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1 CAUSE NO x DYNEGY INC. and DYNEGY HOLDINGS, INC., IN THE DISTRICT COURT Plaintiffs v. 129 th JUDICIAL DISTRICT BERNARD D. SHAPIRO and PETER STRUB, Individually and On Behalf of Themselves and All Others Similarly Situated, Defendants HARRIS COUNTY, TEXAS ANN C. PEARL, as Trustee of the Ann C. Pearl Money Purchase Plan, and JOEL GETZLER, On Behalf of Themselves and All Others Similarly Situated, Intervenors. x NOTICE OF PENDENCY AND PROPOSED SETTLEMENT OF CLASS ACTION TO ALL PERSONS WHO OWNED ENRON CORP. ( ENRON ) COMMON STOCK ON NOVEMBER 28, PLEASE READ THIS NOTICE OF PENDENCY AND PROPOSED SETTLEMENT OF CLASS ACTION ( NOTICE ) CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE AFFECTED BY PROCEEDINGS IN THIS LITIGATION. PLEASE NOTE THAT IF YOU ARE A SETTLEMENT CLASS MEMBER, YOU MAY BE ENTITLED TO SHARE IN THE PROCEEDS OF THE SETTLEMENT DESCRIBED IN THIS NOTICE. TO CLAIM YOUR SHARE OF THIS FUND, YOU MUST SUBMIT A VALID PROOF OF CLAIM POSTMARKED ON OR BEFORE SEPTEMBER 30, This Notice has been sent to you pursuant to Rule 42 of the Texas Rules of Civil Procedure and an Order of the 129th Judicial District Court for Harris County (the Court ). The purpose of this Notice is to inform you of the proposed settlement of this class action litigation (the Instant Suit ) and of the hearing to be held by the Court to consider the fairness, reasonableness, and adequacy of the settlement. The proposed settlement would resolve the Instant Suit pending in the Court as more fully described in section III, below. This Notice is not intended to be, and should not be construed as, an expression of any opinion by the Court with respect to the truth of the allegations in the Instant Suit or the merits of the claims or defenses asserted. This Notice describes the rights you may have in connection with the settlement and what steps you may take in relation to the settlement and this Instant Suit. The proposed settlement creates a fund in the amount of $6,000, (the Settlement Fund ) and will include interest that accrues on the Settlement Fund prior to distribution. Based on the Plaintiff Representatives (as defined below) 1 estimate of the number of shares entitled to participate in the settlement, and the anticipated number of claims to be submitted by Class Members, the average distribution per share would be approximately $0.02 before deduction of court-approved fees and expenses. However, your actual recovery from this fund will depend on a number of variables, including the number of Authorized Claimants (as defined below), the number of shares you owned, and the expense of administering the claims process. The Plaintiff Representatives and Dynegy (as defined below) do not agree on the average amount of damages per share that would be recoverable if the Plaintiff Representatives were to have prevailed on each claim asserted. The issues on which the parties disagree include (i) (iv) whether the Plaintiff Representatives have standing to sue Dynegy under the Agreement and Plan of Merger by and between Dynegy and Enron, among others, dated as of November 9, 2001 (the Merger Agreement ), by which Dynegy and Enron agreed to merge, subject to a right to terminate the merger; whether Dynegy wrongfully terminated the Merger Agreement; whether Dynegy wrongfully exercised the option to purchase from CGNN Holding Company, Inc. ( CGNN ) all of the outstanding membership interests in MCTJ Holding Co. LLC, pursuant to an Option Agreement by and between Dynegy Holdings, Inc. and CGNN dated as of November 9, 2001, as amended (the Option Agreement ); whether Dynegy breached an implied covenant of good faith and fair dealing to Enron shareholders; and 1 Plaintiff Representatives are listed in the caption above as Defendants and Intervenors.

