Exhibit 10.2

 

DYNEGY INC.

SEVERANCE PAY PLAN

 

(Effective September 1, 1998)

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I. INTRODUCTION

 

Dynegy Inc. and its participating subsidiaries and affiliated entities hereby
establish the Dynegy Inc. Severance Pay Plan (defined more completely below as
the “Plan”) effective as of September 1, 1998, to provide severance benefits for
certain Eligible Employees whose employment is terminated involuntarily by the
Company1 under certain conditions.

 

The Company is pleased to provide this Plan to its Employees, and wants you, as
an Employee, to know about and understand it. This Plan has been prepared to let
you know how it works and about how it may benefit you. You should read all
parts of this Plan carefully so that you will not only understand the ways in
which it may benefit you, but certain exclusions to coverage and limitations on
the receipt of benefits which may apply to you. This Plan supersedes and
replaces any and all Company severance pay policies, plans or other programs
providing similar benefits in existence prior to September 1, 1998. As of
September 1, 1998, the only Company severance benefits are those offered under
this Plan and any Supplemental Plans specifically referring to this Plan that
are effective after August 31, 1998.

 

II. HIGHLIGHTS

 

  • Only Eligible Employees who satisfy all the requirements of the Plan will
receive severance payments.

 

  • Severance payments will be made to Eligible Employees based on their
Credited Length of Service.

 

  • Benefits from certain of the Company’s benefits plans may continue if you
ask the Company to withhold the cost of such benefits from your severance pay.

 

  • Severance pay benefits under the Plan are provided solely by the Company at
no cost to you other than the cost of any other benefit plans under which you
elect continued coverage. See Subsection IV(D) of this Plan.

 

  • As a condition to receipt of severance pay benefits under this Plan, you
must execute an Agreement and Release (hereinafter called the “Release”) in the
form provided by the Company acknowledging receipt of the severance payment and
releasing the Company from any liability arising from your employment or
termination. You will also agree, by signing the Release, not to claim
employment or seek employment rights from the Company.

 

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1 The term “Company,” as more completely defined in Section XII, shall include
Dynegy Inc., and each of its subsidiaries and affiliated entities that
participate in the Plan. The participating subsidiaries and affiliated entities
are listed on Attachment B.

 

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III. ELIGIBILITY

 

  A. Eligibility for Participation

 

You will receive severance pay only if your employment termination meets
specific guidelines. After the Effective Date, each Employee may be eligible to
participate in the Plan in the event such Employee’s employment is terminated by
an Employing Company for one of the following reasons (determined by the Plan
Administrator in its sole discretion):

 

  • Reduction in force;

 

  • Position elimination;

 

  • Office closing;

 

  • Mutually satisfactory resignation.

 

An Employing Company or an operating unit thereof, upon written approval of the
Plan Administrator, in its sole discretion, may grant participation eligibility
due to an employment termination for additional reasons within the policy or
guidelines of the Company and signed by the Vice President of Human Resources.

 

If you are given advance notice of your termination, you must remain in
employment until the Company’s designated Termination Date in order to receive
severance pay. Severance pay may be paid if you leave prior to the designated
Termination Date if your leaving will not have an adverse effect on the
activities of your department and is approved in writing by the Vice President
of Human Resources.

 

  B. Ineligibility for Participation

 

  1. Resignation or Discharge

 

An Employee is ineligible to participate in the Plan in the event the Employee’s
employment by an Employing Company terminates for a reason other than those
enumerated in Subsection A above, including, but not limited to, the following:

 

  • terminated by an Employing Company for any reason not listed in Subsection
A, above. The Plan Administrator, in its sole discretion, may determine whether
a termination makes an Employee ineligible for benefits provided by this Plan;

 

  • voluntarily resign for any reason, except participation in a Company
Voluntary Separation Program or a mutually satisfactory resignation as
determined by the Plan Administrator, in its sole discretion;

 

  • involuntarily resign for any reason, except those reasons listed in
Subsection A, above;

 

  • Employee status is canceled due to a failure to report for work, failure to
report from leave, or other similar event;

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  • merger, acquisition, sale, transfer, outsourcing, reorganization or
restructuring of all or part of the Employing Company or any affiliate or
division thereof where either (i) you are offered another position within the
Company that provides you a base salary at least equal to or greater than your
base salary on the Termination Date;2 or (ii) you are offered any position with
a Successor Company, including an outside contractor, whether affiliated or
unaffiliated with the Company and whether or not the Successor Company adopts
the Plan, and the offer provides you a base salary at least equal to or greater
than your base salary on the Termination Date;

 

  • death;

 

  • have an employment contract that contains severance provisions;

 

  • are receiving long-term disability benefits at the time you are notified
that your employment is being terminated even if your termination is caused by
an event listed in Subsection III (A). However, if your disability benefits
cease within two years after your position is eliminated because you are no
longer disabled and you seek to be reinstated but cannot be rehired due to the
elimination of your position and the absence of a comparable position, the Plan
Administrator or its designee may, but need not, make you eligible for severance
pay by causing the notice, required by the provisions of the Plan, to be given
to you;

 

  • return from a leave of absence which extends beyond the policy reinstatement
period, if applicable, and no position is available.

 

These exceptions from eligibility shall apply even if your termination otherwise
qualifies under Subsection A above.

 

  2. Changed Decisions

 

The Company has the right to cancel or reschedule your termination before you
terminate employment. You will not be eligible for severance benefits under this
Plan if your termination is canceled.

 

  3. Transition Assistance

 

You will not be entitled to benefits under this Plan unless you satisfy all
transition assistance requests of the Company to the Company’s satisfaction,
such as aiding in the location of files, preparing accounting records, returning
all Company property in your possession, or repaying any amounts you owe the
Company.

