related tax payments owed with
respect to such amount. The bonus shown for 2000 for Mr. Watson includes a
payment of $500,000 in February 2001 relating to the successful completion
of our merger with Illinova. See "Employment Agreements."

(2) Includes "Perquisites and Other Personal Benefits" if the value is greater
than the lesser of $50,000 or 10% of reported salary and bonus. For 2001,
amounts reflect the dollar value of the difference between the price paid
by the Named Executive Officers for shares of Class A common stock
purchased from Dynegy in a private placement transaction in December 2001
and the net proceeds per share to Dynegy from a concurrent public offering
(after a $1.00 per share underwriting discount). For 2002, amounts include
the following:

.. Mr. Watson... Approximately $6,000,000 relating to a payment we made to the Internal Revenue
Service associated with a tax obligation incurred by Mr. Watson in relation to a
May 2002 stock option exercise by an affiliated limited partnership controlled by Mr.
Watson and approximately $2,800,000 relating to charitable contributions made on
Mr. Watson's behalf, with the remainder relating to club memberships and personal
use of corporate aircraft. It is intended that the referenced tax payment will be offset
against other payments, if any, determined to be owed to Mr. Watson as a result of the
ongoing arbitration proceedings between the parties. See "Employment Agreements."
.. Mr. Randolph. Approximately $30,000 relating to reimbursements for the payment of taxes and
approximately $16,350 relating to financial planning services, with the remainder
relating to tax preparation assistance and club memberships.
.. Mr. Bergstrom Approximately $49,000 relating to personal use of corporate aircraft, with the
remainder relating to club memberships and reimbursements for the payment of taxes.

(3) Represents options to purchase shares of our Class A common stock at a
price equal to the fair market value of our Class A common stock on the
date of grant. Amounts for 2000 and 2002 generally reflect options granted
in 2001 and 2003, respectively, for 2000 and 2002 performance. Amounts for
2001 reflect options granted in 2001 for 2001 performance. Mr. Williamson's
2002 amount reflects options granted upon execution of his employment
agreement in October 2002.
(4) The amounts shown as "All Other Compensation" for 2002 include the
following:

.. Mr. Williamson Payment made in connection with a non-compete obligation in respect of
Mr. Williamson's prior employment that arose upon his election as our President and
Chief Executive Officer ($285,104) and a defined contribution under our portable
retirement plan ($11,480).
.. Mr. Watson.... Payment of life insurance premiums ($456,200), a matching contribution under the
401(k) Plan ($10,000) and a defined contribution under our portable retirement plan
($12,000).
.. Mr. Randolph.. Payment of life insurance premiums ($5,000), a matching contribution under the
401(k) Plan ($10,000) and a defined contribution under our portable retirement plan
($12,000).
.. Mr. Young..... A matching contribution under the 401(k) Plan ($10,000) and a defined contribution
under our portable retirement plan ($12,000).
.. Mr. Dorey..... Severance payments in December 2002 ($1,327,666), which included $300,000
associated with additional bonus amounts earned for 2001, a matching contribution
under the 401(k) Plan ($6,338) and a defined contribution under our portable
retirement plan ($12,000).
.. Mr. Dreyer.... A matching contribution under the 401(k) Plan ($10,000) and a defined contribution
under our portable retirement plan ($12,000).
.. Mr. Bergstrom. Severance payments in October 2002 ($2,929,843), payments made for consulting
services provided in 2002 following the termination of his employment ($184,375), a
matching contribution under the 401(k) Plan ($10,000) and a defined contribution
under our portable retirement plan ($12,000). Please read "Employment Agreements"
for further discussion of Mr. Bergstrom's severance and consulting arrangements.
.. Mr. Schatzman. Severance payments in October 2002 ($3,413,147), payments made for consulting
services provided in 2002 following the termination of his employment ($80,000), a
matching contribution under the 401(k) Plan ($10,000) and a defined contribution
under our portable retirement plan ($12,000). Please read "Employment Agreements"
for further discussion of Mr. Schatzman's severance and consulting arrangements.

(5) Mr. Williamson was elected President and Chief Executive Officer in October
2002.
(6) Messrs. Watson and Bergstrom departed Dynegy in May 2002 and October 2002,
respectively. Each of Messrs. Watson and Bergstrom has commenced
arbitration proceedings against Dynegy claiming that he is owed
approximately $28.7 million and approximately $10.4 million, respectively,
in severance benefits. See "Employment Agreements."
(7) Mr. Dienstbier served as our interim Chief Executive Officer from May 2002
to October 23, 2002. He currently serves as our non-executive Chairman of
the Board. He was previously compensated for his service as President of
Northern Natural from February 2002 to May 2002. Except for the
compensation he has received in his former capacities as President of
Northern Natural and our interim Chief Executive Officer and in his current
capacity as non-executive Chairman of the Board, Mr. Dienstbier's
compensation has related solely to his role as a non-executive director.
Please see "Compensation of Directors." Amounts included in this Summary
Compensation Table are only those received in relation to his capacities as
interim Chief Executive Officer of Dynegy and President of Northern Natural.
(8) Each of Messrs. Dorey, Dreyer and Schatzman became an executive officer of
Dynegy in 2002. The employment of Mr. Dorey and Mr. Schatzman was
terminated in January 2003 and October 2002, respectively.

Stock Option Grants

The following table sets forth certain information with respect to stock
option grants made to the Named Executive Officers during 2002 and/or related
to 2002 performance under the Dynegy Inc. 2000 Long-Term Incentive Plan and the
Dynegy Inc. 2002 Long-Term Incentive Plan. No stock appreciation rights were
granted during 2002.

Individual Grants
------------------------------------------
Potential Realizable
% of Total Value at Assumed Annual
Number of Options Rate of Stock Price
Securities Granted to Exercise Appreciation for Option
Underlying Employees or Base Term($)(2)
Options for Fiscal Price Expiration -----------------------
Name Granted(1) 2002 ($/Share) Date 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------

Bruce A. Williamson. 2,000,000 49 0.88 10/23/12 1,106,854 2,804,986
Charles L. Watson... -- -- -- -- -- --
Daniel L. Dienstbier 4,000 * 23.31 1/18/12 58,638 148,600
Kenneth E. Randolph. -- -- -- -- -- --
R. Blake Young...... 90,000 2.2 1.77 2/14/13 100,183 253,883
Louis J. Dorey...... -- -- -- -- -- --
Alec G. Dreyer...... 90,000 2.2 1.77 2/14/13 100,183 253,883
Stephen W. Bergstrom -- -- -- -- -- --
Matthew K. Schatzman -- -- -- -- -- --

--------
* Less than 1%
(1) Amount for Mr. Williamson reflects options granted upon execution of his
employment agreement in October 2002. Amounts for Messrs. Young and Dreyer
reflect options granted in 2003 for 2002 performance. Amount for Mr.
Dienstbier reflects non-employee director options granted in 2002 relating
to our non-employee directors' substantial time commitments associated with
the terminated Enron merger. In each case, stock options were granted with
an exercise price equal to the closing price of our Class A common stock on
the date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of options assuming that the market price of common
stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the price of our common stock.

Option Exercises and Year-End Value Table

The following table sets forth information regarding options held by the
Named Executive Officers at December 31, 2002.

Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Stock
Stock Options at 12/31/02 Options at 12/31/02(1)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------

Bruce A. Williamson. -- -- -- 2,000,000 -- $600,000
Charles L. Watson... 2,399,431(2) 36,663,305 4,269,506 -- -- --
Daniel L. Dienstbier -- -- 16,000 -- -- --
Kenneth E. Randolph. -- -- 468,789 174,266 -- --
R. Blake Young...... -- -- 154,500 267,250 -- --
Louis J. Dorey...... -- -- 42,780 -- -- --
Alec G. Dreyer...... -- -- 201,486 192,135 -- --
Stephen W. Bergstrom -- -- 2,541,537 -- -- --
Matthew K. Schatzman -- -- 886,537 -- -- --

--------
(1) Value based on the closing price of $1.18 on the New York Stock
Exchange--Composite Tape for our Class A common stock on December 31, 2002.
(2) Reflects options exercised by an affiliated limited partnership controlled
by Mr. Watson. Value realized amount calculated based on the fair market
value of our Class A common stock of $16.75 per share at the time of
exercise on May 1, 2002.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires our executive officers, directors and persons who own more than 10% of
a registered class of our equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive officers, directors and greater-than-10%
shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely upon review of the copies of such
forms furnished to us and upon written representations that no Forms 5 were
required, we believe that all persons subject to these reporting requirements
filed the required reports on a timely basis, except as described below. Mr.
Winters included on his 2002 Form 5 a gift transaction that was effected in
October 2001.

Employment Agreements and Change-in-Control Agreements

General. In late Summer 2002, we changed our approach with respect to
employment agreements with senior executives of Dynegy. Under this new
approach, we will seek to minimize the number of such agreements. We also will
seek to attain further uniformity in these agreements and have adopted a
standard form agreement to facilitate this purpose. Among other things, this
form agreement limits automatic renewals and the amount of severance payments
that may be owed upon certain termination events. The agreements described
below for Messrs. Williamson and Young reflect the renewal and
severance-related provisions of this newly adopted form agreement.

Bruce A. Williamson Employment Agreement. Upon becoming our Chief Executive
Officer and President effective October 23, 2002, Mr. Williamson signed an
employment agreement that terminates on October 23, 2005, subject to an
automatic one-year extension. Concurrent with the execution of this agreement,
Mr. Williamson received a signing bonus of $2,250,000 and was granted options
to purchase 2,000,000 shares of Class A common stock with an exercise price of
$0.88 per share, which was the closing price of our Class A common stock on the
date of grant. Mr. Williamson's employment agreement entitles him to a base
salary of $1,000,000 annually, subject to increase at the discretion of the
Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon specified financial or performance objectives, as a
participant in our Incentive Compensation Plan at the discretion of the Board
of Directors. The employment agreement provides that Mr. Williamson is eligible
to receive stock option grants each year during the term of the agreement at
the discretion of the Board of Directors. The employment agreement also
contains non-compete provisions in the event of Mr. Williamson's termination of
employment.

Mr. Williamson's employment agreement also includes provisions governing the
payment of severance benefits if his employment is terminated due to
resignation following a "constructive termination," as defined in the
agreement, or by Dynegy without cause. For purposes of the agreement, the term
"constructive termination" is defined to include a reduction in base salary or
relocation outside of the Houston metropolitan area. Upon such a termination,
Mr. Williamson would receive one year's base salary, one year of continued
health and welfare benefits and a lump sum payment equal to the value of the
401(k) Plan matching contribution and portable retirement plan benefit he
otherwise would have received through the term of the agreement. All employee
stock options granted to him during the term of his employment also would
become immediately vested. Further, if such a termination occurs within one
year following specified change of control events, Mr. Williamson would be
entitled to the following additional payments:

. a lump sum amount equal to 2.99 times the greater of:

. the highest average annual base salary and incentive compensation paid
to Mr. Williamson for the three years preceding the year of
termination, and

. Mr. Williamson's base salary and target bonus amount for the year of
termination; and

. continued health and welfare benefits for 36 months from the termination
date.

