Exhibit 10.8

 

IN THE DISTRICT COURT OF

HARRIS COUNTY, TEXAS

164th JUDICIAL DISTRICT

 

In re DYNEGY, INC. DERIVATIVE    §      LITIGATION    §           §           §
   LEAD CASE NO. 2002-25250      §    (Derivative Action) This Document Relates
To:    §           §      ALL ACTIONS    §     

 

STIPULATION AND AGREEMENT OF SETTLEMENT

 

This stipulation and settlement agreement (this “Stipulation”), dated April 29,
2005, is entered into by and among plaintiffs Kevin Bosse and Alan Gillies,
derivatively on behalf of Dynegy Inc. (collectively, “Plaintiffs”), nominal
defendant Dynegy Inc. (“Dynegy”), and defendants Charles L. Watson, Stephen W.
Bergstrom, Robert D. Doty, Sheli Z. Rosenberg, Charles E. Bayless, Joe J.
Stewart, Richard H. Matzke, George L. Kirkland, Darald W. Callahan, Glenn F.
Tilton, John S. Watson, H. John Riley, J. Otis Winters, Daniel L. Dienstbier,
Michael D. Capellas, Patricia M. Eckert, and Jerry L. Johnson (collectively, the
“Individual Defendants”). All parties to this Stipulation shall be collectively
referred to as the “Parties.” The Parties have reached an agreement to settle
the shareholder derivative litigation styled In re Dynegy Inc. Derivative
Litigation, Lead Case No. 2002-25250, pending in the 164th District Court for
Harris County, Texas (the “Derivative Litigation”) on the terms and conditions
set forth in this Stipulation, subject to Court approval. This Stipulation is
intended by the Parties to fully, finally and forever resolve, discharge and
settle any and all claims that have been or could have been brought in the
Derivative Litigation.

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RECITALS

 

WHEREAS:

 

A. On or about April 30, 2002, Kevin Bosse, derivatively on behalf of Dynegy,
brought suit against Individual Defendants and Dynegy in the 55th District Court
for Harris County, Texas, Cause No. 2002-21890.

 

B. On or about May 17, 2002, Allan Gillies, derivatively on behalf of Dynegy,
brought suit against Individual Defendants and Dynegy in the 281st District
Court for Harris County, Texas, Cause No. 2002-25250.

 

C. Both lawsuits were subsequently consolidated and transferred to the 164th
District Court for Harris County, Texas under Lead Case No. 2002-25250.

 

D. On or about July 7, 2003, Plaintiffs filed their First Amended Consolidated
Petition. Plaintiffs assert claims for breaches of fiduciary duty, waste of
corporate assets, corporate mismanagement, unjust enrichment, conspiracy and
aiding and abetting.

 

E. The Individual Defendants (as defined below) deny any wrongdoing, fault,
liability or damage to Plaintiffs, deny that they engaged in any wrongdoing,
deny that they committed any violation of law, and deny that they acted
improperly in any way. The Individual Defendants further believe that (i) they
acted properly at all times, and (ii) the Derivative Litigation is without
merit.

 

F. In view of the uncertainty and risk of the outcome of any litigation
(especially complex derivative litigation), the difficulties and substantial
distractions, burdens, expenses and length of time necessary to defend the
proceeding, possibly through conclusion of discovery, possible summary judgment
motions, a possible trial, possible post-trial motions and possible

 

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appeals, and to eliminate the distractions, risks, burdens and expenses of
further litigation, the Parties signed the Memorandum of Understanding (as
defined below) to settle the Derivative Litigation and put the Released Claims
(as defined below) to rest, finally and forever.

 

G. Plaintiffs, by and through Plaintiffs’ Counsel, state that they have
conducted and completed extensive research, discovery and investigation relating
to the claims and the underlying events and transactions alleged in the
Derivative Litigation, including (i) review and analysis of hundreds of
thousands of pages of documents produced by Dynegy and the Individual Defendants
(as defined below), (ii) review and analysis of various public statements and
filings made by Dynegy and its senior officers with the SEC, analysts’ reports
concerning Dynegy, and press releases, news articles and other media reports
regarding Dynegy.