 

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2 Such an offer includes any position with the Company whether or not in
accepting such position you would be required to transfer to a different work
location, but only so long as you have been offered the Company's standard
relocation package in connection with such transfer.

 

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IV. SEVERANCE PAY BENEFITS

 

If you are terminated as a result of an event listed in Subsection III (A)
above, you will receive written notice of your employment termination from the
Vice President of Human Resources. This will be your notice of potential
eligibility to participate in the Plan. If you think you are eligible for
benefits under the Plan and you have not received notice from the Vice President
of Human Resources, you may send a written request for benefits addressed to the
Vice President of Human Resources pursuant to Subsection VI (A), below.

 

You will be entitled to receive benefits described in the Plan only if you
execute the Release, in the form approved and distributed to Eligible Employees
by the Plan Administrator, within the particular time period or on the
particular date specified in the Release. By signing the Release, you will be
waiving any claims that you may have against the Company and other persons and
entities designated by the Company arising from your employment or termination
of employment. The Release should be signed only after careful consideration and
consultation with a legal advisor.

 

  A. Amount of Severance Pay

 

The amount of severance pay you receive under this Plan (not including any
supplements to the Plan) will be based on your Credited Length of Service with
the Company. If you become entitled to severance benefits under this Plan, you
will receive two (2) Weeks of Pay for each full, completed Year of Service with
the Company and a pro-rated amount for less than a Year of Service, with a
minimum of twelve (12) Weeks of Pay. The maximum amount of severance payable
under the Plan is fifty-two (52) Weeks of Pay. However, if you choose not to
execute the Release, you will not receive any of the Plan Benefits. The benefits
payable under this Plan (and any supplements) shall be inclusive of and offset
by any other severance or termination payment made by the Company, including
payments provided by Subsection B below.

 

Notwithstanding the preceding provisions of this Subsection A or any provision
of the Plan to the contrary (including, without limitation, Sections IV.D. and
X.H. hereof), if you are entitled to receive severance pay under this Plan, then
the Company shall permit you, at your election, to continue to participate for
up to three (3) months following your termination of employment in the Company’s
group health care plan that provides medical and dental coverage that you were
participating in immediately prior to such termination of employment; provided,
however, that (a) you must continue to pay the premiums for such coverage based
on the premiums paid by active employees of the Company for similar coverage,
(b) the availability and terms of such coverage, and the required premium
payments, shall adjust as such availability, terms and premiums are adjusted for
active employees, and (c) such coverage shall immediately end upon your
obtaining new employment and eligibility for similar coverage (and you are
obligated hereunder to promptly report such eligibility to the Company). Your
election of this extended coverage shall not adversely affect in any way your
right to health care continuation coverage as required under Part 6 of Title I
of ERISA, except that the period of such health care continuation coverage under
the Company’s group health care plan shall be reduced by the period of your
extended coverage as provided under the terms of this paragraph. The Company
will also provide you with outplacement assistance benefits in addition to the
benefits described in the preceding paragraph. Outplacement assistance benefits
shall be in such amount and in such form as is determined by the Plan
Administrator in its sole discretion. The Plan

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Administrator’s determinations pursuant to this paragraph shall be made on a
case-by-case basis with respect to any individual Employee or group of
Employees, and the Plan Administrator shall consider such factors as it deems
relevant. Outplacement assistance benefits hereunder may vary among individual
Employees. The value of such outplacement assistance benefits will not be paid
to any Employee in a lump sum, but the payments necessary to provide such
benefits will be made directly to an outplacement assistance provider. The
Company may, in its sole discretion, provide outplacement assistance benefits to
you prior to your execution of the Release or the expiration of any revocation
period described in the Release. If you are provided such outplacement
assistance benefits prior to execution of the Release or the expiration of any
revocation period described in the Release, then, after execution of the Release
and the expiration of any revocation period, you will not be entitled to
outplacement assistance benefits in excess of those that the Plan Administrator
had already determined would be provided to you. Failure to execute the Release
within the specified time period or the revocation of the Release will result in
cessation of any outplacement assistance benefits.

 

The amount of severance pay you receive under this Plan shall be reduced by any
amounts you owe to the Company at the time your severance pay is paid to you.
The determination of what amounts are owed by you will be made in the sole
discretion of the Plan Administrator. Any such offset to the severance amount
for which you are eligible will be made in conformance with applicable state law
that is not otherwise preempted by ERISA.

 

  B. Integration With Plant Closing Law and/or the WARN Act

 

To the extent that any federal, state or local law, including, without
limitation, so-called “plant closing” laws, requires the Company to give advance
notice or make payment of any kind to an Eligible Employee because of that
Employee’s involuntary termination due to a layoff, reduction in force, plant or
facility closing, sale of business, change of control, or any other similar
event or reason, the benefits provided under this Plan shall either be reduced
or eliminated. The benefits provided under this Plan are intended to satisfy any
and all statutory obligations that may arise out of any Eligible Employee’s
involuntary termination for the foregoing reasons, and the Plan Administrator
shall so construe and implement the terms of the Plan in its sole discretion.
Included in the scope of the foregoing, if an Eligible Employee receives notice
from the Company pursuant to the Workers Adjustment and Retraining Notification
(WARN) Act, and remains employed during the WARN notice period, then the
severance pay and benefits for which the Employee is eligible under this Plan
will be reduced by the pay and benefits received by the Employee during the WARN
notice period.