Charles L. Watson Employment Agreement. Mr. Watson is our former Chairman
and Chief Executive Officer. The termination of his employment was effective in
May 2002. Mr. Watson's 2002 compensation was determined under the terms of an
employment agreement between Dynegy and Mr. Watson that was to expire on

February 1, 2003, subject to automatic one-year extensions. Mr. Watson's
employment agreement entitled him to a base salary of $1,500,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon specified
financial or performance objectives, as a participant in our Incentive
Compensation Plan at the discretion of the Board of Directors. Mr. Watson's
base salary when he left Dynegy was $1,560,000. The employment agreement also
provided that Mr. Watson was eligible to receive stock option grants each year
during the term of the agreement at the discretion of the Board of Directors.
The employment agreement contained non-compete provisions in the event of Mr.
Watson's termination of employment.

Mr. Watson's employment agreement also included provisions governing the
payment of severance benefits if his employment was terminated due to
resignation following a "constructive termination," as defined in the
agreement, or for any other reason other than his voluntary resignation, death,
disability or discharge for cause. For purposes of the agreement, the term
"constructive termination" is defined to include reductions in base salary,
incentive or other compensation; a significant dimunition in responsibilities;
relocation outside of the Houston metropolitan area; and certain changes in
control of Dynegy. Any severance benefits owed under the agreement are
prescribed as follows:

. a lump sum amount equal to 2.99 times the greater of:

. the highest average annual base salary and incentive compensation
required to be paid to Mr. Watson for the highest three years
preceding the year of termination, and

. Mr. Watson's base salary and target bonus amount for the year of
termination;

. a lump sum amount equal to the net present value, as determined by the
Board of Directors in its sole and absolute discretion, of the senior
management benefits and other perquisites owed to Mr. Watson through the
remaining term of his employment,

. vesting of any previously granted unvested Dynegy stock options to be
exercised until the later of the term of this agreement or the one-year
anniversary of the termination date, and

. continued health and welfare benefits for 36 months from the termination
date.

Mr. Watson has initiated arbitration proceedings against us relating to the
amount that he claims he is owed under this agreement, which is subject to
interpretation. His arbitration claim seeks payment of up to $28,700,000. All
unvested stock options previously granted to Mr. Watson became immediately
exercisable upon his termination and shall remain exercisable until the earlier
of the end of the original term of the option grant or May 27, 2003.

Kenneth E. Randolph Employment Agreement. Mr. Randolph's 2002 compensation
was determined under the terms of an employment agreement between Dynegy and
Mr. Randolph that terminated by mutual agreement on April 15, 2003. Mr.
Randolph's employment agreement entitled him to a base salary of $350,000,
subject to increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon specified
financial or performance objectives, as a participant in our Incentive
Compensation Plan at the discretion of the Board of Directors. Mr. Randolph was
paid a signing bonus of $100,000 in connection with the execution of his
employment agreement. The employment agreement also provided that Mr. Randolph
was eligible to receive stock option grants each year during the term of the
agreement at the discretion of the Board of Directors. The employment agreement
contained non-compete provisions in the event of Mr. Randolph's termination of
employment.

Mr. Randolph's employment agreement also included provisions governing the
payment of severance benefits similar to those contained in Mr. Watson's
agreement as described above. We entered into a settlement and release
agreement with Mr. Randolph pursuant to which he received a payment of
approximately $2,500,000 in April 2003. We also agreed to retain Mr. Randolph's
services as a consultant through October 30, 2003 for a monthly payment of
$35,500 and to provide continued health and welfare benefits coverage for up to
36 months. All unvested stock options previously granted to Mr. Randolph became
immediately exercisable upon his

departure and shall remain exercisable until the earlier of the end of the
original term of the option grant or April 15, 2004. The terms of the
settlement and release agreement waived the non-compete provisions contained in
Mr. Randolph's employment agreement.

R. Blake Young Employment Agreement. Mr. Young executed a new employment
agreement effective September 16, 2002. The new agreement has a two-year term,
subject to an automatic one-year extension. Mr. Young serves as Dynegy's
Executive Vice President of Administration and Technology. Upon execution of
this agreement, Mr. Young received a bonus payment of $822,011 and agreed to
pay to Dynegy $512,011, which was the full amount of principal and interest
then outstanding under a loan provided him by Dynegy in order to participate in
the December 2001 private equity offering. We also agreed to pay to Mr. Young
on each of September 16, 2003 and September 16, 2004, subject to his continued
employment, a bonus payment of $155,000, and Mr. Young agreed to repay his then
outstanding loans under Dynegy's Short-Term Executive Stock Purchase Program
pursuant to their terms. See "Transactions with Directors and Executive
Officers." Mr. Young's employment agreement entitles him to a base salary of
$325,000, subject to increase at the discretion of the Board of Directors, and
the annual opportunity to earn additional bonus amounts, dependent upon
specified financial or performance objectives, as a participant in our
Incentive Compensation Plan at the discretion of the Board of Directors. The
employment agreement also provides that Mr. Young shall be eligible to receive
stock option grants each year during the term of the agreement at the
discretion of the Board of Directors. The employment agreement contains
non-compete provisions in the event of Mr. Young's termination of employment.

Mr. Young's employment agreement also includes provisions governing the
payment of severance benefits similar to those contained in Mr. Williamson's
agreement as described above.

Alec G. Dreyer Employment Agreement. Mr. Dreyer's 2002 compensation was
determined under the terms of an employment agreement between Dynegy and Mr.
Dreyer effective as of February 2, 2000. The agreement expires on February 2,
2005, subject to automatic one-year extensions. Mr. Dreyer serves as President
of our power generation business. Mr. Dreyer's employment agreement entitles
him to a base salary of $290,000, subject to increase at the discretion of the
Board of Directors, and the annual opportunity to earn additional bonus
amounts, dependent upon specified financial or performance objectives, as a
participant in our Incentive Compensation Plan at the discretion of the Board
of Directors. Mr. Dreyer was paid an additional base salary payment of
approximately $15,000 in connection with the execution of his employment
agreement, which amount represented payment for the period between September
15, 1999 to the closing date of our acquisition of Illinova, Mr. Dreyer's
former employer, covering the pro rata difference between his new base salary
and his final base salary at Illinova ($250,000 per annum). Mr. Dreyer's annual
base salary was increased to $400,000 in November 2002.

The employment agreement also provides that Mr. Dreyer is eligible to
receive stock option grants each year during the term of the agreement at the
discretion of the Board of Directors. Upon consummation of the Illinova
acquisition, Mr. Dreyer was granted 25,218 stock options at an exercise price
of $23.38 per share, as well as a restricted stock grant of 10,696 shares (or
21,392 shares after giving effect to the August 2002 two-for-one stock split)
vesting on February 2, 2005. All options granted to Mr. Dreyer prior to
November 1, 1999 also became vested upon consummation of the Illinova merger.
The employment agreement contains non-compete provisions in the event of Mr.
Dreyer's termination of employment.

Mr. Dreyer's employment agreement also included provisions governing the
payment of severance benefits similar to those contained in Mr. Watson's
agreement as described above.

Stephen W. Bergstrom Employment Agreement. Mr. Bergstrom is our former
President and Chief Operating Officer. The termination of his employment was
effective in October 2002. Mr. Bergstrom's 2002 compensation was determined
under the terms of an employment agreement that was to expire on February 2,
2004, subject to automatic one-year extensions. Mr. Bergstrom's employment
agreement entitled him to a base salary of $850,000, subject to increase at the
discretion of the Board of Directors, and the annual opportunity to earn
additional bonus amounts, dependent upon specified financial or performance
objectives, as a participant in

our Incentive Compensation Plan at the discretion of the Board of Directors.
Mr. Bergstrom's base salary when he left Dynegy was $885,000. The employment
agreement also provided that Mr. Bergstrom was eligible to receive stock option
grants each year during the term of the agreement at the discretion of the
Board of Directors. The employment agreement contained non-compete provisions
in the event of Mr. Bergstrom's termination of employment.

Mr. Bergstrom's employment agreement also included provisions governing the
payment of severance benefits similar to those contained in Mr. Watson's
agreement as described above. We entered into a termination agreement with Mr.
Bergstrom in October 2002 pursuant to which he received a payment of
approximately $2,900,000. Pursuant to the termination agreement, we also
agreed, subject to certain conditions, to pay Mr. Bergstrom approximately
$10,400,000 on January 31, 2003 and to retain Mr. Bergstrom's services as a
consultant through January 31, 2003 for a monthly payment of $73,750 pro rated
based on the period of time during which such services were provided. Further,
we agreed to provide continued health and welfare benefits coverage for up to
36 months. All unvested stock options previously granted to Mr. Bergstrom
became immediately exercisable upon his termination and shall remain
exercisable until the earlier of the end of the original term of the option
grant or February 2, 2004.

We paid Mr. Bergstrom $258,125 in consulting payments for services provided
through January 31, 2003, including $184,375 relating to services provided
during 2002 following his termination. We have not paid Mr. Bergstrom any of
the $10,400,000 in severance payments referenced above due to certain
conditions set forth in the termination agreement. Mr. Bergstrom has initiated
arbitration proceedings against us seeking up to $10,400,000 that he claims he
is owed under his agreement, which is subject to interpretation.

Matthew K. Schatzman Employment Agreement. Mr. Schatzman is our former
President, Commercial Operations. The termination of his employment was
effective in October 2002. Mr. Schatzman's 2002 compensation was determined
under the terms of an employment agreement that was to expire on February 1,
2005, subject to automatic one-year extensions. Mr. Schatzman's employment
agreement entitled him to a base salary of $400,000, subject to increase at the
discretion of the Board of Directors, and the annual opportunity to earn
additional bonus amounts, dependent upon specified financial or performance
objectives, as a participant in our Incentive Compensation Plan at the
discretion of the Board of Directors. Mr. Schatzman's base salary when he left
Dynegy was $480,000. The employment agreement also provided that Mr. Schatzman
would be eligible to receive stock option grants each year during the term of
the agreement at the discretion of the Board of Directors. The employment
agreement contained non-compete provisions in the event of Mr. Schatzman's
termination of employment.

Mr. Schatzman's employment agreement also included provisions governing the
payment of severance benefits similar to those contained in Mr. Watson's
agreement as described above. We entered into a settlement and release
agreement with Mr. Schatzman in October 2002 pursuant to which we agreed to pay
a total of approximately $7,300,000, including an immediate payment of
approximately $2,100,000. We agreed, subject to certain conditions, to pay Mr.
Schatzman the remainder in installments of approximately $1,300,000 on each of
December 31, 2002, January 31, 2003, February 28, 2003 and March 31, 2003 and
to retain Mr. Schatzman's services as a consultant through March 31, 2003 for a
monthly payment of $40,000. Further, we agreed to provide continued health and
welfare benefits coverage for up to 36 months. All unvested stock options
previously granted to Mr. Schatzman became immediately exercisable upon his
termination and shall remain exercisable until the earlier of the end of the
original term of the option grant or February 2, 2005.

We paid Mr. Schatzman $165,538 in consulting payments for services provided
through March 31, 2003, including $80,000 relating to services provided during
2002 following his termination. We have also paid to Mr. Schatzman each of the
$1,300,000 severance payments referenced above but for the March 31, 2003
payment, which remains unpaid as of the date hereof due to certain conditions
set forth in the settlement and release agreement.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ChevronTexaco Corporation

Commercial Relationships. In August 1996, we completed a business
transaction with a subsidiary of Chevron Corporation (now ChevronTexaco
Corporation) pursuant to which substantially all of Chevron's midstream energy
assets were merged into our operations. In connection with this business
combination, we and Chevron, and our respective affiliates, entered into a
number of supply, sales and service agreements. Under those agreements, we had:

. the obligation to purchase and the right to market substantially all
natural gas and natural gas liquids produced or controlled by Chevron in
the United States (except Alaska) and to supply natural gas and natural
gas liquids feedstock to Chevron refineries and Chevron Chemical plants
in the United States;

. the right to participate in existing and future opportunities to provide
electricity to United States facilities of Chevron and Chevron Chemical,
as well as to purchase or market excess electricity generated by such
facilities; and

. the right to process substantially all of Chevron's processable natural
gas in those geographic areas where it is economically feasible for us to
do so.