 

H. Plaintiffs believe that the claims asserted in the Derivative Litigation have
merit. However, Plaintiffs and Plaintiffs’ Counsel recognize and acknowledge the
expense and length of continued proceedings necessary to prosecute the
Derivative Litigation against the Individual Defendants through trial and
appeal. Plaintiffs and Plaintiffs’ Counsel also have taken into account the
uncertain outcome and the risk of any litigation, especially complex actions
such as the Derivative Litigation, as well as the difficulties and delays
inherent in such litigation. Plaintiffs and Plaintiffs’ Counsel also are mindful
of the inherent problems of proof of, and possible defenses to, the violations
asserted in the Derivative Litigation.

 

I. The Parties have voluntarily agreed to settle the Derivative Litigation after
consultation with competent legal counsel. This Stipulation shall not be
construed or deemed to be a concession by Plaintiffs of any infirmity in the
claims asserted in the Derivative Litigation or as a concession by any or all of
the Individual Defendants of any wrongdoing, fault, liability or damage to
Plaintiffs, Dynegy, or any other person or entity, or any infirmity in any
defense any or all Individual Defendants asserted or could have asserted.

 

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J. The Parties and their counsel believe that the settlement embodied in this
Stipulation is fair, reasonable and adequate and in the best interests of Dynegy
and its stockholders.

 

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and among the Parties
that, subject to Court approval, any and all claims that have been or could have
been brought in the Derivative Litigation shall be finally and fully
compromised, settled and released as to the Individual Defendants and Dynegy,
upon and subject to the terms and conditions of this Stipulation as follows:

 

DEFINITIONS

 

1. For purposes of this Stipulation, certain persons and terms shall be defined
as follows:

 

a. “Board” means the Board of Directors of Dynegy Inc.

 

b. “Class A Directors” shall mean the directors of Dynegy Inc. which, pursuant
to its Articles of Incorporation, are elected by the holders of Dynegy Class A
Common Stock voting as a separate class.

 

c. “Court” means the 164th District Court for Harris County, Texas, the
Honorable Martha Hill Jamison, presiding.

 

d. “Derivative Litigation” means the shareholder derivative lawsuits brought by
Kevin Bosse and Alan Gillies that have been consolidated into the lawsuit styled
In re Dynegy Inc. Derivative Litigation, Lead Case No. 2002-25250, pending in
the 164th District Court for Harris County, Texas.

 

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e. “Dynegy” means nominal defendant Dynegy Inc.

 

f. “Dynegy Class A Common Stock” means the Class A Common Stock of Dynegy Inc.
or the equivalent security of its successors and assigns.

 

g. “ERISA Plans” means the Dynegy Retirement Savings Plan, the Illinois Power
Plan Incentive Savings Plan for Employees Covered Under a Collective Bargaining
Agreement, the Illinois Power Company Incentive Savings Plan, and the Dynegy
Northeast Generation, Inc. Savings Incentive Plan.

 

h. “Individual Defendants” means Charles L. Watson, Stephen W. Bergstrom, Robert
D. Doty, Sheli Z. Rosenberg, Charles E. Bayless, Joe J. Stewart, Richard H.
Matzke, George L. Kirkland, Darald W. Callahan, Glenn F. Tilton, John S. Watson,
H. John Riley, J. Otis Winters, Daniel L. Dienstbier, Michael D. Capellas,
Patricia M. Eckert, and Jerry L. Johnson.

 

i. “Ongoing Changes” means those corporate governance changes discussed in
paragraph 4 of this Stipulation.

 

j. “Parties” means all parties to this Stipulation.

 

k. “Plaintiffs” means Kevin Bosse and Alan Gillies, derivatively on behalf of
Dynegy.

 

l. “Plaintiffs’ Counsel” means Brian J. Robbins, Caroline A. Schnurer and Steven
R. Wedeking of Robbins Umeda & Fink, LLP, Paul T. Warner of Reich & Binstock,
James G. Stranch, III and J Gerard Stranch, IV of Branstetter Kilgore Stranch &
Jennings, and Joe R. Whatley, Jr. of Whatley Drake, LLC.