 

  C. Form of Payment of Severance Pay Benefits

 

Except as otherwise specifically provided in the Plan, Plan Benefits will be
paid to you in a lump sum or as salary continuation, in the Company’s sole
discretion, after your execution of the Release and the expiration of any
revocation period described in the Release. If paid in a lump sum, Plan Benefits
will be paid to you as soon as administratively practicable after the execution
of the Release and the expiration of any revocation period described therein
unless you revoke the Release during the applicable revocation period. If paid
in the form of salary continuation, Plan Benefits will be paid to you after the
execution of the Release and the expiration of any revocation period described
therein, unless you revoke the Release during the

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applicable revocation period, at your normal base weekly rate of pay with the
frequency of the payroll cycle on which you were being paid at the time of your
termination of employment until the total amount of severance is paid. All Plan
Benefits will be subject to withholding for applicable employment and income
taxes. You are responsible for informing the Plan Administrator of any change in
your mailing address by written letter delivered to the Vice President of Human
Resources until your severance benefits have been paid in full.

 

  D. Effect of Plan on Other Company Benefits

 

You may be eligible to continue participation in certain other Company benefits
and/or benefit plans. However, continuation in various Company plans is subject
to the terms and conditions of the applicable plan, documents or insurance
contracts in effect on the date of your termination. Your rights under the other
plans, documents or insurance contracts are not affected by your decision to
participate or to not participate in this Plan. However, no severance benefits
will be payable, except as set forth by this Plan.

 

  E. Rehired Employees

 

Once you receive severance pay under this Plan, you have no right to be
re-employed by the Company. If you are rehired by the Company after you receive
payment of your severance pay, you will be entitled to keep that portion of your
severance pay equal to your regular, normal base weekly rate of pay prior to
your employment termination multiplied times the number of weeks and/or fraction
of weeks between your Termination Date and the rehire date. Any remainder must
be either returned to the Company upon your rehire or it will be deducted from
your pay.

 

If you are rehired within the same calendar year in which your employment was
terminated because of a reduction in force and you received payment for vacation
earned but not taken, you may either retain the payment and forfeit the vacation
time for which you were eligible prior to your employment termination, or you
may return to the Company the amount you received and reinstate vacation time
for which you were eligible prior to termination.

 

If your employment ends because of a reduction in force and you are rehired by
the Company within twelve months of your Termination Date, your Years of Service
with the Company prior to such termination will be counted in determining your
vacation benefits eligibility in future years. Applicable vacation time on
rehire will be determined in accordance with the Company’s vacation policy.

 

  F. Deceased Employees

 

In the event that an Eligible Employee dies after the termination of his or her
employment and before having received the full amount of the severance benefits
for which the Eligible Employee was qualified, Plan Benefits will be paid to the
legal representative of the Employee’s estate unless the Employee notifies the
Plan Administrator in writing that he or she specifically designates a different
Beneficiary. Benefits will be paid as soon as practicable after receipt of
notice of proof of such death; provided, however, that if the Employee had not
signed the Release prior to his or her death, then a condition to the receipt of
benefits will be the execution of the Release by the executor or other
authorized representative of the Employee’s estate.

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V. PLAN ADMINISTRATION

 

  A. General

 

The administration and operation of the Plan is directed by the Plan
Administrator.

 

  B. Powers Of The Plan Administrator

 

The Plan Administrator will have full power to administer the Plan in all of its
details, subject, however, to the requirements of ERISA. For this purpose the
Plan Administrator’s power will include, but will not be limited to, sole
discretionary power to:

 

  1. make and enforce such rules and regulations as it deems necessary or proper
for the efficient administration of the Plan or required to comply with
applicable law;

 

  2. interpret the Plan, its interpretation thereof to be final and conclusive
on any Employee, former Employee, Participant, former Participant and
Beneficiary;

 

  3. decide all questions concerning the Plan and the eligibility of any person
to participate in the Plan;

 

  4. compute the amount of benefits which will be payable to any Participant,
former Participant or Beneficiary in accordance with the provisions of the Plan,
and to determine the person or persons to whom such benefits will be paid;

 

  5. authorize the payment of benefits;

 

  6. keep such records and submit such filings, elections, applications, returns
or other documents or forms as may be required under the Code and applicable
regulations, or under state or local law and regulations;

 

  7. appoint such agents, counsel, accountants and consultants as may be
required to assist in administering the Plan;

 

  8. by written instrument, allocate and delegate its fiduciary responsibilities
in accordance with Section 405 of ERISA; and

 

  9. the right to amend, terminate, supplement, or modify the Plan at any time
whether or not benefits that are currently payable are affected or retroactively
terminated.

 

All such rules, regulations, determinations, constructions, decisions and
interpretations made by the Plan Administrator will be final and binding, except
as otherwise required by law. To the extent the Plan Administrator has been
granted discretionary authority under the Plan, the Plan Administrator’s prior
exercise of such authority shall not obligate it to exercise its authority in a
like fashion thereafter.

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VI. CLAIM REVIEW PROCEDURE

 

  A. Authority to Adopt Procedures

 

The Plan Administrator shall have the power and authority to establish written
procedures for processing claims for Plan benefits and reviews of Plan benefit
claims which have been denied or modified. Such procedures may be amended and
modified from time to time in the discretion of the Plan Administrator. The
procedures as adopted and amended and modified from time to time by the Plan
Administrator are hereby incorporated by reference as a part of the Plan. A
summary of the claims procedures in effect as of January 1, 2002, are set forth
in Section VI.B below.