In March 2002, we agreed with ChevronTexaco to expand our commercial
relationships to include substantially all of the natural gas and domestic
mixed natural gas liquids and related products produced or controlled by the
former Texaco.

In August 2002, we executed an agreement with ChevronTexaco pursuant to
which the parties amended the existing gas purchase agreement, security
agreement, netting agreement and certain related agreements. Under this
agreement, we agreed to accelerate payment to the month of delivery for a
portion of the natural gas we purchased from ChevronTexaco, with the amount of
the accelerated payment generally being equal to 75 percent of the value of the
prior month's gas deliveries, after reduction pursuant to a netting agreement
between ChevronTexaco and us. This payment arrangement was effective upon the
closing of the sale of Northern Natural in August 2002 and resulted in an
accelerated payment totaling $176 million at December 31, 2002.

Also in August 2002, in partial satisfaction of certain of our obligations
to ChevronTexaco under these agreements, we sold to ChevronTexaco our 39.2%
ownership interest in West Texas LPG Pipeline Limited Partnership, or WTLPS,
which is the owner of West Texas LPG Pipeline. ChevronTexaco was already the
owner of the largest interest in WTLPS and the operator of the pipeline. The
interest sold to ChevronTexaco was valued at approximately $45 million.

In connection with our announced exit from third-party risk management
aspects of the marketing and trading business, we have agreed with
ChevronTexaco to terminate the natural gas purchase agreement between the
parties and to provide for an orderly transition of responsibility for
marketing ChevronTexaco's domestic natural gas production. This agreement will
not affect our contractual agreements with ChevronTexaco relative to its U.S.
natural gas processing and the marketing of its domestic natural gas liquids.
The cancellation of the agreement was effective January 1, 2003. In accordance
with the termination of the natural gas purchase agreement, we paid to
ChevronTexaco $13 million. As part of the transition, we also agreed to provide
scheduling, accounting and reporting services to ChevronTexaco through April
2003. We were obligated to purchase any gas not sold under the ChevronTexaco
agreements for February and March 2003 at an index price.

We also engage in other transactions with ChevronTexaco, including purchases
and sales of natural gas, natural gas liquids and crude oil. We believe that
these transactions are executed at prevailing market rates. During the year
ended December 31, 2002, our marketing business recognized net purchases from
ChevronTexaco of $1.5 billion. In addition, other of our businesses recognized
aggregate sales to ChevronTexaco of $0.8 billion and aggregate purchases of
$0.5 billion.

Equity Investments. We hold investments in joint ventures in which
ChevronTexaco or its affiliates are also investors. These investments include a
22.9% ownership interest in Venice Energy Services Company, L.L.C., which holds
a pipeline gathering system, a processing plant, a fractionator and an
underground natural gas liquids storage facility in Louisiana; and a 50%
ownership interest in Nevada Cogeneration Associates #2, which holds our Black
Mountain power generation facility in Nevada. During the year ended December
31, 2002, our portion of the net income from these joint ventures was $17
million.

Shareholder Agreement. In connection with the merger between us and
Illinova, we entered into a shareholder agreement with Chevron U.S.A. governing
certain aspects of our relationship. Upon consummation of the Illinova
transaction, Chevron U.S.A. received shares of our Class B common stock, which
entitle it to designate up to three members of our Board of Directors. The
Class B common stock director nominees, Messrs. Callahan and Watson, are each
executive officers of ChevronTexaco. Chevron U.S.A. is our largest shareholder
and currently owns approximately 26% of our outstanding voting securities. For
more information regarding this shareholder agreement, please read our Annual
Report on Form 10-K for the year ended December 31, 2002.

Registration Rights Agreement. Also in connection with the merger between
us and Illinova, we entered into a registration rights agreement with
ChevronTexaco. Pursuant to this agreement, we granted ChevronTexaco
registration rights for the Class A common stock underlying the Class B common
stock it holds. Beginning October 28, 2000, ChevronTexaco had the right on
eight occasions to require us to initiate a public offering for all the shares
requested to be sold by ChevronTexaco. ChevronTexaco may exercise its rights to
request a registration once during any 180-day period. Additionally,
ChevronTexaco has the right to participate in and sell shares of stock held by
it during any public offering of our stock whether offered by us or any other
shareholders.

Series B Preferred Stock. On November 13, 2001, ChevronTexaco purchased
150,000 shares of our Series B Mandatorily Convertible Redeemable Preferred
Stock for $1.5 billion. The proceeds from this issuance were used to finance
our investment in Northern Natural. Each share of Series B preferred stock is
convertible at ChevronTexaco's option, for a period of two years, into shares
of Class B common stock at the conversion price of $31.64. The shares provide
for a mandatory redemption on November 13, 2003. Our Board of Directors will
evaluate this redemption obligation prior to November 13, 2003. Based on our
substantial debt obligations, liquidity position, limitations under applicable
state law and limitations in our recently restructured credit facility, we do
not currently expect to redeem the preferred shares in November 2003. Our
restructured credit facility provides that we cannot redeem more than $50
million of the Series B preferred stock during the term of the facility and we
must permanently reduce borrowings under the credit facility by three times any
amount repaid. Shares not redeemed will remain outstanding.

Our failure to redeem the Series B preferred stock on the redemption date
would not be a default under any of our bank borrowings, secured debt, senior
notes or other obligations. The shares of Series B preferred stock are not
entitled to a dividend in cash or in kind or Board representation either
currently or upon a failure to make a redemption payment. We continue to engage
in discussions with ChevronTexaco regarding a possible restructuring of the
redemption obligations with respect to this preferred stock.

Conflicts of Interest. ChevronTexaco, one of the world's largest integrated
energy companies, is involved in every aspect of the energy industry, from oil
and gas exploration and production to transportation, refining and retail
marketing, as well as chemicals manufacturing and sales and power production.
ChevronTexaco's present operations and its pursuit of future opportunities may
overlap with our operations and strategy. There are no contractual limits on
ChevronTexaco's ability to compete with us. Conflicts of interest may arise
between ChevronTexaco, its affiliates and us as we each pursue business
opportunities.

We have procedures in place designed to mitigate any such conflicts of
interest. Under Section IV(E) of our current Audit and Compliance Committee
charter, our Audit and Compliance Committee is responsible for approving
potential conflicts of interest between or among affiliated shareholders,
management and Dynegy. Additionally, for transactions involving ChevronTexaco,
the representatives of ChevronTexaco serving on our

Board of Directors are recused from the Board's decision-making process with
respect to the consummation of any such transactions.

Transactions with Directors and Executive Officers

General. We engaged in certain transactions with directors and executive
officers in 2002. Following is a description of these transactions, including
loans made to executive officers for the purchase of our Class A common stock
pursuant to the Dynegy Inc. Short-Term Executive Stock Purchase Loan Program
and in a December 2001 private placement.

Dynegy Inc. Short-Term Executive Stock Purchase Loan Program. In July 2001,
we established the Dynegy Inc. Short-Term Executive Stock Purchase Loan Program
pursuant to which eligible officers were loaned funds to acquire our Class A
common stock through open market purchases. We terminated this program as it
relates to new loans effective June 30, 2002. The notes bear interest at the
greater of five percent or the applicable federal rate as of the loan date, are
full recourse to the participants and mature on December 19, 2004. At December
31, 2002, an aggregate of approximately $12 million, which included accrued and
unpaid interest, was owed to us under this program.

In connection with our organizational restructuring, we offered to forgive
50 percent of the outstanding balance under each loan established through the
program to non-executive officers effective as of January 15, 2003, April 15,
2003, July 15, 2003 or October 15, 2003, at the officers' election. In order to
provide incentives to those employees with outstanding loans under this program
to remain with us post-restructuring, we have agreed to forgive one-half of the
remaining balance of each of their loans on or before December 31, 2003 and to
forgive the then-remaining balance under each such loan on or before December
19, 2004, subject to the participant's achievement of specified employment
objectives. For employees terminated as part of the restructuring, the
remaining balance outstanding under each loan matures and is due and payable on
December 19, 2004. Interest rates charged under these loans remain unchanged.

Two of our former executive officers--Deborah A. Fiorito and Lawrence A.
McLernon--had outstanding loans under this program during 2002. In connection
with their departures from Dynegy in September 2002, these former executive
officers' outstanding loans under this program were extended to September 2007.
At December 31, 2002, the amounts outstanding under their respective loans
under this program, including accrued interest, were $445,621 and $1,571,637.
The highest amounts outstanding for each such loan during 2002, including
accrued interest, were $445,621 and $1,595,165, respectively.

A third former executive officer, Hugh A. Tarpley, has an outstanding loan
under this program that matures on December 19, 2004. At December 31, 2002, the
amount outstanding under his loan, including accrued interest, was $126,887.
The highest amount outstanding under his loan during 2002, including accrued
interest, was $260,505.

The following table contains information relating to program loans made to
current executive officers as of December 31, 2002.

Short-Term Executive Stock Purchase Loan Program Loans

Largest Amount
Amount Outstanding
Outstanding (Including Accrued
(Including Accrued Interest) During
Interest) as of the Year Ended Maturity Interest
Name December 31, 2002 December 31, 2002 Date Rate
---- ------------------ ------------------ ---------- --------

Alec G. Dreyer $164,355 $164,355 9/12/2003 5%
R. Blake Young $611,720 $611,720 10/10/2003 5%

December 2001 Equity Purchases. In December 2001, eight former executive
officers and one current executive officer purchased Class A common stock from
us in a private placement pursuant to Section 4(2) of the Securities Act of
1933. These executives received loans totaling approximately $24,000,000 from
us to purchase the common stock at a price of $19.75 per share, the same price
as the net proceeds per share received by us from a concurrent public offering.
The loans initially bore interest at 3.25 percent per annum and are full
recourse to the borrowers.

The following table sets forth information relating to loans outstanding
during the year ended December 31, 2002 relating to the December 2001 equity
purchases:

December 2001 Equity Purchase Loans

Largest Amount
Amount Outstanding
Outstanding (Including Accrued
(Including Accrued Interest) during
Interest) as of the year ended Maturity Interest
Name December 31, 2002 December 31, 2002 Date Rate
---- ------------------ ------------------ --------- --------

Charles L. Watson... -- $15,120,192(1) -- 3.25%
Stephen W. Bergstrom -- $ 4,435,244(1) -- 3.25%
Kenneth E. Randolph. -- $ 1,007,995(1) -- 3.25%
Robert D. Doty...... -- $ 100,795(1) -- 3.25%
R. Blake Young...... -- $ 512,011(2) -- 3.25%
Milton A. Scott..... $519,446 $ 1,024,022(3) 9/30/2007 5.00%
Deborah A. Fiorito.. -- $ 512,011(2) -- 3.25%
Lawrence A. McLernon -- $ 1,024,022(2) -- 3.25%
Hugh A. Tarpley..... -- $ 512,011(2) -- 3.25%

--------
(1) Reflects amount paid in full in March 2002.
(2) Reflects amount paid in full in September 2002. Messrs. Young and Tarpley
used proceeds from a special bonus payment paid by us as part of the new
employment agreements they executed in September 2002. Mr. McLernon and Ms.
Fiorito paid off their loans in full as an offset to their severance
payments in September 2002.
(3) Mr. Scott paid $512,011 of the $1,024,022 then outstanding under his loan
as an offset to his severance payment in September 2002. In connection
therewith, the maturity date of the remaining balance for this former
executive officer was extended to September 2007 and the interest rate was
increased from 3.25% to 5.0%.