 

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m. “Released Claims” means any and all claims, rights, demands, obligations,
controversies, debts, damages, losses, causes of action and liabilities of any
kind or nature whatsoever, whether in law or equity, including both known and
Unknown Claims (as defined below), suspected or unsuspected, accrued or
unaccrued, held at any point from the beginning of time to the date of this
Stipulation’s execution, which have been or could have been asserted by
Plaintiffs or any Dynegy shareholder on Dynegy’s behalf in the Derivative
Litigation arising out of or relating to (i) the facts, matters, transactions,
conduct, omissions or circumstances alleged, or that could have been alleged, in
the Derivative Litigation, and (ii) the defense or settlement of the Derivative
Litigation; provided, however, Released Claims shall not include any claims
under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et
seq., arising from or relating to any or all of the ERISA Plans, including but
not limited to the civil action styled Lively, et al. v. Dynegy Inc., et al.,
No. 05-63-MJR (S.D. Ill.), or any claim arising out of the violation or breach
of this Stipulation.

 

n. “Released Individual Defendant Indemnification Claims” means any claim for
indemnification from Dynegy (whether arising under statutory law, common law,
contract, the Dynegy by-laws or otherwise) in respect of claims against or
losses by any one or more of the Individual Defendants arising from, related to,
or in connection with any acts, transactions or occurrences alleged or that
could have been alleged in the Derivative Litigation; provided however, that
Released Individual Defendant Indemnification Claims does not include Unreleased
Individual Defendant Indemnification Claims (defined below).

 

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o. “Released Parties” means the Individual Defendants and Dynegy, and each of
their respective past and present parents, subsidiaries, affiliates, directors,
officers, attorneys, insurers, agents, representatives, successors and assigns.

 

p. “Settlement” means the settlement of the Derivative Litigation agreed to by
and among the Parties and embodied in this Stipulation.

 

q. “Stipulation” means this stipulation and settlement agreement.

 

r. “Unknown Claims” means any and all Released Claims that any Plaintiff does
not know or suspect to exist in his favor upon release of the Released Claims
which, if known by him, might have affected his decision(s) with respect to the
Settlement. With respect to any and all Released Claims, the Parties stipulate
and agree that Plaintiffs expressly waive, and by operation of the Final Take
Nothing Judgment shall have expressly waived, any and all provisions, rights and
benefits conferred by any law, rules or regulations of any state or territory of
the United States or any other country, or principle of common or civil law,
which is similar, comparable, or equivalent to Cal. Civ. 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.

 

Plaintiffs acknowledge that the inclusion of Unknown Claims in the definition of
Released Claims was separately bargained for and was a key element of the
Settlement.

 

s. “Unreleased Individual Defendant Indemnification Claims” means any claim by
any one or more Individual Defendant(s) for indemnification, contribution or
reimbursement from Dynegy (whether arising under statutory law, common law,
contract, the Dynegy by-laws or otherwise) in respect of:

 

(i) claims against or losses (including defense costs) by any one or more of the
Individual Defendants that do not arise from, relate to, or have any connection
with any acts, transactions or occurrences alleged in the Derivative Litigation;

 

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(ii) any investigation, prosecution or enforcement by any United States or state
government agency or self-regulatory organization (including but not limited to
the New York Stock Exchange or the National Association of Securities Dealers)
of Dynegy or any of the Individual Defendants, including for sums already
advanced by Dynegy to the Individual Defendants (for defense costs or
otherwise);

 

(iii) claims against or losses by any one or more of the Individual Defendants
under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et
seq., arising from or relating to any or all of ERISA Plans, including but not
limited to the claims that were asserted, or could have been asserted, in the
civil action styled Lively, et al. v. Dynegy Inc., et al., No. 05-63-MJR (S.D.
Ill.); or

 

(iv) reasonable attorneys’ fees and expenses incurred to defend the Derivative
Litigation or the consolidated securities litigation pending under the caption
In re Dynegy Inc. Securities Litigation, Civ. No. H-02-1571; in the United
States District Court for the Southern District of Texas, Houston Division.

 

Provided, however, that nothing in this Stipulation shall obligate Dynegy to
indemnify any one or more Individual Defendant(s) in respect of claims or losses
for which indemnity is forbidden as a matter of law, regulation or public
policy.

 

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CORPORATE GOVERNANCE CHANGES

 

2. Dynegy has implemented and/or will be implementing numerous corporate
governance changes as a direct and substantial result of the prosecution of the
Derivative Litigation. These corporate governance changes, discussed in
paragraphs 3 and 4 below, shall be applicable to the Board of Directors of
Dynegy Inc., the entity of that name currently incorporated in the State of
Illinois, Class A Common Stock of which is traded on the New York Stock Exchange
(“NYSE”), under the symbol “DYN.”