2 (v) whether the Mutual Release and Settlement Agreement entered into by Dynegy and Enron, effective August 15, 2002, by which Dynegy and Enron settled a lawsuit styled Enron Corp. and Enron Transportation Services Co. v. Dynegy Inc. and Dynegy Holdings, Inc.; Civil Action No , in the United States District Court for the Southern District of Texas (the Dynegy-Enron Settlement ), was fair to Class Members and extinguished the claims of Enron shareholders. The Plaintiff Representatives believe that the proposed settlement is a good recovery and is in the best interests of the Settlement Class (as defined below). Because of the risks associated with continuing to litigate and proceeding to trial, there was a danger that Plaintiff Representatives would not have prevailed on any of their claims, in which case the Settlement Class would receive nothing. In addition, the amount of damages recoverable by the Settlement Class was and is challenged by Dynegy. Had the Instant Suit gone to trial, Dynegy intended to assert that the Plaintiff Representatives do not have standing to sue under the Merger Agreement; Dynegy did not wrongfully terminate the Merger Agreement; Dynegy did not wrongfully exercise its option under the Option Agreement; Dynegy did not breach any implied covenant of good faith and fair dealing to Enron shareholders; and the Dynegy-Enron Settlement was a fair resolution of litigation between Dynegy and Enron. Class Counsel to date have not received any payment for their services in conducting this Instant Suit on behalf of the Plaintiff Representatives and the Class Members, nor have they been reimbursed for their out-of-pocket expenditures. If the settlement is approved by the Court, Class Counsel will apply to the Court for attorneys fees not to exceed twenty-five percent of the Settlement Fund and reimbursement of out-of-pocket expenses not to exceed $50,000.00, both of which are to be paid from the Settlement Fund. If the amount requested by Class Counsel is approved by the Court, the average cost per share would be approximately $ For further information regarding this settlement you may contact Pamela Edgar of Kirby, McInerney & Squire, LLP at (888) Please do not call any representative of Dynegy. I. NOTICE OF HEARING ON PROPOSED SETTLEMENT A settlement hearing will be held on September 9, 2003, at 130 p.m., before the Honorable S. Grant Dorfman, Harris County District Judge, at the Harris County Courthouse, 301 Fannin, 6th Floor, Houston, Texas (the Fairness Hearing ). The purpose of the Fairness Hearing will be to determine (1) whether the settlement consisting of $6 million in cash (plus accrued interest) should be approved as fair, just, reasonable and adequate to each of the parties; (2) whether the proposed plan to distribute the Settlement Fund is fair, just, reasonable, and adequate; (3) whether Plaintiff Representatives counsel have adequately represented the Class; (4) whether the application by Class Counsel for an award of attorneys fees and reimbursement of expenses should be approved; and (5) whether the Instant Suit should be dismissed with prejudice. The Court may adjourn or continue the Fairness Hearing without further notice to the Class Members. II. DEFINITIONS USED IN THIS NOTICE When used in this Notice, the following terms shall have the meanings set forth below 1. Authorized Claimant means any member of the Settlement Class who files a Claim Form (as defined below) in such form and manner, and within such time, as the Court shall prescribe, and whose claim for recovery is allowed pursuant to the terms of the Settlement Agreement (as defined below). 2. Bankruptcy Court means the United States Bankruptcy Court for the Southern District of New York, which is presiding over the bankruptcy proceeding styled In re Enron Corp., et al., Case No (AJG) (Chapter 11). 3. Claim Form means the proof of claim and release form included with this Notice. 4. Claims Administrator means The Garden City Group, Inc. 5. Class Counsel means Lawrence P. Eagel, Bragar Wexler Eagel & Morgenstern, LLP; Jeffrey H. Squire, Ira M. Press, Kirby, McInerney & Squire, LLP; Michael I. Behn, Futterman & Howard; Jules Brody, Aaron L. Brody, Stull, Stull & Brody; Thomas E. Bilek, Hoeffner & Bilek, LLP; Joseph H. Weiss, Weiss & Yourman. 6. Class Members means all persons or entities who owned common stock of Enron as of November 28, 2001; provided, however, that Dynegy, any entity in which Dynegy has a controlling interest, and the legal representatives, heirs, successors and assigns of Dynegy are not Class Members. 7. Dispute means any breach of contract or tort claim arising by virtue of or because of performance or nonperformance under the Merger Agreement, including, without limitation, the disagreement between the parties to the Instant Suit concerning whether Enron shareholders are third-party beneficiaries under the Merger Agreement; whether Enron shareholders have standing to sue under the Merger Agreement and, if so, whether their claims were extinguished by the terms of the Dynegy-Enron Settlement; whether Dynegy wrongfully terminated the Merger Agreement; whether Dynegy breached an implied covenant of good faith and fair dealing to Enron shareholders; and whether Dynegy wrongfully exercised the option under the Merger Agreement. 2