Alec G. Dreyer Relocation Loan. In connection with our merger with Illinova
and the execution of his employment agreement with us, Mr. Dreyer received a
$300,000 loan from us to assist him with his relocation to Houston. The loan
bears interest at 6.5% per annum, is secured by bonus payments payable to Mr.
Dreyer following the date thereof and is payable in five annual installments of
$60,000 through March 1, 2005 or, if earlier, 10 days after the termination of
his employment. Mr. Dreyer received bonus payments for 2000, 2001 and 2002 in
sufficient amounts to satisfy the then owing annual installments under this
loan. The highest amount outstanding under this loan in 2002, including accrued
interest, was $240,000; the current balance is approximately $120,000. See
"Summary Compensation Table" for further discussion.

Advancement of Legal Expenses. The Board of Directors previously approved
the advancement of legal expenses to some of our former directors and executive
officers relating to their involvement in various investigations and litigation
matters affecting Dynegy. For 2002, payments for Mr. Watson and Patricia
Eckert, a former director, were in amounts that did not exceed $60,000, while
payments for Mr. Doty totaled approximately $181,000.

Audit and Compliance Committee Report

Dynegy's Board of Directors has established an Audit and Compliance
Committee of independent directors, which operates under a written charter
adopted by the Board of Directors. The charter, which was most recently amended
in September 2002, is attached as Appendix A to this proxy statement. The Audit
and Compliance Committee regularly reviews its charter in light of ongoing
governance and regulatory developments, including rules adopted or proposed to
be adopted by the SEC and the New York Stock Exchange. Dynegy's management is
responsible for establishing a system of internal controls and for preparing
Dynegy's consolidated financial statements in accordance with generally
accepted accounting principles. Dynegy's independent accountants,

PricewaterhouseCoopers LLP, are responsible for auditing Dynegy's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing their report based on that audit. Under the Audit and Compliance
Committee's charter, the Audit and Compliance Committee is to assist the Board
of Directors in fulfilling its oversight responsibilities as to these
processes. The Audit and Compliance Committee's functions also include the
selection and evaluation of the independent auditors, the review, in
conjunction with the independent auditors, of the plans and scope of the audit
engagement and a review with the independent auditors of their objectivity and
independence.

In connection with the preparation of the audited financial statements
included in Dynegy's Annual Report on Form 10-K for the year ended December 31,
2002:

. The Audit and Compliance Committee reviewed and discussed the audited
financial statements with management.

. The Audit and Compliance Committee discussed with the independent
auditors the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended. In general, these auditing standards
require the auditors to communicate to the Audit and Compliance Committee
certain matters that are incidental to the audit, such as any initiation
of, or changes to, significant accounting policies, management judgments,
accounting estimates and audit adjustments; disagreements with
management; and the auditors' judgment about the quality of Dynegy's
accounting principles.

. The Audit and Compliance Committee received from the independent auditors
written disclosures regarding their independence required by Independence
Standards Board Standard No. 1 and discussed with the auditors their
independence. In general, Independence Standards Board Standard No. 1
requires the auditors to disclose to the Audit and Compliance Committee
any relationship between the auditors and its related entities and Dynegy
that in the auditor's professional judgment may reasonably be thought to
bear on independence. The Audit and Compliance Committee also considered
whether the independent auditors' provision of non-audit services to us
was compatible with maintaining their independence.

Based on the review and discussions noted above, the Audit and Compliance
Committee recommended to the Board of Directors that the audited consolidated
financial statements for the year ended December 31, 2002 be included in
Dynegy's Annual Report on Form 10-K filed with the SEC.

This report is submitted by the members of the Audit and Compliance
Committee of the Board of Directors who participated in the review and
discussions noted above:

Robert C. Oelkers (Chairman)
Linda W. Bynoe
Barry J. Galt

Independent Auditors

The Audit and Compliance Committee has approved the selection of
PricewaterhouseCoopers LLP as independent auditors to examine our accounts for
the year ending December 31, 2003. Representatives of PricewaterhouseCoopers
LLP are expected to be present at the meeting to be available to respond to
appropriate questions.

Set forth below is a summary of the fees paid to PricewaterhouseCoopers LLP
for services in 2002.

Audit Fees.................................................. $ 7,900,000(1)
Financial Information Systems Design and Implementation Fees --
All Other Fees (Including Tax Consultation Fees)............ $ 4,120,000(2)
-----------
Total.................................................... $12,020,000
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(1) Reflects amounts billed through December 31, 2002 for the audit of our 2002
financial statements, the review of our 2002 quarterly financial statements
and the re-audit of our 1999-2001 financial statements. An additional $10.1
million relating to the completion of these audits is expected to be billed
in 2003, approximately $7.9 million of which had been billed through March
31, 2003.
(2) Primarily reflects amounts billed for the following non-audit services:

. approximately $1,100,000 in the aggregate for audit-related matters
relating to a proposed initial public offering by a subsidiary
partnership, a mortgage bond offering by Illinois Power Company and the
2001 financial statements of Northern Natural;

. $961,000 for assistance provided in connection with investigations into
round-trip energy trades;

. $825,000 for tax consultation services;

. $520,000 for consulting services relating to supply chain management,
with respect to which PricewaterhouseCoopers was engaged prior to being
appointed as our independent auditors; and

. $520,000 for consultation in connection with our review and analysis of
the Project Alpha transaction.

Information Regarding Change of Independent Auditors. On March 15, 2002,
our Board of Directors dismissed Arthur Andersen LLP as Dynegy's independent
public accountants and engaged PricewaterhouseCoopers LLP to serve as Dynegy's
independent public accountants for 2002. The appointment of
PricewaterhouseCoopers LLP for the year ending December 31, 2002 was ratified
by our shareholders at the 2002 annual meeting held on May 17, 2002.

Arthur Andersen's reports on our consolidated financial statements for 2000
and 2001 did not contain an adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles. Arthur Andersen later withdrew its 2001 audit opinion in connection
with further analysis of the accounting treatment of Project Alpha.

During 2000 and 2001 and through March 19, 2002 (the date we filed a Current
Report on Form 8-K disclosing our dismissal of Arthur Andersen), there were no
disagreements with Arthur Andersen on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures
which, if not resolved to Arthur Andersen's satisfaction, would have caused
them to make reference to the subject matter in connection with their report on
our consolidated financial statements for such years; and there were no
reportable events, as listed in Item 304(a)(1)(v) of Regulation S-K.

During 2000 and 2001 and through March 19, 2002, we did not consult
PricewaterhouseCoopers LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on our consolidated financial
statements, or any other matters or reportable events listed in Items
304(a)(2)(i) and (ii) of Regulation S-K.

Compensation and Human Resources Committee Report on Executive Compensation

The Compensation and Human Resources Committee (the "Compensation
Committee") of the Board of Directors is responsible for developing our
executive compensation philosophy. It is the duty of the Compensation Committee
to administer this philosophy and its relationship with the compensation paid
to our Chief Executive Officer and each of our other executive officers.

Our executive compensation philosophy is to reward executive performance in
a way that creates long-term shareholder value. Our executive compensation
program was designed to help us attract, motivate and retain the executive
resources that we need to maximize our return to shareholders. Our goal is to
provide our executives with a total compensation package that--at expected
levels of performance--is competitive to the market median

for executives who hold comparable positions or have similar qualifications in
other similarly situated organizations. Salary increases, annual incentive
awards and long-term incentive grants are reviewed annually to ensure
consistency with our total compensation philosophy. Long-term incentive grants
are made to executives, managers and key employees following a rigorous
performance review process in amounts designed to reflect an appropriate
balance between cash and equity compensation.

The Compensation Committee primarily compares our executive compensation
program to peer group companies as well as general industry companies of
comparable size. The Compensation Committee also consults regularly with
outside consultants experienced in executive compensation and utilizes an
extensive nationwide database that tracks pay trends for a broad industry index
in which we compete for executives and senior management.

During 2002, our executive compensation program consisted of three main
components: (1) base salary; (2) potential for an annual incentive award based
on overall company performance as well as individual performance; and (3) the
opportunity to earn stock-based incentives, which are intended to encourage
superior performance and to align executive officer and shareholder interests.
The second and third elements constitute the "at risk" portion of the
compensation program.

Base Salary. All decisions regarding base salary are made based upon
individual performance as measured against pre-established individual
objectives and competitive practices as measured by periodic compensation
surveys. Base salaries are targeted at competitive levels when compared to an
industry group that includes peer group companies, including those reflected in
the performance graph presented below, and general industry companies similar
in size to Dynegy.

Annual Incentive Awards. During 2002, our mechanism for awarding annual
bonuses to our executive officers was the Dynegy Inc. Incentive Compensation
Plan. The Incentive Compensation Plan is used to provide incentive payments to
non-union salaried employees. The basis for payment of annual bonuses under the
Incentive Compensation Plan is a combination of attaining specified corporate
or business unit performance goals that are recommended and approved by the
Board of Directors (e.g., earnings per share, net income, cash flow, return on
capital employed), individual performance and competitiveness with comparable
external positions as measured by periodic compensation surveys. Based on our
corporate performance in 2002, the Compensation Committee determined not to pay
incentive bonuses to any of the Named Executive Officers for 2002.

Long-Term Incentive Compensation. We award long-term incentive compensation
pursuant to the 2000 Long-Term Incentive Plan, the 2002 Long-Term Incentive
Plan and the 2001 Non-Executive Stock Incentive Plan. Our long-term incentive
compensation is based upon grants of market value stock option awards pursuant
to these plans. In 2002, we changed our approach to long-term incentive
compensation. This change in approach resulted in the granting of stock options
to a more limited number of executives, managers and key employees in amounts
that were lower than those awarded in years past. Stock option grants were
awarded for 2002 performance in February 2003 to our then current executive
officers and others within the organization who satisfied the necessary
criteria.

Compensation of Chief Executive Officer; Employment Agreement. Effective
October 23, 2002, Dynegy entered into a three-year employment agreement with
Mr. Williamson, pursuant to which Mr. Williamson serves as Chief Executive
Officer and President of Dynegy. In connection with the execution of this
agreement, Mr. Williamson was awarded a signing bonus of $2,250,000 and granted
2,000,000 options with an exercise price of $0.88 per share. Mr. Williamson's
employment agreement entitles him to a base salary of $1,000,000, subject to
increase at the discretion of the Board of Directors, and the annual
opportunity to earn additional bonus amounts, dependent upon specified
financial or performance objectives, as a participant in our Incentive
Compensation Plan at the discretion of the Board of Directors. Mr. Williamson's
compensation package was designed to be sufficiently attractive to retain his
services and to be competitive when compared to an industry group that includes
peer group companies, including those reflected in the performance graph
presented below, and general industry companies similar in size to Dynegy.