 

3. The following corporate governance changes have been implemented by Dynegy
and were done as a direct and substantial result of the prosecution of the
Derivative Litigation:

 

a. the replacement of eleven (11) Board members;

 

b. the replacement of several key senior officers, including the Chief Executive
Officer, Chief Financial Officer, General Counsel, Vice President of Tax and
Internal Auditor;

 

c. the replacement of Dynegy’s outside auditor;

 

d. the appointment of a new Audit Committee Chair;

 

e. 75% of the current members of the Board of Directors are now independent as
defined by the rules of the NYSE; and

 

f. the creation of a new charter for the Corporate Governance and Nominating
Committee.

 

4. The following corporate governance changes represent ongoing changes that
have been established or will be implemented by Dynegy as a direct and
substantial result of the prosecution and/or settlement of the Derivative
Litigation (the “Ongoing Changes”):

 

a. the two director defendants who currently remain on the board will be
replaced with two new independent directors as defined by the rules of the NYSE
within a time period to be determined by Dynegy;

 

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b. directors generally will not be nominated for election to the Board after
their 70th birthday, unless such nomination is specifically authorized by a
majority vote of the non-management directors;

 

c. no director shall serve as a director to more than four other publicly traded
companies while serving as a director of Dynegy; provided that the foregoing
restriction may be waived by the majority vote of the non-management directors;

 

d. each non-management Class A Director shall be expected to own a meaningful
amount of Dynegy Class A Common Stock, such ownership threshold to be satisfied
within a reasonable period of time following such director’s election to the
Board;

 

e. the Board may not amend or repeal in any material respect any provisions of
the Bylaws that are expressly adopted by the stockholders, except (i) to the
extent necessary to comply with any law, regulation or stock exchange rule, or
any judgment, order or decree of any court or administrative body, or (ii) to
cure any ambiguity or correct or supplement any conflicting provisions;

 

f. the Board shall be comprised of at least 60% (with a goal of 75%) independent
directors as defined by the rules of the NYSE;

 

g. the Board shall have established a position for, and shall have elected, a
Lead Director who is an independent director as defined by the rules of the NYSE
(the “Lead Independent Director”);

 

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h. at the first Board meeting following each annual shareholders meeting, a Lead
Independent Director will be elected by majority vote of the non-management
directors at such meeting;

 

i. the Lead Independent Director will be responsible for coordinating the
activities of the non-management directors. In addition to the duties of all
Board members (which will not be limited or diminished by the Lead Independent
Director’s role), the specific responsibilities of the Lead Independent Director
will be as follows:

 

(i) work with and provide advice to the Chairman of the Board as to an
appropriate schedule of Board meetings;

 

(ii) provide the Chairman of the Board with input as to the preparation of
agendas for Board meetings;

 

(iii) work with and provide advice to the Chairman of the Board as to the flow
of information from Dynegy’s management to the non-management directors;

 

(iv) coordinate and develop the agenda for, and moderate executive sessions of,
the Board’s non-management directors; and

 

(v) work with the Compensation and Human Resources Committee and the full Board,
assist in the evaluation of the performance of the Chief Executive Officer
(“CEO”) and meet with the CEO to discuss the Board’s evaluation.

 

j. the independent directors will meet outside the presence of management
directors and non-management directors who are not independent at least
semi-annually and at such other times as determined by the Lead Independent
Director;

 

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k. the non-management directors shall meet in executive session, without
management present, at each regularly scheduled Board meeting;

 

l. a Corporate Governance and Nominating Committee, having a minimum of four
independent directors, shall have been established, to assist the Board in
discharging its responsibilities;

 

m. an Audit and Compliance Committee, having a minimum of three independent
directors, shall have been established, to assist the Board in discharging its
responsibilities;

 

n. the Audit and Compliance Committee will meet in executive session with the
internal auditor at each of its regular meetings;

 

o. regular and special meetings of the Audit and Compliance Committee with
management, internal audit personnel and the outside auditor will be held to
discuss, among other things, financial statements and SEC filings, including the
MD&A section, and earnings guidance;

 

p. the Audit and Compliance Committee will meet in executive session with the
Senior Director of Ethics and Compliance (or the substantive equivalent) at each
of its regular meetings;

 

q. the Audit and Compliance Committee, the Compensation and Human Resources
Committee and the Corporate Governance and Nominating Committee will each
consist entirely of independent directors; and

 

r. a Senior Director of Ethics and Compliance (or the substantive equivalent)
that reports to the President, the General Counsel and the Audit Committee
Chair, to oversee and

 

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administer the Code of Business Conduct and Ethics, to foster a culture that
integrates ethics and compliance into business processes and practices through
awareness and training, and to maintain and monitor a system for reporting,
monitoring and investigating potential ethics and compliance concerns, shall
have been designated.