3 8. Dynegy means Dynegy Inc. and Dynegy Holdings, Inc. 9. Effective Date means the date that the Settlement Agreement is finally approved by the Court. The Settlement Agreement shall be deemed to be finally approved only after either (i) the Court has entered a Final Judgment and Order of Dismissal (as defined below), and the time for appeal thereof has elapsed without any appeal being filed, or in the event of an appeal, conclusion of all appellate proceedings and any further proceedings on remand or subsequent appeal, whichever occurs first. 10. Litigation means (i) (iii) (iv) (v) Ann C. Pearl, as Trustee of the Ann C. Pearl Money Purchase Plan, On Behalf of Herself and All Others Similarly Situated v. Dynegy Inc. and Dynegy Holdings Inc., No. 03-CV-0065, in the United States District Court for the Southern District of Texas; Joel Getzler, on behalf of himself and all others similarly situated v. Dynegy Inc. and Dynegy Holdings, Inc., No. 03-CV-0056, in the United States District Court for the Southern District of Texas; Dynegy Inc. and Dynegy Holdings, Inc. v. Bernard D. Shapiro and Peter Strub, Individually and On Behalf of Themselves and All Others Similarly Situated, No , in the 129th Judicial District, Harris County, Texas (the Instant Suit ); In re Enron Corp., Enron Corp., et al. v. Ann C. Pearl, et al., Docket No , in the United States Court of Appeals for the Second Circuit; and In re Enron Corp., Enron Corp., et al. v. Ann C. Pearl, et al., No. 02-CV-8489, in the United States District Court for the Southern District of New York. 11. Opt-Out Period means the period commencing on the date this Notice is mailed and continuing until August 11, 2003, thirty (30) days before the date of the Fairness Hearing. 12. Plaintiff Representatives means Ann C. Pearl, as Trustee of the Ann C. Pearl Money Purchase Plan, Joel Getzler, Bernard D. Shapiro and Peter Strub. 13. Released Claims means any and all claims, actions, demands, rights, liabilities, and causes of action of every nature and description whatsoever, present or future, known or unknown, relating to or arising out of the Dispute including, but not limited to, claims for wrongful termination of the Merger Agreement, breach of implied covenant of good faith and fair dealing, breach of contract, fraud, and negligent misrepresentation, and any other claims that were or could have been asserted by the Plaintiff Representatives and/or the Class Members at any time in the Litigation arising out of the Dispute. The Released Claims expressly include unknown claims that the Plaintiff Representatives and/or Class Members do not know or suspect to exist in their favor and that, if known by them, might have affected the decision of the Plaintiff Representatives and/or Class Members to settle with Dynegy or to refrain from objecting to the settlement. The parties to the Settlement Agreement have stipulated and agreed that, upon the Effective Date, the Plaintiff Representatives shall expressly waive and the Settlement Class, by operation of the Final Judgment and Order of Dismissal, shall be deemed to have waived the provisions, rights and benefits of California Civil Code 1542, which provides A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. Upon the Effective Date, the Plaintiff Representatives shall expressly waive and the Settlement Class, by operation of the Final Judgment and Order of Dismissal, shall be deemed to have waived the provisions, rights and benefits conferred by similar laws of any state or territory of the United States, or principle of common law that limits the release of unknown claims. The Plaintiff Representatives expressly have acknowledged and the Settlement Class, by operation of the Final Judgment and Order of Dismissal, shall be deemed to have acknowledged that the waiver of unknown claims was separately bargained for and a key element of the settlement of which this release is a part. 14. Released Parties means Dynegy, its predecessors, successors, parents, assigns, subsidiaries, divisions, affiliates, and each of their past, present, and future officers, directors, agents and employees, and their undersigned counsel. 