 

  B. Summary of Claims Procedures in effect as of January 1, 2002

 

In order to file a claim for benefits under the Plan, you must submit to the
Vice President of Human Resources (the “Benefits Administrator”) a written claim
for Plan benefits containing a description of (a) an alleged failure to receive
a benefit payable under the Plan or (b) an alleged discrepancy between the
amount of a benefit owed and the amount of the benefit you received under the
Plan. In connection with the submission of a claim, you may examine the Plan and
any other relevant documents relating to the claim, and you may submit written
comments relating to such claim to the Benefits Administrator. If you need
additional information regarding your claim for benefits, then you can submit a
written request to the Benefits Administrator for such information. Failure to
furnish a written claim description or to otherwise comply with the claim
submission procedure will invalidate your claim unless the Benefits
Administrator determines that it was not reasonably possible to comply with such
procedure.

 

Upon the filing of a claim for benefits, the Benefits Administrator will
determine if the request is clear, and if so, will proceed with the processing
of the claim. If the Benefits Administrator determines that the claim is not
clear, then the claim will be referred to the Plan Administrator for review.

 

Within 90 days from the date a completed claim for benefits is filed (or such
longer period as may be necessary due to unusual circumstances, but in any event
no longer than the time period described in the next paragraph), the Plan
Administrator will make a decision as to whether the claim is to be approved,
modified, or denied. If the Plan Administrator approves the claim, then the
Benefits Administrator will process the claim as soon as administratively
practicable.

 

In the event of an “Adverse Benefit Determination” (which includes a denial or
modification of your claim, or an invalidation for failing to follow the Plan’s
claim submission procedures), you will be notified in writing not later than 90
days following the date the claim was filed (or within 180 days under special
circumstances, in which case you will be informed of the extension and the
circumstances requiring the extension in writing prior to its commencement) of
the following:

 

  • The specific reason or reasons for the Adverse Benefit Determination;

 

  • The Plan provisions upon which the Adverse Benefit Determination is based;

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  • Any additional material or information necessary to perfect the claim and
the reasons why such material or information is necessary;

 

  • The Plan’s claims review procedure; and

 

  • A description of your right to bring a civil action under ERISA with respect
to the Adverse Benefit Determination.

 

Within 60 days following receipt of an Adverse Benefit Determination, you may
submit a written request to the Plan Administrator for review of such
determination. During this review process, you will have the opportunity to
submit written comments and other information relating to the claim and you will
have reasonable access to, and copies of, all documents and other information
related to the claim free of charge. Any items you submit to the Plan
Administrator will be considered without regard to whether such items were
considered in the initial benefit determination.

 

Within 60 days following a request for review (or within 120 days under special
circumstances, in which case you will receive written notice of the extension
and the circumstances requiring the extension prior to its commencement), the
Plan Administrator must, after providing you with a full and fair review, render
its final decision in writing (or electronically). However, the review process
may be delayed if you fail to provide information that is requested by the Plan
Administrator. If the Plan Administrator approves the claim on review, then the
Benefits Administrator will process the claim as soon as administratively
practicable. In the event of an Adverse Benefit Determination on review, the
Plan Administrator’s final decision will include:

 

  • The specific reason or reasons for the Adverse Benefit Determination;

 

  • The Plan provisions upon which the Adverse Benefit Determination is based;

 

  • A statement that you are entitled to reasonable access to, and copies of,
all documents and other information related to the claim free of charge; and

 

  • A description of your right to bring a civil action under ERISA with respect
to the Adverse Benefit Determination.

 

You may, by submitting a written statement to the Plan Administrator, authorize
an individual or entity to pursue your claim for benefits under the Plan and/or
your request for a review of an Adverse Benefit Determination made with respect
to a claim.

 

Completion of the claims procedures described in this Section VI.B will be a
condition precedent to the commencement of any legal or equitable action in
connection with a claim for benefits under the Plan by a claimant or by any
other person claiming rights individually or through a claimant.

 

VII. PLAN AMENDMENT OR TERMINATION

 

The Plan Sponsor reserves the right to amend, modify, supplement or terminate,
in whole or in part, any or all of the provisions of the Plan at any time
prospectively or retroactively, for any reason, without notice or further
obligation to any Employee or any other person entitled to

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receive benefits, if any, under the Plan. The Plan Sponsor also reserves the
right to make any modification, supplementation or amendments to the Plan that
are necessary or appropriate to qualify or maintain the Plan so that it
satisfies the applicable provisions of the Code and the Employee Retirement
Income Security Act of 1974 (ERISA). Any Plan amendment must be signed by the
Executive Vice President of Administration and Technology to be effective.

 

VIII.  REORGANIZED COMPANIES AND PLAN MERGERS

 

Any corporation that succeeds to the business and assets of the Company or any
part of its operations may, by appropriate resolution, adopt the Plan and shall
thereupon succeed to such rights and assume such obligations hereunder as the
Company and said corporation shall have agreed upon in writing. Any corporation
that succeeds to the business of any Employing Company other than the Company,
or any part of the operations of such Employing Company may, by appropriate
resolution, adopt the Plan and shall thereupon succeed to such rights and assume
such obligations hereunder as such Employing Company and said corporation shall
have agreed upon in writing; provided, however, that such adoption and the terms
thereof agreed upon in writing have been approved by the Company.

 

IX. ERISA RIGHTS

 

As a participant in the Plan, you are entitled to certain rights and protections
under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
ERISA provides that all Plan participants shall be entitled to:

 

RECEIVE INFORMATION ABOUT YOUR PLAN AND BENEFITS:

 

(1) Examine without charge, at the Plan Administrator’s office and at other
specified locations, such as worksites and union halls, all documents governing
the Plan, including insurance contracts and collective bargaining agreements,
and a copy of the latest annual report (Form 5500 Series) filed by the Plan with
the U.S. Department of Labor and available at the Public Disclosure Room of the
Employee Benefits Security Administration.