Compensation of Former Chief Executive Officers and other Named Executive
Officers. Mr. Watson's compensation for the portion of 2002 during which he
served as our Chief Executive Officer was paid pursuant to his employment
agreement. Please read "Employment Agreements." Mr. Watson's 2002 base salary
was not increased over the base salary amount paid for 2001, and no incentive
award was paid to Mr. Watson for his 2002 performance.

Mr. Dienstbier's compensation for the portion of 2002 during which he served
as our interim Chief Executive Officer was paid pursuant to a replacement
services agreement executed at the time of his election as our interim Chief
Executive Officer. Please read "Compensation of Directors--Daniel L. Dienstbier
Compensation Arrangements." Mr. Dienstbier's compensation was determined based
on his significant experience, both with respect to our company and the
industry generally, and the challenges facing Dynegy at the time of his
election.

Our other Named Executive Officers generally were compensated for their
performance in 2002 pursuant to the employment arrangements described above
under "Employment Agreements." The amounts paid reflected their respective
contributions to our financial performance and their efforts in executing our
business strategy. No such officers received incentive awards for their 2002
performance.

Compliance with Internal Revenue Code Section 162(m). Section 162(m) of the
Internal Revenue Code, enacted in 1993, generally disallows a tax deduction to
public companies for certain compensation over $1,000,000 paid to the company's
Chief Executive Officer and four other most highly compensated executive
officers, as reported in this proxy statement. Excluded from the limitation is
compensation that is "performance based." For compensation to be performance
based, it must meet certain criteria, including being based on predetermined
objective standards approved by shareholders. In general, Dynegy believes that
compensation relating to market-value stock options granted under our long-term
incentive plans should be excluded from the $1,000,000 limitation. The
Compensation Committee believes that maintaining the discretion to evaluate the
performance of Dynegy's management is an important part of its responsibilities
and inures to the benefit of our shareholders. The Compensation Committee,
however, will continue to take into account the potential application of
Section 162(m) with respect to incentive compensation awards and other
compensation decisions made by it in the future.

All amounts paid or accrued during fiscal year 2002 under the
above-described plans and programs are included in the preceding tables. The
individuals who served as members of the Compensation Committee during
deliberations concerning executive compensation for 2002 are listed below. No
member of the Compensation Committee was an officer or employee of Dynegy or
any of its subsidiaries during 2002.

Compensation Committee

Barry J. Galt (Chairman)
Charles E. Bayless
Linda Walker Bynoe
Darald W. Callahan
Joe J. Stewart
John S. Watson
J. Otis Winters

Shareholder Return Performance Presentation

The performance graph shown on the following page was prepared by Standard &
Poor's IMS (Institutional Market Services), a division of McGraw-Hill, Inc.,
using data from the Standard & Poor's IMS Database for use in this proxy
statement. As required by applicable rules of the SEC, the graph was prepared
based upon the following assumptions:

1. One hundred dollars ($100) was invested in Dynegy common stock, the S&P
500, the 2002 Peer Group (as defined below) and the 2001 Peer Group (as
defined below) on December 31, 1997.

2. The returns of each component company in the 2002 Peer Group and the
2001 Peer Group are weighed based on the market capitalization of such
company at the beginning of the measurement period.

3. Dividends are reinvested on the ex-dividend dates.

Our peer group for the fiscal year ended December 31, 2002 (the "2002 Peer
Group") comprises Dominion Resources Inc.; Duke Energy Corporation; El Paso
Corporation; Mirant Corporation; CenterPoint Energy, Incorporated; Reliant
Resources, Inc.; Aquila Inc.; The Williams Companies, Inc.; Calpine
Corporation; and AES Corporation. Our peer group for the fiscal year ended
December 31, 2001 (the "2001 Peer Group") comprised Dominion Resources Inc.;
Duke Energy Corporation; El Paso Corporation; Mirant Corporation; CenterPoint
Energy, Incorporated; Reliant Resources, Inc.; Aquila Inc.; and The Williams
Companies, Inc. We believe that the 2002 Peer Group reflects our current
industry peers based on size and business focus, particularly given the
restructuring of our business around our power generation, natural gas liquids
and regulated energy delivery businesses.

[GRAPHIC OF TOTAL RETURN COMPARISON OMITTED]

TOTAL SHAREHOLDER RETURNS

(Dividends Reinvested)

ANNUAL PERFORMANCE
Year Ending December 31,
--------------------------------------
Company Name / Index 1997 1998 1999 2000 2001 2002
-------------------- ---- ------ ------ ------ ------ -----

Dynegy Inc........ $100 62.73 139.82 447.71 205.14 9.60
S&P 500 Index..... $100 128.58 155.63 141.46 124.65 97.10
2002 Peer Group... $100 115.28 114.61 197.12 130.41 48.32
2001 Peer Group... $100 117.14 102.97 175.74 137.63 54.30

PROPOSAL 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Audit and Compliance Committee has appointed the firm of
PricewaterhouseCoopers LLP as independent auditors of Dynegy for the fiscal
year ending December 31, 2003 and the Board of Directors recommends that the
shareholders ratify that appointment. Ratification requires the affirmative
vote of a majority of the shares of Class A common stock and Class B common
stock, voting together as a single class, represented in person or by proxy and
entitled to vote at the annual meeting. Under Illinois law, an abstention has
the same legal effect as a vote against this proposal, but a broker non-vote is
not counted for purposes of determining shares represented in person or by
proxy on the matter. The persons named in the accompanying proxy card intend to
vote for ratification of such appointment unless instructed otherwise on the
proxy card.

Although there is no requirement that we submit the appointment of
independent auditors to shareholders for ratification or that the appointed
auditors be terminated if the ratification fails, the Audit and Compliance
Committee will consider the appointment of other independent auditors if the
shareholders choose not to ratify the appointment of PricewaterhouseCoopers
LLP. The Audit and Compliance Committee may terminate the appointment of
PricewaterhouseCoopers LLP as Dynegy's independent auditors without the
approval of the shareholders whenever the Audit and Compliance Committee deems
such termination appropriate.

PricewaterhouseCoopers LLP served as our independent auditors for 2002.
Representatives of PricewaterhouseCoopers LLP are expected to attend the annual
meeting and will be available to respond to appropriate questions. The
representatives will also have the opportunity to make a statement if they wish
to do so.

The Board of Directors recommends that shareholders vote "FOR" ratification
of the appointment of PricewaterhouseCoopers LLP as Dynegy's independent
auditors for the fiscal year ended December 31, 2003.

SHAREHOLDER PROPOSALS

Proponents of two shareholder proposals have stated that they intend to
present the following proposals at the annual meeting. If the shareholder, or a
representative who is qualified under state law, is present and submits his or
her proposal for a vote, then the proposal will be voted on at the annual
meeting. In accordance with federal securities regulations, we have included
the shareholder proposals and any supporting statement exactly as submitted by
the proponents. We are not responsible for the contents of the shareholder
proposals or supporting statements. Our Board of Directors has recommended a
vote against these proposals for the reasons set forth below each proposal. The
number of Dynegy shares held by the various proposal proponents are reported
below as represented to us by each proponent.

PROPOSAL 3

AUDITOR CONFLICTS PROPOSAL

Thomas J. Harrington, on behalf of the Massachusetts Carpenters Pension &
Annuity Funds, 350 Fordham Road, Wilmington, Massachusetts 01887, which was
the beneficial owner of approximately 5,900 shares of Dynegy Class A Common
Stock as of December 9, 2002, has notified us that he or a representative
intends to submit the following proposal at this year's meeting:

Resolved, that the shareholders of Dynegy, Inc. ("Company") request that
the Board of Directors adopt a policy stating that the public accounting firm
retained by our Company to provide audit services, or any affiliated company,
should not also be retained to provide any management consulting services to
our Company.

Statement of Support: The role of independent auditors in ensuring the
integrity of the financial statements of public corporations is fundamentally
important to the efficient and effective operation of the financial markets.
The U.S. Securities and Exchange Commission recently stated:

Independent auditors have an important public trust. Investors must be
able to rely on issuers' financial statements. It is the auditor's opinion
that furnishes investors with critical assurance that the financial
statements have been subjected to a rigorous examination by an objective,
impartial, and skilled professional, and that investors, therefore, can rely
on them. If investors do not believe that an auditor is independent of a
company, they will derive little confidence from the auditor's opinion and
will be far less likely to invest in that public company's securities. Final
Rule: Revision of the Commission's Auditor Independence Requirements, Release
No. 33-7919, Feb. 5, 2001.

We believe that today investors seriously question whether auditors are
independent of the company and corporate management that retain them. A major
reason for this skepticism, we believe, is that management of once admired
companies such as Enron, Tyco, and WorldCom have misled investors and their
auditors have either been complicit or simply inept. Over the last year
hundreds of billions of dollars in market value have vanished as investors
have lost confidence in the integrity of our markets. A key reason for this
lack of confidence is the distrust investors have in companies' financial
statements.

The U.S. Congress has attempted to respond to this crisis of confidence
through passage of the Sarbanes-Oxley Act of 2002 (the "Sarbanes Act"). The
Sarbanes Act prohibits a company's auditors from performing a wide range of
defined non-audit services. These prohibitions, in turn, track the defined
non-audit services in Rule 2-01(c)(4) of the SEC's Final Rule: Revision of
the Commission's Auditor Independence Requirements, Release No. 33-7919, Feb.
5, 2001.

However, the Sarbanes Act fails to prohibit auditors from providing
management consulting services, which we believe represents a significant
loophole. While the Act does require that the audit committee of

the board pre-approve these non-audit services, we do not believe that is
enough. We believe that management consulting represents a significant source
of potential revenue to auditors and poses serious conflict of interest
issues. For this reason, we think the better course is for companies not to
engage their auditors to perform any management consulting services.

Many companies, including ours, either continue to engage their auditors
to provide management consulting or provide inadequate disclosure in their
proxy statements to ascertain whether they continue to engage their auditors
for management consulting services. We urge your support for this resolution
asking the board to cease engaging auditors for management consulting.

Our Board of Directors Recommends a Vote AGAINST this Proposal.

Our Board of Directors and management recognize the important role that
auditor independence plays in ensuring the integrity of our financial
statements and in protecting the interests of our shareholders. However, the
Board of Directors believes that our internal policies, new federal legislation
and the SEC's recently promulgated rules ensure independence of the auditors
without necessitating the adoption of the policy suggested by the shareholder
proposal.

First, our Board of Directors and management believe that we have in place
internal policies and procedures that adequately ensure the independence of our
auditors. The members of our Audit and Compliance Committee (the "Audit
Committee") are all independent directors and the Audit Committee operates
under a written charter, in each case in compliance with NYSE rules. The Audit
Committee regularly meets with the independent auditors regarding any disclosed
relationships or services that may have an impact on auditor objectivity and
independence. The Audit Committee regularly monitors and evaluates the
auditors' performance, the fees paid for all services and the compatibility of
the non-audit services with the goal of maintaining auditor independence.
Indeed, under Section IV(1) of its written charter, the Audit Committee is
required to approve the terms of all significant non-audit engagements with our
independent accounts and to discuss with such independent accountants all
significant relationships they might have with us to ensure their independence.