 

5. Dynegy agrees that the governance provisions included in paragraph 4 herein
will remain in effect for three years from the date of Court approval of the
Settlement, or until such earlier time as there is a Change in Control of Dynegy
(as defined in the Second Supplement to the Dynegy Inc. Executive Severance Pay
Plan); provided, however, that any proposed guideline can be altered or removed
by the affirmative vote of a majority of the independent directors of the Board,
upon determining, in good faith and upon the advice of counsel, that such
guideline conflicts with or is substantially redundant with any law, regulation
or rule (including rules of the NYSE or other exchange or quotation system on
which Dynegy’s stock is listed or traded), or conflicts with or is substantially
redundant with any amendment to Dynegy’s articles of incorporation approved by
Dynegy’s shareholders.

 

6. The primary responsibility of the Board is to provide effective governance
over Dynegy’s affairs for the benefit of Dynegy’s public stockholders and it is
the intention of the Parties that the corporate governance changes discussed
above will assist the Board in fulfilling that responsibility.

 

ADDITIONAL CONSIDERATION

 

7. Individual Defendants shall use their best efforts to cause their Director
and Officer Insurers to pay as much as reasonably possible to the settlement of
the Consolidated Securities Litigation pending under the caption In re Dynegy
Inc. Securities Litigation, Civ. No. H-02-1571, in the United States District
Court for the Southern District of Texas, Houston Division.

 

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RELEASES AND ENTRY OF FINAL TAKE NOTHING JUDGMENT

 

8. The obligations incurred in this Stipulation shall be in full and final
disposition of the Derivative Litigation and any and all Released Claims against
any and all Released Parties.

 

9. Plaintiffs and Dynegy, including their heirs, executors, administrators,
shareholders, successors and assigns, and any persons they represent, with
respect to each and every Released Claim, release and forever discharge, and
shall forever be enjoined from prosecuting, any Released Claim against any or
all of the Released Parties.

 

10. Each Individual Defendant and Dynegy release and forever discharge, and
shall forever be enjoined from prosecuting against any one or more of the other
Individual Defendants, Dynegy, Plaintiffs or Plaintiffs’ Counsel, all claims
known or unknown, accrued or unaccrued, arising from, related to, or in
connection with any acts, transactions or occurrences alleged or that could have
been alleged in the Derivative Litigation, including without limitation claims
for indemnification, contribution or reimbursement of amounts paid in settlement
or defense costs (however denominated) arising under the federal securities
laws, state law or common law; provided, however, that nothing in this paragraph
shall be deemed a release:

 

a. by the Individual Defendants, individually or collectively, of the Unreleased
Individual Defendant Indemnification Claims;

 

b. by the Individual Defendants, individually or collectively, of any claims
against Dynegy arising out of or relating to such Individual Defendant’s (or
Individual Defendants’) (i) agreements in respect of such Individual Defendant’s
(or Individual

 

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Defendants’) employment (including as a consultant) or termination of employment
by Dynegy, (ii) arbitral awards or judgments against Dynegy arising out of or
relating to such employment or termination agreements, including but not limited
to the award in the American Arbitration Association proceeding captioned
Bergstrom v. Dynegy Inc., Case No. 70 Y 116 00134 03, or (iii) any settlement
agreements in respect of any arbitration(s), court actions(s) or other
proceeding(s) arising out of or relating to such employment or termination
agreements, including, but not limited to the Confidential Settlement Agreement
between Charles L. Watson and Dynegy Inc. in respect of the American Arbitration
Association proceeding captioned Watson v. Dynegy Inc., Case No. 70 Y 116 00076
03; provided, however, that nothing in this subparagraph shall preserve or
revive any Released Individual Defendant Indemnification Claims;

 

c. by Dynegy of any claims against the Individual Defendants, individually or
collectively, that do not arise from, relate to, or have any connection with any
acts, transactions or occurrences that were alleged or could have been alleged
in the Derivative Litigation; provided, however, that nothing in this
subparagraph shall revive any claims against any one or more Individual
Defendant(s) that Dynegy has previously released; or

 

d. of any claims arising out of the violation or breach of this Stipulation.