 

(2) Obtain, upon written request to the Plan Administrator, copies of documents
governing the operation of the Plan, including insurance contracts and
collective bargaining agreements, and copies of the latest annual report (Form
5500 Series) and updated summary plan description. The Plan Administrator may
make a reasonable charge for the copies.

 

(3) Receive a summary of the Plan’s annual financial report. The Plan
Administrator is required by law to furnish each participant with a copy of this
summary annual report.

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PRUDENT ACTIONS BY PLAN FIDUCIARIES

 

In addition to creating rights for Plan participants, ERISA imposes obligations
upon the people who are responsible for the operation of employee benefit plans.
The people who operate your Plan, called “fiduciaries” of the Plan, have a duty
to do so prudently and in the interest of you and other Plan participants and
beneficiaries. No one, including your employer, your union, or any other person
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a welfare benefit or exercising your rights under ERISA.

 

ENFORCE YOUR RIGHTS

 

If your claim for a benefit is denied or ignored, in whole or in part, you have
a right to know why this was done, to obtain copies of documents relating to the
decision without charge, and to appeal any denial, all within certain time
schedules. Under ERISA, there are steps you can take to enforce the above
rights. For instance, if you request a copy of Plan documents or the latest
annual report from the Plan and do not receive them within 30 days, you may file
suit in a Federal court. In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $110 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the administrator. If you have a claim for benefits that
is denied or ignored, in whole or in part, you may file suit in a state or
Federal court. In addition, if you disagree with the Plan’s decision or lack
thereof concerning the qualified status of a domestic relations order, you may
file suit in Federal court. If it should happen that Plan fiduciaries misuse the
Plan’s money, or if you are discriminated against for asserting your rights, you
may seek assistance from the U.S. Department of Labor, or you may file suit in a
Federal court. The court will decide who should pay court costs and legal fees.
If you are successful, the court may order the person you have sued to pay these
costs and fees. If you lose, the court may order you to pay these costs and fees
(for example, if it finds that your claim is frivolous).

 

ASSISTANCE WITH YOUR QUESTIONS

 

If you have any questions about your Plan, you should contact the Plan
Administrator. If you have any questions about this statement or about your
rights under ERISA, or if you need assistance in obtaining documents from the
Plan Administrator, you should contact the nearest office of the Employee
Benefits Security Administration, U.S. Department of Labor, listed in your
telephone directory or the Division of Technical Assistance and Inquiries,
Employee Benefits Security Administration, U.S. Department of Labor, 200
Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain
publications about your rights and responsibilities under ERISA by calling the
publications hotline of the Employee Benefits Security Administration.

 

X. GENERAL PROVISIONS

 

  A. Voluntary Plan

 

The adoption of the Dynegy Inc. Severance Pay Plan is purely voluntary on the
part of

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the Company and shall not be deemed to constitute a contract between the
Company, any Employee or other person not in the employ of the Company, or to be
a consideration for, or an inducement or condition of, the employment of any
Employee or other person, or to give any right to be retained in the employ of
the Company, or to interfere with the right of an Employee to quit at any time,
or to interfere with the right of the Company to discharge any Employee or other
person at any time.

 

  B. No Rights Created Or Accrued

 

Nothing in the Plan shall be construed as giving to an Employee of the Company a
right to receive any benefit other than the benefits specifically provided under
the terms of the Plan. Nothing in the Plan shall be construed to limit in any
manner the right of the Company to discharge, demote, downgrade, transfer,
relocate, or in any other manner treat or deal with any person in its employ,
without regard to the effect such treatment or dealing may have upon such person
as someone who might otherwise have become (or remained) a Participant in the
Plan, which right is hereby reserved. No benefits shall be deemed to accrue
under the Plan at any time except the time at which they become payable under
the Plan, and no right to a benefit under the Plan shall be deemed to vest prior
to your Termination Date.

 

  C. Relation Of The Plan To Other Descriptive Matter

 

The Plan shall contain no terms or provisions except those set forth herein, or
as hereafter amended in accordance with the provisions of section VII of this
Plan. If any description made in any other document is deemed to be in conflict
with any provision of the Plan, the provisions of the Plan shall control.

 

  D. Non-alienation Of Benefits

 

No benefits payable under the Severance Pay Plan shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge or other
encumbrance, and any attempt to do so shall be void.

 

  E. Governing Law

 

The provisions of the Severance Pay Plan shall be construed, administered and
enforced according to the Employee Retirement Income Security Act of 1974
(“ERISA”) and, to the extent not preempted, by the laws of the State of Texas.

 

  F. Plan Communications

 

No communications in connection with the Plan made by you are effective unless
duly executed on an appropriate form provided or approved by, and filed with,
the Plan Administrator.

 

  G. Severability

 

If any provision of the Severance Pay Plan shall be held illegal or invalid for
any reason, such illegality or invalidity shall not affect the remaining
provisions of the Plan, and the Plan shall be construed and enforced as if such
illegal and invalid provisions had never been set forth in the Plan. Should the
Release be held invalid, Employee shall return all monies given to him or

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her under this Plan in consideration for the execution of the Release.

 

  H. Effect On Other Plans

 

This Plan has no effect on the rights of any Participant under any other
employee benefit plan sponsored by the Company (other than as replaced or
superceded in Section I hereof) such as any profit-sharing, medical, dental or
hospitalization, life insurance, AD&D, incentive compensation, or vacation pay
plan. Rights under those plans are governed solely by their terms, and you
should review those plans to ascertain their rights under them. In particular,
your severance benefits under this Plan do not change the date of your
termination of employment for purposes of any other plan.