15. Settlement Agreement means the Settlement Agreement and Release entered into as of the 8th day of April 2003 by and among Dynegy Inc. and Dynegy Holdings, Inc. and Ann C. Pearl, as Trustee of the Ann C. Pearl Money Purchase Plan, Joel Getzler, Bernard D. Shapiro and Peter Strub, individually and on behalf of themselves and all others similarly situated. 16. Settlement Class means all persons or entities who are Class Members but excluding any person or entity who submits a written request for exclusion during the Opt-Out Period. III. THE LITIGATION On November 28, 2001, Dynegy gave Enron notice that Dynegy was terminating the Merger Agreement and, immediately thereafter, Dynegy Holdings, Inc. gave notice that it was exercising the option under the Option Agreement. 3

4 above, seeking The Plaintiff Representatives, shareholders of Enron, brought the class actions listed in paragraph 10 of Section II (i) (iii) (iv) standing to sue under the Merger Agreement; to recover from Dynegy for alleged wrongful termination of the Merger Agreement, breach of an implied covenant of good faith and fair dealing, and wrongful exercise of the option under the Option Agreement; to challenge the Dynegy-Enron Settlement; and to appeal an April 18, 2002 order of the Bankruptcy Court that the claims asserted by the Plaintiff Representatives belong to Enron s bankruptcy estate and not to Plaintiff Representatives or Class Members. After Plaintiff Representatives brought their action against Dynegy, Enron sought a stay and dismissal of the action on the grounds that the Plaintiff Representatives claims belonged to Enron s bankruptcy estate. On April 12, 2002, the Bankruptcy Court granted Enron s motion and ordered that the Plaintiff Representatives claims be dismissed. Plaintiff Representatives appealed the Bankruptcy Court s order to the United States District Court for the Southern District of New York. On October 22, 2002, the district court reversed the order of the Bankruptcy Court, upholding the Plaintiff Representatives status as third-party beneficiaries and ruling that they are entitled to bring their own separate suit against Dynegy. Enron appealed the district court s order to the United States Court of Appeals for the Second Circuit. Pending approval of this settlement, Enron has withdrawn the appeal with the right to reinstate the appeal if this settlement does not become final. Dynegy vigorously denies the claims and allegations asserted by the Plaintiff Representatives in the aforesaid class actions, and has filed the declaratory judgment action listed in paragraph 10 (iii) of Section II above. IV. CLAIMS OF THE PLAINTIFF REPRESENTATIVES AND BENEFITS OF SETTLEMENT The Plaintiff Representatives believe that their claims asserted in the Instant Suit have merit and that the evidence developed to date supports the claims. However, Class Counsel for the Plaintiff Representatives recognize and acknowledge the expense and length of continued proceedings necessary to prosecute the Instant Suit against Dynegy through trial and through appeals, including the appeal of this Dispute to the United States Court of Appeals for the Second Circuit. Class Counsel also have taken into account the uncertain outcome and the risk of any litigation, especially in complex actions such as the Instant Suit, as well as the difficulties and delays inherent in such litigation. Class Counsel also are mindful of the inherent problems of proof under and possible defenses to the claims asserted in the Instant Suit. Class Counsel believes that the settlement set forth in the Settlement Agreement confers substantial benefits upon the Class Members. Based on their evaluation, Class Counsel have determined that the settlement set forth in the Settlement Agreement is in the best interests of the Plaintiff Representatives and the Class Members. V. DEFENDANTS DO NOT ADMIT WRONGDOING AND LIABILITY Nothing in the Settlement Agreement is intended, or should be construed, as an admission or concession of any of the claims and contentions alleged by the Plaintiff Representatives in the Instant Suit, including without limitation their claims that Dynegy wrongfully terminated the Merger Agreement or breached an implied covenant of good faith and fair dealing. Nonetheless, Dynegy has concluded that further conduct of the Instant Suit would be protracted and expensive, and that it is desirable that the Instant Suit be fully and finally settled in the manner and upon the terms and conditions set forth in the Settlement Agreement. VI. TERMS OF THE PROPOSED SETTLEMENT Dynegy has paid or caused to be paid into the Dynegy/Enron Shareholder Settlement Fund Account at Bank One Corporation, pursuant to the terms