Second, we are subject to provisions of the Sarbanes-Oxley Act of 2002 and a
number of SEC and NYSE rules, the primary goal of which is to ensure auditor
independence. These provisions and rules require the Audit Committee to
pre-approve the performance of all allowable non-audit services by our
independent auditors. In establishing these requirements, the United States
Congress and the SEC rejected a complete prohibition on the performance of
non-audit services by a company's independent auditors. Instead, Congress and
the SEC expressly empowered the audit committee with the function of
pre-approving all allowable non-audit services, including management consulting
services. The SEC has identified certain non-audit services that a public
company's independent auditors may not perform, but management consulting is
not among the prohibited non-audit services. While we believe that the SEC
likely considered prohibiting all management consulting work, it must have
concluded that the independence safeguards that were adopted were adequate and
that there were circumstances in which those management services were
beneficial, assuming that an audit committee had determined that the services
would not compromise auditor independence. Similarly, the NYSE has proposed a
number of rules relating to auditor independence but has not proposed that
management consulting services be prohibited. We intend to comply with all NYSE
rules as they are finalized.

In addition, a policy, such as the one proposed, prohibiting our independent
auditors from performing management consulting services for us would deny the
Audit Committee the option of retaining our auditors to provide these kinds of
services even if that option were determined to be in the best interest of our
company and our shareholders. Such a prohibition would impinge on the function
expressly entrusted to an audit committee by Congress and the SEC to
pre-approve such services and would impose an unnecessary and undesirable limit
on the exercise of an audit committee's sound business judgment. When we hire a
firm to provide management consulting services, we focus on the same principal
considerations we would in hiring any other advisor: qualification, timeliness
and cost efficiency. While the Audit Committee generally does not intend to
hire our independent auditors to perform non-audit services, in some cases the
independent auditors will turn out to be the

most qualified, most timely and most cost-efficient service provider in the
market. For example, our current independent auditors, PricewaterhouseCoopers
("PwC"), may be able to provide high-quality advice quickly and in a
cost-effective manner because of its institutional knowledge of our operations,
legal structure and accounting practices gained through the provision of audit
services to us. PwC will only be engaged to provide such services when the
Audit Committee determines that the engagement will not in any way compromise
PwC's independence.

Third, the enhanced disclosure requirements under the Sarbanes-Oxley Act of
2002 and the SEC's rules will enable shareholders to evaluate the independence
of our auditors. We will disclose the Audit Committee's policies and procedures
for pre-approving the performance of allowable non-audit services by its
independent auditors. We will also disclose annually the total amount of fees
paid to our independent auditors, and, beginning in the proxy statement
relating to the 2004 annual meeting of shareholders, the fees will be broken
down into the following categories: Audit Fees, Audit-Related Fees, Tax Fees
and All Other Fees. We are further required to describe the nature of the
services comprising the fees disclosed for all services that do not qualify as
audit services. We believe that these disclosure requirements will further
enhance the transparency of our relationship with our independent auditor for
the benefit of our shareholders.

Fourth, we seek shareholder ratification of the Board's selection of
independent auditors each year. Because shareholders will benefit from the
increased disclosure relating to our independent auditors--including the
disclosure of the allowable non-audit services, if any, provided to us, the
policies and procedures of the Audit Committee for pre-approving all such
services and a breakdown of all fees that we pay our auditors for all
services--shareholders will be able to make an informed decision about whether
to ratify the independent auditor selected by the Audit Committee.

Fifth, our independent auditors must comply with professional auditor
independence standards and deliver an annual written report to the Audit
Committee confirming their independence. Our independent auditors have internal
control procedures to ensure that audits are conducted in an objective and
impartial manner, including the mandatory rotation of the engagement partner,
an independent partner review of each audit and periodic review by another
major accounting firm of its system of quality control for its auditing
practice.

Finally, the proponent requests that the Board adopt a policy stating that
its independent auditor or any affiliated company of its independent auditor
should not be retained to provide any "management consulting services" to us.
However, the proponent's use of the term "management consulting services" is
vague and could be deemed to encompass a wide variety of services, including
those services that are permitted to be performed by a company's independent
auditors under the newly proposed rules and regulations. A prohibition on
engaging our independent auditors for such permitted non-audit services would
unduly restrict our ability to allocate our resources in the most efficient
manner.

In light of the extensive protective measures in place that are designed to
ensure that our audit firm is independent, the Board of Directors believes
there is little benefit to limiting the Audit Committee's power to retain the
firms it chooses to provide allowable non-audit services, including management
consulting services. We believe that the best way to address issues of auditor
independence is through careful consideration by the Audit Committee as to
whether our independent audit firm should be retained to perform allowable
non-audit services and not through a policy that would impose a strict
prohibition against the independent auditors' providing such services even in
circumstances in which the Audit Committee determines that engaging the
independent auditors would be in the best interest of our company and our
shareholders.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THIS
SHAREHOLDER PROPOSAL, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY
OTHERWISE. The affirmative vote of a majority of the votes of the shares
present in person or by proxy at the meeting and entitled to vote on this
matter is necessary to approve this shareholder proposal. Under Illinois law,
an abstention has the same legal effect as a vote against this proposal, but a
broker non-vote is not counted for purposes of determining shares represented
in person or by proxy on the matter.

PROPOSAL 4

INDEXED OPTIONS PROPOSAL

Jerry J. O' Connor, on behalf of the Board of Trustees of the
International Brotherhood of Electrical Workers Pension Benefit Fund, 1125
Fifteenth St. N.W., Washington, DC 20005, which is the beneficial holder
16,800 shares of Dynegy Class A Common Stock as of November 26, 2002, has
notified us that he or a representative intends to present the following
proposal at this year's meeting:

Resolved, that the shareholders of Dynegy (the "Company") request that the
Board of Directors adopt an executive compensation policy that all future
stock option grants to senior executives shall be performance-based. For the
purposes of this resolution, a stock option is performance based if the
option exercise price is indexed or linked to an industry peer group stock
performance index so that the options have value only to the extent that the
Company's stock price performance exceeds the peer group performance level.

Statement of Support: As long-term shareholders of the Company, we
support executive compensation policies and practices that provide
challenging performance objectives and serve to motivate executives to
achieve long-term corporate value maximization goals. While salaries and
bonuses compensate management for short-term results, the grant of stock and
stock options has become the primary vehicle for focusing management on
achieving long-term results. Unfortunately, stock option grants can and do
often provide levels of compensation well beyond those merited. It has become
abundantly clear that stock option grants without specific performance-based
targets often reward executives for stock price increases due solely to a
general stock market rise, rather than to extraordinary company performance.

Indexed stock options are options whose exercise price moves with an
appropriate peer group index composed of a company's primary competitors. The
resolution requests that the Company's Board ensure that future senior
executive stock option plans link the options exercise price to an industry
performance index associated with a peer group of companies selected by the
Board, such as those companies used in the Company's proxy statement to
compare 5 year stock price performance.

Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only if the Company's stock
price performance was better than that of the peer group average. By tying
the exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have
value when our Company's stock price rises in excess of its peer group
average or declines less than its peer group average stock price decline. By
downwardly adjusting the exercise price of the option during a downturn in
the industry, indexed options remove pressure to reprice stock options. In
short, superior performance would be rewarded.

At present, stock options granted by the Company are not indexed to peer
group performance standards. As long-term owners, we feel strongly that our
Company would benefit from the implementation of a stock option program that
rewarded superior long-term corporate performance. In response to strong
negative public and shareholder reactions to the excessive financial rewards
provided executives by non-performance based option plans, a growing number
of shareholder organizations, executive compensation experts, and companies
are supporting the implementation of performance-based stock option plans
such as that advocated in this resolution. We urge your support for this
important governance reform.

Our Board of Directors Recommends a Vote AGAINST this Proposal.

We believe that the granting of conventional options to our senior
executives provides those executives with appropriate incentives that are
competitive with those of our peer group. We share our shareholders' interest in

motivating our senior executives to maximize long-term shareholder value. We
have long been a proponent of performance-based compensation for that reason.
Indeed, the largest non-cash component of senior executive compensation is
based on the long-term performance of Dynegy in the market. Success of this
proposal would diminish our ability to attract and retain qualified management
without providing senior executives any additional incentives to enhance our
place in the market.

We currently grant performance-based awards to our senior executives in the
form of conventional stock options. Conventional stock options have an exercise
price equal to the closing price of our common stock on the day of the grant
and vest incrementally over time. Vesting over time facilitates our retention
of key employees and creates an incentive for those senior executives to
improve the share price of our common stock in the long-term. Conventional
options are the favored form of performance-based compensation in the market
generally and in our peer group specifically. See Executive
Compensation--Compensation and Human Resources Committee Report on Executive
Compensation.

The Board of Directors and the Compensation Committee have considered the
shareholder proposal both in the context of its executive compensation
structure and the compensation schemes of its peer group. They have concluded
that it would be imprudent to limit the range of option awards that may be
granted to our senior executives at this time. The Board of Directors and the
Compensation Committee recognize the merits of indexed options insofar as they
help insulate executive compensation from general market trends. But indexed
options are essentially untested by our peers and by the market as a whole.

Furthermore, compensation packages in which the performance-based component
consists primarily or exclusively of indexed options could dilute outstanding
shares. Indexed option awards are less valuable to executives than conventional
options because indexed options increase the "at-risk" portion of a senior
executive's total compensation. To make up for the additional risk taken on by
a senior executive, companies will have to issue comparatively more indexed
options to provide the same level of compensation that conventional option
awards would offer. Assuming we outperform the relevant index and our senior
executives exercise indexed options, the issuance of shares sufficient to make
the awards would be more dilutive to the holders of our common stock than the
exercise of conventional options with the equivalent value.

In addition, implementation of the proposal would disqualify our stock
options as performance-based compensation under applicable Internal Revenue
Code regulations, thereby limiting the deductibility of compensation
attributable to options to the ultimate disadvantage of our shareholders.
Internal Revenue Code (S)162(m) limits the deductibility of compensation
expense over $1 million paid to specified executives. Specific
performance-based compensation meeting IRS criteria is excluded from the
calculation to determine whether the $1 million cap has been exceeded. Our
incentive compensation plans qualify stock options, stock appreciation rights
and performance share awards as performance-based compensation under IRS rules.
To the extent that the exercise price of a stock option dropped below the fair
market value of the stock on the date of grant as a result of a change in our
stock price relative to that of the chosen index, compensation arising from the
exercise would not qualify as performance-based compensation and, thus, would
be includable as compensation subject to the limits on deductibility.
Implementation of the proposal could result in denial of tax deductibility of
compensation expense arising from stock option exercises by senior executives.

If we were to adopt a policy such as the one proposed, we would be prevented
from awarding any option-based compensation to our senior executives other than
indexed options. While we will continue to evaluate the propriety of indexed
option awards, the Board of Directors believes that a categorical ban on
conventional options given the uncertainty surrounding the market's acceptance
of indexed options as well as the increased challenge of finding highly
qualified executives would be inappropriate at this time. Furthermore,
implementation of the proposal could have serious competitive and tax
consequences to us.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THIS
SHAREHOLDER PROPOSAL, AND YOUR PROXY WILL BE SO VOTED UNLESS YOU SPECIFY

OTHERWISE. The affirmative vote of a majority of the votes of the shares
present in person or by proxy at the meeting and entitled to vote on this
matter is necessary to approve this shareholder proposal. Under Illinois law,
an abstention has the same legal effect as a vote against this proposal, but a
broker non-vote is not counted for purposes of determining shares represented
in person or by proxy on the matter.