 

11. Upon approval of the Settlement by the Court, Plaintiffs shall submit and
request entry of a Final Take Nothing Judgment in a form approved by Dynegy and
Individual Defendants pursuant to which Plaintiffs shall take nothing by their
claims and which will finally dispose with prejudice of all claims that have
been or could have been asserted in the Derivative Litigation.

 

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ATTORNEY’S FEES AND EXPENSES

 

12. Within five business days of entry of the Court’s order granting final
approval of the Settlement, Dynegy shall cause the payment of fees and expenses
(including, without limitation, the fees and expenses of all experts retained by
Plaintiffs’ Counsel to assist in the Derivative Litigation) of Plaintiffs’
Counsel in an aggregate amount of $4,950,000, as a unitary part of the
Settlement. Such payment shall be made to Plaintiffs’ Counsel c/o Robbins Umeda
& Fink, LLP.

 

13. In the event the Court’s order approving the fees and expenses so awarded is
reversed or modified on appeal or otherwise, or any of the conditions set forth
in paragraph 14 below occur, Plaintiffs’ Counsel and their law firms (or their
successors) shall be jointly and severally obligated to, and shall, refund to
Dynegy the full amount consistent with the modification or reversal, plus
interest thereon at the 90-day T-Bill rate as of the date on which the fees and
expenses were paid to Plaintiffs’ Counsel. Said refund shall be paid to Dynegy
within five business days after any such modification or appellate ruling
becomes final.

 

CONDITIONS OF SETTLEMENT

 

14. The Settlement shall terminate and be of no further force or effect if any
of the conditions set forth below occur, unless waived by Dynegy:

 

a. the Court does not enter an Order approving the Settlement and a Final Take
Nothing Judgment; or

 

b. any material part of the Settlement or Final Take Nothing Judgment is
overturned or set aside on appeal.

 

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15. If any of the conditions in paragraph 14 occur and are not waived by Dynegy,
the Parties shall revert to their litigation positions immediately prior to the
execution of the Memorandum of Understanding dated April 15, 2005, and the fact
and terms of the Settlement shall not be admissible in any trial, including but
not limited to, the trial of the Derivative Litigation.

 

NO ADMISSION OF WRONGDOING

 

16. This Stipulation, whether or not consummated, and any act performed or
document executed pursuant to or in furtherance of the Stipulation or the
Settlement or any negotiation, discussion or proceedings in connection with this
Stipulation or the Settlement:

 

a. does not constitute and shall not be offered against any or all of the
Individual Defendants or Dynegy for any reason including, without limitation, as
evidence of or construed as or deemed to be evidence of any presumption,
concession, or admission by any or all Individual Defendants or Dynegy with
respect to the truth of any fact alleged by Plaintiffs or the validity of any
claim that has been or could have been asserted in the Derivative Litigation or
in any litigation, or the deficiency of any defense that has been or could have
been asserted in the Derivative Litigation or in any litigation, or of any
liability, negligence, fault, or wrongdoing of any or all Individual Defendants
or Dynegy;

 

b. does not constitute and shall not be offered against any or all Individual
Defendants or Dynegy as evidence of or construed as or deemed evidence of a
presumption, concession or admission of any fault, misrepresentation or omission
with respect to any statement or written document approved or made by any or all
Individual Defendants or Dynegy, or against Plaintiffs as evidence of any
infirmity in the claims of Plaintiffs;

 

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c. does not constitute and shall not be offered against any or all Individual
Defendants or Dynegy as evidence of or construed as or deemed evidence of a
presumption, concession or admission with respect to any liability, negligence,
fault or wrongdoing, or in any way referred to for any other reason as against
any of the Parties to this Stipulation, in any other civil, criminal or
administrative action or proceeding (including, but not limited to, any formal
or informal investigation or inquiry by the Securities and Exchange Commission
or any other state or federal governmental or regulatory agency), other than
such proceedings as may be necessary to effectuate the provisions of this
Stipulation; provided, however, that if this Stipulation is approved by the
Court, any or all Individual Defendants and Dynegy may refer to this Stipulation
to effectuate the liability protection granted them hereunder;