 

  I. Costs and Indemnification

 

All costs of administering the Plan and providing Plan Benefits will be paid by
the Company, with one exception: any expenses (other than arbitrator fees)
incurred in resolving disputes with multiple Claimants concerning their
entitlement to the same benefit may be charged against the benefit, which will
be reduced accordingly. To the extent permitted by applicable law and in
addition to any other indemnities or insurance provided by the Company, the
Company shall indemnify and hold harmless its (and its affiliates’) current and
former officers, directors, and employees against all expenses, liabilities, and
claims (including legal fees incurred to defend against liabilities and claims)
arising out of their discharge or omission in good faith of their administrative
and fiduciary responsibilities with respect to the Plan. Expenses and
liabilities arising out of willful misconduct will not be covered under this
indemnity.

 

  J. Miscellaneous

 

Where the context so indicates, the singular will include the plural and vice
versa. Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan. Unless the context clearly
indicates to the contrary, a reference to a statute or document shall be
construed as referring to any subsequently enacted, adopted, or executed
counterpart.

 

XI. IDENTIFYING DATA

 

The Severance Pay Plan is a welfare benefit plan providing benefits from the
general assets of the Company. Dynegy Inc. is the Plan Sponsor. The Plan Year is
from January 1 to the following December 31. For identification purposes, the
Plan is part of the Dynegy Inc. Comprehensive Welfare Benefits Plan to which the
Plan Sponsor has assigned Plan number 501. The Employer identification number
for Dynegy Inc. is 74-2928353.

 

  A. Plan Sponsor

Dynegy Inc.

1000 Louisiana Street, Suite 5800

Houston, Texas 77002

(713) 507-6400

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  B. Plan Administrator

Dynegy Inc. Benefit Plans Committee

c/o Executive Vice President of Administration and Technology

Dynegy Inc.

1000 Louisiana Street, Suite 5800

Houston, Texas 77002

(713) 507-6400

 

  C. Agent for Legal Service of Process

Dynegy Inc. Benefit Plans Committee

c/o Executive Vice President of Administration and Technology

Dynegy Inc.

1000 Louisiana Street, Suite 5800

Houston, Texas 77002

 

XII. DEFINITIONS

 

The following words and phrases are used quite frequently in this Severance Pay
Plan and have special meanings of which you should take note.

 

  a) A Beneficiary is a person or persons entitled to receive benefits under the
Plan upon the death of a Participant.

 

  b) The Code means the Internal Revenue Code of 1986, as amended.

 

  c) The Company is Dynegy Inc., its successors and assigns, and all Employing
Companies, including all of Dynegy Inc.’s subsidiaries and affiliated entities
currently participating in the Plan which are listed on Attachment B.

 

  d) Contract Employees means persons whom the Company regards as Contract
Employees. Contract Employees are not eligible to participate in this Severance
Pay Plan.

 

  e) Contractor’s Employees means persons working for a company providing goods
or services (including temporary employee services) to the Company whom the
Company does not regard to be its common law employees, as evidenced by the
Company’s failure to withhold taxes from their compensation, even if the persons
really are the Company’s common law employees. Contractor’s Employees are not
eligible to participate in this Severance Pay Plan.

 

  f) Credited Length of Service means each Year of Service as an Employee with
an Employing Company, an Affiliated Company or a Predecessor Company for which
you are given credit by the Plan Administrator.

 

  g) The Effective Date for purposes of this Plan is September 1, 1998.

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  h) An Eligible Employee means an Employee who meets the eligibility
requirements set forth in Section III of this Plan.

 

  i) An Employee is any full-time and active Employee employed by the Company
who is paid through the payroll department of the Company or the Employing
Company. Temporary or Part-Time Employees, Foreign Employees, Independent
Contractors, Contract Employees, and Contractors’ Employees, Project Employees,
and Leased Employees are not “Employees” under the Plan. Employees covered by a
collective bargaining agreement are not “Employees” unless an agreement has been
negotiated with the bargaining representative for coverage under the Plan.

 

  j) The Employer or Employing Company means the Employee’s direct employer,
including Dynegy Inc. and such other of the subsidiaries and affiliated
companies of Dynegy as have adopted the Plan and have been admitted to
participation by the Plan Administrator.

 

  k) ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations issued thereunder.

 

  l) Foreign Employees means any persons who are not on a U.S. payroll of the
Company. Foreign Employees are not eligible to participate in this Severance Pay
Plan.

 

  m) Full-time means any Employee who is regularly scheduled to work 40 or more
hours per week.

 

  n) Leased Employees means persons who are the Company’s leased employees,
within the meaning of Code Section 414(n). Leased Employees are not eligible to
participate in this Severance Pay Plan.

 

  o) The Named Fiduciary for the Plan is the Plan Administrator.

 

  p) Participants are the Eligible Employees of the Company who elect to, and
do, participate in the Severance Pay Plan and who meet the eligibility
requirements set forth under section III of this Plan.

 

  q) Part-Time Employees are the employees of the Company who are regularly
scheduled to work less than 40 hours per week. Part-Time Employees are not
eligible to participate in this Severance Pay Plan.

 

  r) The Plan is the Dynegy Inc. Severance Pay Plan described in this document
including any Supplemental Plans during the period of time that they are
effective.

 

  s) The Plan Administrator is the person or persons appointed by the
Compensation and Human Resources Committee (or their delegates) to oversee the
operation of the Plan.

 

  t) Plan Benefit means amounts payable under the Plan to a Participant under
the conditions described in Section IV.

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  u) The Plan Sponsor is Dynegy Inc.

 

  v) The Plan Year is the 12-month period ending on December 31, 1998.

 

  w) Project Employees means persons employed to work on discrete projects or
creative matters. Project Employees are not eligible to participate in this
Severance Pay Plan, except to the extent the Company, by written notice, elects
to extend Plan participation to the individual.