of the Settlement Agreement, cash in the amount of $6 million, which has been earning and will continue to earn interest for the benefit of the Settlement Class. A portion of the settlement proceeds will be used for certain administrative expenses, including the costs of printing and mailing this Notice, payment of any taxes assessed against the Settlement Fund and costs associated with the processing of claims submitted. In addition, as explained below, a portion of the Settlement Fund may be awarded by the Court to Class Counsel as attorneys fees and for reimbursement of out-of-pocket expenses. The balance of the Settlement Fund (the Net Settlement Fund ) will be distributed pro rata based on the number of Enron shares owned on November 28, 2001, to the members of the Settlement Class who submit valid and timely Claim Forms, provided however, that if an Authorized Claimant is allocated less than $10.00, then such Authorized Claimant shall not receive a distribution from the Settlement Fund, and such amounts shall be reallocated among the remaining Authorized Claimants. VII. ORDER CERTIFYING A CLASS FOR PURPOSES OF SETTLEMENT On May 20, 2003, the Court certified a class for settlement purposes only, as defined above. 4

5 VIII. PARTICIPATION IN THE CLASS If you fall within the definition of the Settlement Class, you will be bound by any judgment entered with respect to the settlement in the Instant Suit whether or not you file a Claim Form. If you choose, you may enter an appearance individually or through your own counsel at your own expense. TO PARTICIPATE IN THE DISTRIBUTION OF THE NET SETTLEMENT FUND, YOU MUST TIMELY COMPLETE AND RETURN THE PROOF OF CLAIM AND RELEASE FORM THAT ACCOMPANIES THIS NOTICE. The Claim Form must be postmarked on or before September 30, 2003, and delivered to the Claims Administrator, at The Garden City Group, Inc., Settlement Administrator, P.O Box 9000 #6092, Merrick, NY , Unless the Court orders otherwise, if you do not timely submit a valid Claim Form, you will be barred from receiving any payments from the Net Settlement Fund, but will in all other respects be bound by the provisions of the Settlement Agreement and the Judgment (as defined below). IX. EXCLUSION FROM THE CLASS You may request to be excluded from the Settlement Class at any time prior to the expiration of the Opt-Out Period. To opt out of the Settlement Class, you must submit to the Claims Administrator at the address above a written request for exclusion in the form of a sworn attestation. The request for exclusion must state (1) your name, residence address, and residence telephone number; (2) how many shares of Enron stock you owned on November 28, 2001; and (3) that you wish to be excluded from the Settlement Class. TO BE VALID, A REQUEST FOR EXCLUSION MUST STATE ALL OF THE FOREGOING INFORMATION. YOUR EXCLUSION REQUEST MUST BE POSTMARKED ON OR BEFORE AUGUST 11, If you submit a valid and timely request for exclusion, you shall have no rights under the settlement, shall not share in the distribution of the Net Settlement Fund, and shall not be bound by the Settlement Agreement or the Judgment. X. DISMISSAL AND RELEASES If the proposed settlement is approved, the Court will enter a Final Judgment and Order of Dismissal with Prejudice ( Judgment ). The Judgment will dismiss the Released Claims with prejudice. The Judgment will provide that all members of the Settlement Class who do not validly and timely request to be excluded from the Settlement Class shall be deemed to have released and forever discharged all Released Claims (to the extent members of the Settlement Class have such claims) against all Released Parties. The Court may approve the settlement with such modifications as may be agreed to by the settling parties if appropriate, without further notice to the Class. XI. APPLICATION FOR FEES, EXPENSES AND AWARDS At the Fairness Hearing, Class Counsel will request the Court to award attorneys fees not to exceed twenty-five percent of the Settlement Fund, plus reimbursement of expenses advanced in connection with the Instant Suit, not to exceed $50,000.00, plus interest thereon. Settlement Class Members are not personally liable for any such fees, expenses or compensation. To date, the Plaintiff Representatives and Class Counsel have not received any payment for their services in conducting this Instant Suit on behalf of the Class Members, nor have counsel been reimbursed for their out-of-pocket expenses. The fee requested by Class Counsel would compensate counsel for their efforts in achieving the Settlement Fund for the benefit of the Settlement Class, and for their risk in undertaking this representation on a contingency basis. The fee requested is within