 

d. does not constitute and shall not be offered or construed against any or all
Individual Defendants or Dynegy as an admission or concession that the
consideration to be given hereunder represents the amount which could be or
would have been recovered after trial; and

 

e. shall not be offered, construed or received in evidence as an admission,
concession or presumption against Plaintiffs that any of their claims are
without merit. Any or all Released Parties may file this Stipulation and/or the
Take Nothing Final Judgment in any other action or proceeding that may be
brought against any or all of them in support of a defense or counterclaim based
on principles of res judicata, collateral estoppel, release, good faith
settlement, judgment, bar or reduction, or any theory of claim preclusion or
issue preclusion or similar defense or counterclaim. Plaintiffs understand,
acknowledge and agree that the Individual Defendants have denied and continue to
deny each and all claims of alleged wrongdoing.

 

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17. Any or all Released Parties may file this Stipulation and/or the Take
Nothing Final Judgment in any other action or proceeding that may be brought
against any or all of them in support of a defense or counterclaim based on
principles of res judicata, collateral estoppel, release, good faith settlement,
judgment, bar or reduction, or any theory of claim preclusion or issue
preclusion or similar defense or counterclaim. Plaintiffs understand,
acknowledge and agree that the Individual Defendants have denied and continue to
deny each and all claims of alleged wrongdoing.

 

MISCELLANEOUS PROVISIONS

 

18. All of the exhibits attached hereto are hereby incorporated by reference in
this Stipulation as though fully set forth herein.

 

19. This Stipulation and its exhibits constitute the entire agreement among the
Parties concerning the Settlement of the Derivative Litigation, and supersedes
any prior agreements or understandings between the Parties with respect to the
Settlement, including but not limited to the Memorandum of Understanding dated
April 15, 2005. No representations, warranties, or inducements have been made by
any Party concerning this Stipulation or its exhibits, other than those
contained and memorialized in this Stipulation and its exhibits.

 

20. The Parties intend the Settlement to be a final and complete resolution of
all allegations asserted or which could be asserted on behalf of Dynegy against
Individual Defendants with respect to all matters set forth in Plaintiffs’ First
Amended Consolidated Petition. Further, the Parties agree that the amount paid
and the other terms of the Settlement were negotiated at arm’s length in good
faith and in the best interests of Dynegy, and reflect a settlement that was
reached voluntarily after consultation with experienced legal counsel.

 

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21. Plaintiffs expressly represent and warrant that, in entering into the
Settlement, they relied upon their own knowledge and investigation (including
the knowledge of and investigation performed by Plaintiffs’ Counsel), and not
upon any promise, representation, warranty or other statement made by or on
behalf of any of the Individual Defendants or Dynegy not expressly contained in
this Stipulation.

 

22. Within 30 days of the Final Take Nothing Judgment becoming final, Plaintiffs
and Plaintiffs’ Counsel shall destroy or return to Dynegy, if Dynegy agrees to
pay such delivery costs, all documents and tangible things produced by Dynegy in
the Derivative Litigation, including all copies and summaries thereof, and all
CDs containing images thereof. Plaintiffs and Plaintiffs’ Counsel shall also
delete or otherwise erase all electronic databases containing images of any
documents produced by Dynegy in the Derivative Litigation. Also within 30 days
of the Final Take Nothing Judgment becoming final, Plaintiffs’ Counsel shall
provide written confirmation to counsel for Dynegy of the deletion and/or
erasure of all images and, if Dynegy chooses to have Plaintiffs and Plaintiffs’
Counsel destroy the documents, the destruction of all documents produced by
Dynegy in the Derivative Litigation. In addition, all agreements and orders
entered during the course of the Derivative Litigation relating to the
confidentiality of information, including without limitation the Agreed
Protective Order agreed to by the Parties, shall survive this Stipulation.

 

20

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23. This Stipulation may not be modified or amended, nor may any of its
provisions be waived (except the conditions set forth in paragraph 15 which may
only be waived by Dynegy), except by a writing signed by all Parties hereto or
their successors-in-interest.

 

24. The headings herein are used for the purpose of convenience only and are not
meant and shall not be construed to have any legal effect.

 

25. The administration and consummation of the Settlement shall be under the
authority of the Court and the Court shall retain jurisdiction for the purpose
of entering orders providing for awards of attorneys’ fees and expenses to
Plaintiffs and their counsel and enforcing the terms of the Settlement.