 

  x) Release means the Agreement and Release set forth as Attachment A, or such
other form designated by the Plan Administrator.

 

  y) Separation or Termination Date means an Employee’s last day of active
service for the Employer, as designated by the Employer.

 

  z) A Successor Company is any entity that assumes operations or functions
formerly carried out by the Company (such as the buyer of a facility, asset or
division or any entity to which a Company operation or function has been
outsourced); any affiliate of the Company; or any entity making the job offer at
the request of the Company (such as a joint venture of which the Company or an
affiliate is a member).

 

  aa) Supplemental Plans mean plans designated as supplements to this Plan that
are signed by the Vice President of Human Resources and are first effective on
or after September 1, 1998.

 

  bb) Vice President of Human Resources means the individual currently holding
the title Vice President of Human Resources for Dynegy Inc., or his/her
designee.

 

  cc) Voluntary Separation Program means a program designated as a Voluntary
Separation Program by the Company and signed by the Vice President of Human
Resources.

 

  dd) A Week of Pay means your base weekly rate of pay, excluding overtime,
bonuses, commissions (except in the case of truck drivers employed by Dynegy
Crude Gathering Services, Inc., whose base pay is comprised solely of
commissions), premium pay, shift differentials, employee benefits, expense
reimbursements, and similar amounts. However, the fact that amounts are withheld
from your pay for taxes, employee benefits, or other reasons will be disregarded
in calculating your Week of Pay amount. If you are paid by the hour, your base
weekly rate of pay is your regular hourly rate multiplied by your scheduled
hours per week. (e.g., forty (40) hours per week for full time Employees). Your
base weekly rate of pay shall be determined by the Plan Administrator in its
sole discretion.

 

  ee) Year of Service means each continuous year (365 days) of service with the
Company without a break in service.

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ATTACHMENT A

 

DYNEGY INC. SEVERANCE PAY PLAN

AGREEMENT AND RELEASE

 

I,                                                   (“Employee”), hereby agree
to participate in the Dynegy Inc. Severance Pay Plan (the “Plan”), as amended,
in accordance with its terms. A copy of the Plan has been provided to me.

 

I understand that in order to receive severance payments under the terms of the
Plan, I must sign this Agreement and Release (“Release”) and return it to the
appropriate Human Resources representative at Dynegy Inc., 1000 Louisiana
Street, Suite 5800, Houston, Texas 77002, or Illinois Power Company, 500 South
27th Street, Decatur, Illinois 62521. I understand that I have been given
forty-five (45) days to consider this Release. I have been advised to consult an
attorney before I signed this Release. I understand that I will have seven (7)
days after I sign and return this Release to Human Resources to change my mind
and revoke this Release. I further understand that this Release will not become
effective or enforceable until after that date.

 

RELEASE

 

In consideration for the benefits provided under the Plan, and by signing this
Release, I understand that I am knowingly, irrevocably, and voluntarily agreeing
for myself and for my heirs, executors and assigns, to a full and complete
release of Dynegy Inc., its predecessors, successors, subsidiaries, operating
units, affiliates, divisions and the agents, representatives, officers,
directors, shareholders, employees and attorneys and each of the foregoing
(individually and collectively called the “Company” or “Employer”), from all
claims, debts, liabilities, demands, obligations, promises, acts, agreements,
costs, expenses, damages, actions and causes of action, whether in law or in
equity, whether known or unknown, suspected or unsuspected, arising from my
employment and termination of employment with Employer, including but not
limited to, any and all claims pursuant to Title VII of the Civil Rights Act of
1964, 42 U.S.C. §2000e, et seq., as amended by the Civil Rights Act of 1991,
which prohibits discrimination in employment based on race, color, national
origin, religion or sex; the Civil Rights act of 1966, 42 U.S.C. §§1981, 1983
and 1985, which prohibits violations of civil rights; the Employee Retirement
Income Security Act of 1974, as amended, 29 U.S.C. §621, et seq., which protects
certain employee benefits; the Americans with Disabilities Act of 1990, as
amended, 42 U.S.C. §12101, et seq., which prohibits discrimination against the
disabled; the Age Discrimination in Employment Act of 1967, 29 U.S.C. §621, et
seq., as amended by the Older Workers Benefit Protection Act of 1990; the Family
and Medical Leave Act of 1993, 29 U.S.C. §2601, et seq., which provides medical
and family leave; the Fair Labor Standards Act, 42 U.S.C. §201, et seq.,
including the Wage and Hour Law relating to payment of wages; the Worker
Adjustment and Retraining Notification Act, and all other federal, state or
local laws or regulations. This Release also includes, but is not limited to, a
release of any claims for breach of contract, mental pain, suffering and
anguish, emotional upset, impairment of economic opportunities, unlawful
interference with employment rights, defamation, intentional or negligent
infliction of emotional

 

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

distress, fraud, wrongful termination, wrongful discharge in violation of public
policy, breach of any express or implied covenant of good faith and fair
dealing, that Employer has dealt with me unfairly or in bad faith, overtime pay,
vacation pay, punitive damages, back-pay, reinstatement, front-pay, liquidated
damages, injunctive relief, costs or attorneys’ fees, based on or arising out of
Employee’s employment by Employer and/or his/her termination therefrom, and all
other common law contract and tort claims. I am not waiving any rights or claims
that may arise after this Release is signed by me.

 

THE PRECEDING PARAGRAPH MEANS THAT BY SIGNING THIS RELEASE, YOU WILL HAVE WAIVED
ANY RIGHT YOU MAY HAVE TO BRING A LAWSUIT OR MAKE ANY LEGAL CLAIM AGAINST THE
COMPANY BASED ON ANY ACTIONS TAKEN BY THE COMPANY UP TO THE DATE OF THE SIGNING
OF THIS RELEASE.