FUTURE SHAREHOLDER PROPOSALS

Under the rules of the SEC, if a shareholder wants us to include a proposal
in our proxy statement and form of proxy for presentation at the 2004 annual
meeting of shareholders, the proposal must be received by our Secretary at the
address indicated on the first page of this proxy statement on or before
December 26, 2003.

Under our Bylaws, and as permitted by the rules of the SEC, specified
procedures are provided for nomination of persons for election as directors or
to introduce an item of business at an annual meeting of shareholders. These
procedures require that nominations for director or another item of business to
be introduced at an annual meeting of shareholders must be submitted in writing
to our Secretary at the address indicated on the first page of this proxy
statement. We must receive notice of a shareholder's intention to introduce a
nomination or proposed item of business at our 2004 annual meeting of
shareholders:

. not later than the close of business on March 5, 2004 nor earlier than
the close of business on February 5, 2004, if the 2004 annual meeting of
shareholders is held within 30 days before or 60 days after the
anniversary date (June 5, 2004) of this year's meeting; or

. not earlier than 120 days prior to such annual meeting and not later than
90 days prior to such annual meeting or the tenth day following the
public announcement of the meeting date, if the 2004 annual meeting of
shareholders is not held within 30 days before or 60 days after the
anniversary date (June 5, 2004) of this year's meeting.

Assuming our annual meeting is held on a schedule similar to that of this
year's meeting, we must receive notice of your intention to introduce a
nomination or another item of business at that meeting by the dates specified
in the first bullet point above. Our Bylaws specify the information that must
be contained in a shareholder's notice for director nominees or an item of
business to be introduced at an annual meeting of shareholders. Please read our
Bylaws, which are available free of charge through the SEC's website at
www.sec.gov, for additional information regarding shareholder proposals.

OTHER MATTERS

The Board of Directors does not know of any other matters that are to be
presented for action at the annual meeting. However, if any other matters
properly come before the annual meeting or any adjournment or postponement
thereof, it is intended that the enclosed proxy will be voted in accordance
with the judgment of the persons named in the proxy card.

By Order of the Board of Directors,

/s/ Keith R. Fullenweider
Keith R. Fullenweider
Senior Vice President, Deputy General
Counsel and Secretary

April 24, 2003

APPENDIX A

DYNEGY INC.

AUDIT AND COMPLIANCE COMMITTEE CHARTER

SEPTEMBER 2002

I. PURPOSE

Pursuant to Article IV of the Bylaws of Dynegy Inc. (the "Company"), a
committee of the directors to be known as the "Audit Committee" was
established. Effective as of March 15, 2002, the Audit Committee was renamed
the "Audit and Compliance Committee" (hereafter referred to as the
"Committee"). The primary function of the Committee is to assist the Board of
Directors in monitoring the Company's financial reporting process and the
integrity of its financial statements, the independent auditor's qualifications
and independence, the Company's system of internal control over financial
reporting, the performance of the Company's independent auditors and the
Company's process for monitoring compliance with laws and regulations and the
code of conduct and business ethics. The Committee will also provide routine
oversight for the Company's financing transactions to the extent such oversight
is not otherwise provided by the Board of Directors or the Executive Committee
thereof. Key components of fulfilling this charge include, but are not limited
to:

a) Facilitating and maintaining an open avenue of communication among the
Board of Directors, Audit and Compliance Committee, Senior Management,
the independent accountants, the internal audit staff, enterprise risk
staff and the ethics and business conduct staff.

b) Serving as an independent and objective party to monitor the Company's
financial reporting process and internal control system.

c) Reviewing and appraising the work of the independent accountants.

d) Providing direction to and oversight of the Internal Audit function, the
Ethics and Business Conduct function and the Risk Control function.

II. COMPOSITION

The Committee will be comprised solely of independent, "disinterested"
directors. The members of the Committee shall be appointed by the Board on the
recommendation of the Corporate Governance and Nominating Committee. Committee
members may be replaced by the Board.

III. MEETINGS

The Committee will meet at least four times annually. Additional meetings
may occur as circumstances dictate. The meetings will focus primarily on audit,
financial, risk management, ethics and business conduct issues. The Committee
will request legal updates from the general counsel and/or outside legal
resources as they determine the need exists. The Committee may form and
delegate authority to subcommittees when appropriate.

The Committee chairman should meet with the Vice President of Corporate
Compliance and Internal Audit, the Chief Risk Officer and the Company's
independent auditors prior to the scheduled Committee meetings to finalize the
meeting agenda and overview issues to be discussed.

The Committee members will have sole discretion in determining the meeting
attendees and agenda; provided, however, that unless prohibited by applicable
rules of the New York Stock Exchange or such other exchange(s) on which the
Company's stock is listed, a director elected by the holders of the Class B
common stock shall always be invited to attend the meetings.

A-1

The Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditors to attend a meeting of the
Committee or to meet with any members of or consultants to the Committee. To
the extent it deems necessary or appropriate the Committee may also meet with
the Company's investment bankers or financial analysts who follow the Company.

Annually the Committee will set the Committee's calendar of activities to
ensure that it is fulfilling all of its duties as outlined below.

IV. RESPONSIBILITIES AND DUTIES

The Committee's job is one of oversight and it recognizes that the Company's
management is responsible for preparing the Company's financial statements and
that the independent auditors are responsible for auditing those financial
statements. Additionally, the Committee recognizes that financial management
and the independent auditors have more time, knowledge, and more detailed
information on the Company than do Committee members; consequently, in carrying
out its oversight responsibilities, the Committee is not providing expert or
special assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.

The Committee believes its policies and procedures should remain flexible in
order to best react to changing conditions and provide reasonable assurance to
the Board that the accounting and reporting practices of the Company are in
accordance with all applicable requirements and an effective legal compliance
and business ethics program exists.

The Committee will fulfill its duties and responsibilities as follows:

A. General

1) Adopt a formal written charter that is approved by the full Board of
Directors that specifies scope of responsibility, process, membership,
etc. The Committee shall review and reassess the adequacy of this
Charter at least annually. Any proposed changes to this Charter shall be
submitted to the Board for approval and the Charter shall be published
in accordance with SEC regulations.

2) Maintain minutes or other records of meetings and activities.

3) Report on Committee activities and actions to the Board, including any
recommendations to the Board the Committee may deem appropriate.

4) As part of executing the responsibility to foster open communication,
the Committee will meet in separate executive sessions at least
quarterly without members of management present with each of the
following groups: Independent Accountants, Vice President of Corporate
Compliance and Internal Audit and Chief Risk Officer to discuss matters
that the Committee or any of these groups believe should be discussed
privately.

5) Conduct or authorize investigations into any matters within the
Committee's scope of responsibilities. The Committee shall be empowered
to retain independent counsel, independent accountants, or others to
advise the Committee or to assist it in the conduct of any investigation.

6) The Committee shall provide to the NYSE at least annually a written
affirmation regarding the required experience, expertise and
independence of the Committee members and the Committee's required
review of this Charter.

7) The Committee shall submit a report to shareholders for inclusion in the
Company's annual proxy statement as required by SEC rules.

8) Confirm annually that all responsibilities outlined in this Charter have
been carried out and performed.

9) Evaluate the Committee's and individual members' performance annually.

A-2

B. Independent Accountants

1) The Committee shall have the sole authority to appoint and replace the
Company's independent accountants, considering independence and
effectiveness, and shall approve all audit engagement fees and terms of
all significant non-audit engagements with the Company's independent
accountants. Annually, the Committee will ensure a formal statement
delineating the scope of services and all relationships between such
accountants and the Company is received from the independent
accountants. The independent accountants shall provide to the Company a
schedule showing all work performed by the independent accountants for
the Company or any affiliate. The Committee will discuss with the
independent accountants all significant relationships such accountants
have with the Company to ensure the accountants' independence.

2) Consult with independent accountants out of management's presence about
internal controls, the fairness of, and quality of disclosures in, the
Company's financial statements and any other matters deemed necessary by
the Committee or the independent accountants.

3) Meet with the independent accountants and financial management of the
Company to review the scope of the proposed external audit for the
current year. The external audit engagement shall include a requirement
that the independent accountants inform the Committee of any significant
changes in the independent accountants' original audit plan and that the
independent accountants conduct a SAS 71 Interim Financial Review prior
to the Company's filing of each quarterly report (Form 10-Q).

4) Review the coordination of internal and external audit procedures to
promote an effective use of resources and ensure adequate and no
redundant audit work is performed.

5) Instruct the independent accountants that the Board of Directors is the
accountant's client and that the independent accountant is ultimately
accountable to the Board of Directors.

6) Review the experience and qualifications of the senior members of the
independent accountants team.

7) Recommend to the Board policies for the Company's hiring of employees or
former employees of the independent accountants who were engaged on the
Company's account.

8) Discuss with the national office of the independent accountants issues
on which they were consulted by the Company's audit team and matters of
audit quality and consistency.

9) Obtain and review a report from the independent accountants at least
annually regarding

a. Independent accountants' internal quality control procedures

b. Any material issues raised by the most recent quality-control review,
or peer review of the firm, or by any inquiry or investigation by
governmental or professional authority within the preceding five
years regarding one or more independent audits carried out by the firm

c. Any steps taken to deal with such issues.

10) Evaluate together with the Board the performance of the independent
accountants and whether it is appropriate to adopt a policy of rotating
independent accountants on a regular basis.

11) Discuss with the independent accountants the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit. In particular, discuss:

a. The adoption of, or changes to, the Company's significant auditing
and accounting principles and practices as suggested by the
independent accountants, internal auditors and management.

b. The management letter provided by the independent accountants and the
Company's response to such letter.

c. Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
requested information, and any significant disagreements with
management.

A-3

C. Internal Audit

1) Review and approve the annual internal audit plan in relation to the
risk identified by the Internal Audit Department in its risk assessment
process, as well as any periodic changes to such plan.

2) Review at least annually the qualifications of internal audit staff as
well as the number and use of internal audit staff.

3) Inquire of the Vice President of Corporate Compliance and Internal Audit
regarding the adequacy and effectiveness of accounting and financial
controls and request recommendations for improvements.

4) Review a summary of findings and completed internal audits, adequacy and
appropriateness of management's responses thereto, and a progress report
on the execution of the approved internal audit plan.

5) Inquire of the Vice President of Corporate Compliance and Internal Audit
regarding any difficulties encountered in the course of their audits,
including any restrictions on the scope of their work or access to
required information.

6) Review the quality and objectivity of the internal audit function of the
Company, including its independence, authority and reporting
relationship to management and the Board of Directors.

D. Financial Statements/Internal Controls

1) Review annual and quarterly financial statements with management and the
independent accountants to determine that both groups are satisfied with
the disclosure (including disclosures made in management's discussion
and analysis) and content in the financial statements, including the
nature and extent of any significant changes in accounting principles,
prior to the filing of such financial statements with the SEC. With
respect to the audited annual financial statements, the Committee shall
recommend to the Board whether such statements should be included in the
Company's Form 10-K.

2) Consider independent accountants' judgments regarding the quality and
appropriateness of the Company's financial statements.

3) Make inquiries of management and independent accountants concerning the
adequacy of the Company's system of internal controls including
computerized information system controls and security.

4) Review related findings and recommendations of the independent
accountants and Internal Audit together with management's responses.

5) Advise financial management and the independent accountants that they
are expected to provide a timely analysis of significant financial
reporting issues and practices that affect the Company.