the range of fees awarded to plaintiffs counsel under similar circumstances in litigation of this type. In addition, at the Fairness Hearing, the Plaintiff Representatives will apply for an incentive fee of $5,000 in the form of a cash payment from the Settlement Fund to compensate them for their time and efforts in obtaining the Settlement Fund for the Class Members. XII. CONDITIONS FOR SETTLEMENT The settlement is conditioned upon the occurrence of certain events described in the Settlement Agreement. Those events include, among other things (1) entry of the Judgment by the Court; and (2) expiration of the time to appeal from or alter or amend the Judgment. If, for any reason, any one of the conditions described in the Settlement Agreement is not met, the Settlement Agreement might be terminated and, if terminated, will become null and void, and the parties to the Settlement Agreement will be restored to their respective positions as though the Settlement Agreement never occurred. XIII. THE RIGHT TO BE HEARD AT THE HEARING Any Class Member who has not validly and timely requested to be excluded from the Settlement Class, and who objects to any aspect of the settlement, the adequacy of representation by Class Counsel, or the application for attorneys fees and expenses, may appear and be heard at the Fairness Hearing. Any such person must submit a written notice of objection such that it is received on or before July 18, 2003, by each of the following 5

6 CLERK OF THE COURT HARRIS COUNTY DISTRICT CLERK Harris County Courthouse 301 Fannin Street Houston, Texas Counsel for Plaintiff Representatives and Class Members HOEFFNER & BILEK, L.L.P. Thomas E. Bilek 440 Louisiana, Suite 720 Houston, Texas Counsel for Dynegy Inc. and Dynegy Holdings, Inc. BAKER BOTTS L.L.P. B. Daryl Bristow 910 Louisiana Street Houston, TX The notice of objection must demonstrate the objecting person s membership in the Class, including the number of shares of Enron common stock owned on November 28, Furthermore, the written notice of objection must include (a) a statement of each objection asserted; (b) a detailed description of the factual and legal bases of each such objection; (c) a statement of whether the objector intends to appear and argue at the Fairness Hearing; (d) a list of witnesses whom the objector may call by live testimony, oral deposition testimony or affidavit during the Fairness Hearing; and (e) a list the exhibits which the objector may offer during the Fairness Hearing, along with copies of all such exhibits. At the Fairness Hearing, the Court will consider all timely filed written objections that meet these criteria. Only members of the Settlement Class who have submitted written notices of objection in this manner will be entitled to be heard at the Fairness Hearing, unless the Court orders otherwise. XIV. SPECIAL NOTICE TO NOMINEES If you held any Enron common stock on November 28, 2001, as nominee for a beneficial owner, then, within ten (10) days after you receive this Notice, you must either (1) send a copy of this Notice and the Claim Form by first-class mail to all such persons; or (2) provide a list of the names and addresses of such persons to the Claims Administrator Dynegy, Inc. v. Shapiro et al. c/o The Garden City Group, Inc. Claims Administrator P.O. Box 9000 #6092 Merrick, NY If you choose to mail the Notice and Claim Form yourself, you may obtain from the Claims Administrator (without cost to you) as many additional copies of these documents as you will need to complete the mailing. Regardless of whether you choose to complete the mailing yourself or elect to have the mailing performed for you, you may obtain reimbursement for or advancement of reasonable administrative costs actually incurred or expected to be incurred in connection with forwarding the Notice and Claim Form and which would not have been incurred but for the obligation to forward the Notice and Claim Form, upon submission of appropriate documentation to the Claims Administrator. XV. EXAMINATION OF PAPERS This Notice is a summary and does not describe all of the details of the Settlement Agreement. For full details of the matters discussed in this Notice, you may review the Settlement Agreement filed with the Court, which may be inspected during business hours, at the office of the Clerk of the Court, Harris County Courthouse, 301 Fannin, Houston, Texas. If you have any questions about the settlement of the Instant Suit, you may contact Class Counsel by writing HOEFFNER & BILEK, L.L.P. Thomas E. Bilek 440 Louisiana, Suite 720 Houston, Texas (713) DO NOT TELEPHONE THE COURT REGARDING THIS NOTICE. DATED May 20, 2003 BY ORDER OF THE COURT HARRIS COUNTY DISTRICT COURT 129TH JUDICIAL DISTRICT 6