 

Waiver of Reinstatement

 

I forever waive and relinquish any right or claim to reinstatement of employment
with Employer following my termination, and acknowledge that Employer has no
obligation to rehire and return me to active duty at any time in the future.

 

Acknowledgements

 

1. I have been advised by the Employer to consult with an attorney before
executing this Release.

 

2. I have carefully read the contents of this Release, and I understand the
contents of the Release. I am executing this Release voluntarily, knowingly, and
without any duress or coercion.

 

3. I have been extended a period of 45 days within which to consider this
Release and this has afforded me ample opportunity to consult with personal,
financial, and legal advisors prior to executing this Release. In the event that
I decide to execute this Release prior to the end of the 45 day time period, I
certify that, in accordance with 29 CFR Part 1625.22(e)(6), my decision to
accept such shortening of time is knowing and voluntary and is not induced by
the Company through fraud, misrepresentation, a threat to withdraw or alter to
offer prior to the expiration of the 45 day time period, or by providing
different terms to other employees who sign the release prior to the expiration
of such time period. Should I sign this Release before the expiration of the 45
day time period, the Company may expedite the processing of the severance
benefits provided in exchange for this Release.

 

4. I understand that for a period of seven (7) days following my execution of
this Release, I may revoke the Release by notifying the Plan Administrator in
care of the Vice President of Human Resources, Dynegy Inc., 1000 Louisiana,
Suite 5800, Houston, Texas 77002, in writing, of my desire to do so. I
understand that after the seven (7) day period has elapsed, this Release shall
become effective and enforceable. I understand that no payment will be made
under this Release until after the seven-day period has elapsed.

 

2

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5. I acknowledge that the benefits and payments provided to me under the Plan is
consideration to which I am not otherwise entitled under any Employer plan,
program, or prior agreement.

 

6. I agree that the benefits and payments paid under the Plan shall constitute
the entire amount of monetary consideration provided to me under this Release,
that I am not entitled to this consideration if I do not sign this Release and
that I will not seek any further compensation for any other claimed damages,
costs or attorneys’ fees in connection with my employment with the Company, the
separation of my employment, or any other matters encompassed by this Release.

 

7. Any payment received pursuant to the plan is subject to applicable employment
and income taxes. I acknowledge and agree that the Company has made no
representations regarding the tax consequences of any amounts I received, and I
agree to indemnify the Company for any amounts that may be deemed subject to
withholding tax which were not withheld from these amounts.

 

8. I have been provided statistical and other information attached hereto as
Exhibit A relating to the Plan. Exhibit A contains a detailed list of the job
titles and ages of all employees eligible for the Plan and the ages of all
employees of the Company in the same job classifications or organizational unit
who are not eligible or selected. This information has been considered by me and
my advisors in reaching the decision to sign this Release.

 

9. I understand and acknowledge that as an employee of the Company, I have had
access to valuable trade secrets and confidential and proprietary information of
the Company. I agree to maintain the confidentiality of any trade secret or
proprietary information acquired by me during my employment. I further
acknowledge that if I fail to maintain the confidentiality of the information,
the Company reserves the right to pursue all legal and/or equitable remedies
available to it.

 

General Provisions

 

1. This Release sets forth the entire agreement between the parties hereto and
supersedes any and all prior agreements or understandings, written or oral,
between the parties hereto pertaining to the subject matter of this Release.
This Release expresses the full terms upon which Employer and the Employee
conclude the employment relationship. There are no other representations or
terms relating to the Employee employment relationship or the conclusion of that
relationship other than those set forth in writing in this Release. I hereby
represent and acknowledge that in executing this Release, I do not rely and have
not relied upon any representations or statements made by any of the parties,
agents, attorneys, employees, or representatives with regard to the subject
matter, basis or effect of this Release or otherwise, other than as specifically
stated in this written Release.

 

3

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2. In the event that any provision of this Release should be held to be void,
voidable, or unenforceable, the remaining portions shall remain in full force
and effect. Should the Release be held invalid, I understand that I shall return
the monies given to me under the Plan in consideration for the execution of this
Release.

 

3. This Release shall be construed and enforced according to ERISA and, to the
extent not preempted, by the laws of the State of Texas.

 

4. Employee hereby submits to the personal jurisdiction of, and venue in, the
federal and state courts in the City of Houston, State of Texas for any actions
arising out of or relating to this Release.

 

5. I have carefully read, fully understand, and agree to be bound by all of the
provisions of this Release and the Plan.

 

 

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

Date

     

 

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

Employee Signature

 

4

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Attachment B

 

Subsidiaries/Affiliates/Adopting Dynegy Inc. Severance Pay Plan

 

1. Dynegy Midstream Services, Limited Partnership (Plan participation effective
September 1, 1998);

 

2. Dynegy Power Marketing, Inc. (Plan participation effective September 1,
1998);

 

3. Dynegy Marketing and Trade (Plan participation effective September 1, 1998);

 

4. Dynegy Power Corp. (Plan participation effective September 1, 1998);

 

5. Calcasieu Power, LLC (Plan participation effective June 1, 1999);

 

6. Dynegy Midwest Generation, Inc. (Plan participation effective February 2,
2000);

 

7. Illinova Energy Partners, Inc. (Plan participation effective February 2,
2000);

 

8. Dynegy Northeast Generation, Inc. (Plan participation effective September 14,
2000);

 

9. Illinois Power Company (Plan participation effective January 1, 2001); and

 

10. Illinova Generating Company (Plan participation effective January 1, 2001).