6) Advise financial management and the independent accountants to discuss
with the Committee the quality, not just the acceptability, of
accounting principles and financial disclosure practices used or
proposed to be adopted by the Company, prior to the filing of a Form
10-Q or Form 10-K and, if practicable, prior to the release of quarterly
or annual earnings.

7) Discuss with management and the independent accountants the development,
selection and disclosure of critical accounting estimates, and analyses
of the effect of alternative assumptions, estimates or GAAP method on
the Company's financial statements.

8) Discuss with management and the independent accountants the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.

9) Discuss with management the Company's financial risk exposures and the
steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.

A-4

10) Discuss with management the Company's earnings press releases including
the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and
rating agencies.

11) Discuss with management and the independent accountants any
correspondence with regulators or governmental agencies and any employee
complaint or published report which raises material issues regarding the
Company's financial statements or accounting policies.

12) Obtain from the independent auditors assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.

E. Business Ethics and Compliance

1) Provide oversight to the business ethics and compliance program.

2) Require management to report on procedures that provide assurance that
the Company's mission, values, and code of conduct are properly
communicated to all employees on an annual basis.

3) Review the programs and policies of the Company designed by management
to assure compliance with applicable laws and regulations and monitor
the results of the compliance efforts.

4) Review reports and disclosures of insider and affiliated party
transactions and approve potential conflicts of interest between or
among affiliate shareholders, management and the Company.

5) Obtain reports from management, including the Company's Vice President
of Compliance and Internal Audit, that the Company's subsidiary/foreign
affiliate entities are in conformity with applicable local requirements
and the Company's Code of Business Conduct.

F. Establish Trading Limits & Policy

1) Discuss and recommend to the Board (or the Executive Committee thereof)
at least annually, trading limits and risk management policies and
procedures and recommend changes, if necessary, to the Board for the
Company's risk tolerance.

2) Review quarterly with the Chief Risk Officer a report from the Executive
Risk Committee as required in the Dynegy Risk Policy Statement.

3) Review quarterly the performance measurement of the Dynegy commodity and
financial trading portfolios, corporate liquidity and independent
valuation of capital projects.

4) Discuss and recommend to the Board (or the Executive Committee thereof)
significant changes in trading activities or any new activity, use of
structured transactions with different risk characteristics, use of
derivative instruments to implement different business strategies and
goals, or entry into different product lines or markets before such
changes are implemented.

5) Review the scope of activities and findings of the internal and external
auditor relating to trading activities including the evaluation of
controls within management information systems and the evaluation of
resources provided to maintain the integrity of the risk measurement and
control system.

6) Request from the independent accountants their views of the accounting
treatment of the Company's hedging, trading and investing activities.

7) Ensure fair market valuation of forward risk exposure used for mark to
market accounting purposes and accounting reserve valuations.

8) Ensure risk measurement standards are adequate with the corporate risk
tolerance.

G. Legal

1) Meet with Company's general counsel to review any legal matters that may
have a significant impact on the Company's overall financial statements
or its compliance process.

A-5

[LOGO] Dynegy

DIRECTIONS TO THE ANNUAL MEETING OF SHAREHOLDERS

FROM BUSH INTERCONTINENTAL AIRPORT

Doubletree Houston Hotel--Allen Center
400 Dallas Street
Houston, Texas 77002
(713) 759-0202

. Exit the airport and take the Sam Houston Tollway S/W to I-45.

. Take I-45 South approximately 12 miles to downtown Houston.

. Exit McKinney Street, Exit 47C.

. Continue on McKinney Street for approximately 0.3 miles and turn right on
Bagby Street.

. Continue on Bagby Street for approximately 0.1 miles and turn left on
Dallas Street.

. The Doubletree Houston Hotel - Allen Center is located on the right-hand
side at the corner of Bagby Street and Dallas Street.

PROXY - CLASS A COMMON STOCK

DYNEGY INC.

1000 LOUISIANA, SUITE 5800, HOUSTON, TX 77002

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DYNEGY INC.

The undersigned hereby appoints Bruce A. Williamson, Nick J. Caruso and
Keith R. Fullenweider, and each of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and to
vote, as designated on the reverse side, all the shares of Class A common stock
of Dynegy Inc. held of record by the undersigned on April 18, 2003 at the Annual
Meeting of Shareholders to be held at the Doubletree Houston Hotel - Allen
Center, 400 Dallas Street, Houston, Texas 77002 at 10:00 A.M. on Thursday, June
5, 2003, or any adjournment of the meeting.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 AND 2 AND AGAINST PROPOSALS 3 AND 4, WHICH ARE
SHAREHOLDER PROPOSALS. THE INDIVIDUALS NAMED ABOVE ARE AUTHORIZED TO VOTE IN
THEIR DISCRETION ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.

(CONTINUED ON REVERSE SIDE)

Address Change/Comments (Mark the corresponding box on the reverse side)

------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE

You can now access your Dynegy Inc. account online.

Access your Dynegy Inc. shareholder account online via Investor ServiceDirect(R)
(ISD).

Mellon Investor Services LLC, transfer agent for Dynegy Inc., now makes it easy
and convenient to get current information on your shareholder account. After a
simple and secure process of establishing a Personal Identification Number
(PIN), you are ready to log in and access your account to, among other things:

o View account status o Make address changes
o View certificate history o Establish/change your PIN
o View book-entry information

Visit us on the web at http://www.melloninvestor.com
and follow the instructions shown on this page.

Step 1: FIRST TIME USERS - Establish a PIN Step 2: Log in for Account Access Step 3: Account Status Screen
You must first establish a Personal Identification You are now ready to log in. To access You are now ready to access your
Number (PIN) online by following the directions your account please enter your: account information. Click on the
provided in the upper right portion of the web appropriate button to view or initiate
screen as follows. You will also need your Social o SSN or Investor ID transactions.
Security Number (SSN) or Investor ID available to o PIN
establish a PIN. o Then click on the Submit button o Certificate History
o Book-Entry Information
The confidentiality of your personal information is o Issue Certificate
protected using secure socket layer (SSL) If you have more than one account, o Payment History
technology. you will now be asked to select the o Address Change
appropriate account.
o SSN or Investor ID
o PIN
o Then click on the Establish PIN button

Please be sure to remember your PIN, or maintain
it in a secure place for future reference.

For Technical Assistance Call 1-877-978-7778 between
9am-7pm Eastern Time Monday-Friday

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2. Please [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSALS 3 AND 4, WHICH ARE Mark Here
SHAREHOLDER PROPOSALS. for Address
Change or
Comments
SEE REVERSE
SIDE

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR all nominees listed below, WITHHOLD
FOR PROPOSALS 1 AND 2. cumulative votes to be divided AUTHORITY
equally between the nominees for all ten nominees
1. Election of Directors [_] [_]

Insert your vote for the nominees listed Nominees - Class A common stock Votes
to the right in the designated space 01 Daniel L. Dienstbier ------
provided. Directors may be elected by 02 Charles E. Bayless ------
cumulative voting. If you choose to 03 David W. Biegler ------
cumulate your votes other than equally 04 Linda Walker Bynoe ------
for directors you MAY NOT use Internet 05 Barry J. Galt ------
or telephone voting. Rather, you MUST 06 Patricia A. Hammick ------
vote by returning this proxy card in the 07 Robert C. Oelkers ------
envelope provided or by voting in person 08 Joe J. Stewart ------
at the Annual Meeting. Vote the number 09 William L. Trubeck ------
of shares owned or controlled by you 10 Bruce A. Williamson ------
multiplied by ten. This number of shares
may be cast for any one nominee or may
be distributed between nominees as you
wish. Shareholders may withhold
authority to vote for any nominee by
entering zero in the space following
the nominee's name.

Note: The total number of votes you cast in the election of directors should not exceed the number of
shares shown above times ten.

_____
|
|
|

2. Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as independent FOR AGAINST ABSTAIN
auditors for Dynegy for the fiscal year ending [_] [_] [_]
December 31, 2003.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4, WHICH ARE SHAREHOLDER PROPOSALS.

FOR AGAINST ABSTAIN
3. Auditor Conflicts Proposal [_] [_] [_]

FOR AGAINST ABSTAIN
4. Indexed Options Proposal [_] [_] [_]

5. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting or
any adjournment thereof.
YES
I PLAN TO ATTEND THE MEETING [_]

YES
IN THE FUTURE, WOULD YOU CONSENT TO [_]
ACCESSING YOUR ANNUAL REPORT AND
PROXY STATEMENT ELECTRONICALLY VIA
THE INTERNET?

Signature___________________________ Signature_________________________ Date_______________________
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.

-------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE

Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week

Internet and telephone voting is available through 11PM Eastern Time
on June 4, 2003.

Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.

Internet Telephone Mail
http://www.eproxy.com/dyn 1-800-435-6710
Use the Internet to vote your proxy. Use any touch-tone telephone to Mark, sign and date
Have your proxy card in hand when vote your proxy. Have your proxy your proxy card
you access the web site. You will be OR card in hand when you call. You will OR and
prompted to enter your control be prompted to enter your control return it in the
number, located in the box below, to number, located in the box below, enclosed postage-paid
create and submit an electronic and then follow the directions envelope.
ballot. given.

If you vote your proxy by Internet or by
telephone, you do NOT need to mail back your proxy card.

IF YOU CHOOSE TO CUMULATE YOUR VOTES OTHER THAN EQUALLY FOR
DIRECTORS YOU MAY NOT USE INTERNET OR TELEPHONE VOTING. RATHER,
YOU MUST VOTE BY RETURNING THIS PROXY CARD IN THE ENVELOPE
PROVIDED OR BY VOTING IN PERSON AT THE ANNUAL MEETING.

You can view the Annual Report and Proxy Statement
on the internet at www.dynegy.com

PROXY - CLASS B COMMON STOCK

DYNEGY INC.
1000 LOUISIANA, SUITE 5800, HOUSTON, TX 77002

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DYNEGY INC.

The undersigned hereby appoints Bruce A. Williamson, Nick J. Caruso and
Keith R. Fullenweider, and each of them, as proxies, each with the power to
appoint his substitute, and hereby authorizes each of them to represent and to
vote, as designated on the reverse side, all the shares of Class B common stock
of Dynegy Inc. held of record by the undersigned on April 18, 2003 at the Annual
Meeting of Shareholders to be held at the Doubletree Houston Hotel - Allen
Center, 400 Dallas Street, Houston, Texas 77002 at 10:00 A.M. on Thursday, June
5, 2003, or any adjournment of the meeting.

(CONTINUED ON REVERSE SIDE)
-------------------------------------------------------------------------------
* FOLD AND DETACH HERE *

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2. Please mark [X]
your votes as
indicated in
this example
1. Election of Directors

WITHHOLD Nominees - Class B Common Stock
AUTHORITY (To withhold authority for any individual nominee,
FOR all nominees for all nominees strike a line through the nominee's name below)
listed to the right. listed to the right 1. Darald W. Callahan
[ ] [ ] 2. John S. Watson

2. Proposal to ratify the appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as independent
auditors for Dynegy for the fiscal
year ending December 31, 2003. [ ] [ ] [ ]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 3 AND 4, WHICH ARE SHAREHOLDER PROPOSALS.

FOR AGAINST ABSTAIN

3. Auditor Conflicts Proposal [ ] [ ] [ ]

4. Indexed Options Proposal [ ] [ ] [ ]

5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment
thereof.

Yes

I PLAN TO ATTEND THE MEETING [ ]

SIGNATURE_______________________ SIGNATURE________________________ DATE_______________

NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.