 

26. The waiver by one party of any breach of this Stipulation by any other party
shall not be deemed a waiver of any other prior or subsequent breach of this
Stipulation.

 

27. This Stipulation may be executed in one or more counterparts. All executed
counterparts and each of them shall be deemed to be one and the same instrument
provided that counsel for the parties to this Stipulation shall exchange among
themselves original signed counterparts. Any signature to this Stipulation, to
the extent signed and delivered by facsimile, shall be treated in all manners
and respects as an original signature and shall be considered to have the same
binding legal effect as if it were the original signed version thereof delivered
in person. At the request of a Party, any other Party so executing and
delivering this Stipulation by facsimile shall reexecute original forms thereof
and deliver them to the requesting party. No Party shall raise the use of
facsimile to deliver or transmit a signature as a defense to the formation or
enforceability of this Stipulation, and each such Party forever waives any such
defense.

 

21

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28. The terms of this Stipulation shall be binding upon, and inure to the
benefit of the successors and assigns of the Parties and the Released Parties.

 

29. The construction, interpretation, operation, effect and validity of this
Stipulation, and all documents necessary to effectuate it, shall be governed by
the laws of the State of Texas without regard to conflicts of laws, except to
the extent that federal law requires that federal law governs. Exclusive venue
over any dispute arising from or relating to this Stipulation shall lie in
Harris County, Texas, and Plaintiffs expressly consent to personal jurisdiction
in Texas in connection with any action to enforce the Settlement.

 

30. This Stipulation shall not be construed more strictly against one party than
another merely by virtue of the fact that it, or any part of it, may have been
prepared by counsel for one of the Parties, it being recognized that it is the
result of arm’s length negotiations between the Parties, and all Parties have
contributed substantially and materially to the preparation of this Stipulation.

 

31. All counsel and any other person executing this Stipulation and any of its
exhibits, or any related settlement documents, warrant and represent that they
have full authority to do so and that they have the authority to take
appropriate action required or permitted to be taken under this Stipulation to
effectuate its terms.

 

32. Counsel for Plaintiffs, counsel for the Individual Defendants, and counsel
for Dynegy agree to cooperate fully with one another in seeking prompt Court
approval of the Settlement and the entry of a Take Nothing Judgment, and
promptly to agree on and execute all such other documentation and to take all
such other action as may be reasonably required to obtain the Court’s final
approval of the Settlement and the entry of a Take Nothing Judgment.

 

22

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Within 5 business days of execution of this Stipulation, the Parties shall apply
to the Court for approval of the Settlement. The Parties shall use their best
efforts to obtain Court approval of the Settlement.

 

33. All agreements and orders entered during the course of the Derivative
Litigation relating to the confidentiality of information shall survive this
Stipulation.

 

34. Nothing in this Stipulation, the negotiations relating thereto, or the
process and content of discovery, is intended to or shall be deemed to
constitute a waiver of any applicable privilege or immunity, including, without
limitation, the attorney-client privilege or work product immunity.

 

35. The Parties (i) acknowledge their intent to consummate the Settlement and
(ii) agree to cooperate as reasonably necessary to effectuate and implement this
Stipulation, and to use their commercially reasonable efforts to accomplish this
Stipulation’s terms and to consummate its contemplated transactions.

 

36. The Parties acknowledge, represent and warrant to each other that the mutual
releases and payments hereunder are adequate consideration for the consideration
given.

 

37. Plaintiffs and Plaintiffs’ Counsel represent and warrant that they,
individually and collectively, have not assigned any rights, claims or causes of
action that were asserted or could have been asserted in the Derivative
Litigation in connection with or arising from any of the Released Claims.

 

38. The Individual Defendants understand, acknowledge and agree that the
Derivative Litigation was filed in good faith and in accordance with applicable
Texas law, including Texas Rule of Civil Procedure 13, and is being settled
voluntarily after consultation with competent legal counsel.

 

23

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39. Dynegy shall be responsible for and shall pay all costs and expenses
incident to providing to its stockholders a “Notice of Settlement.” The contents
and manner of such notice, a proposed copy of which is attached to this
Stipulation as Exhibit “A”, shall be as approved by the Court.

 

24

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DATE: May 4, 2005  

            /s/ Kevin Bosse

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

    Kevin Bosse DATE: May 1, 2005  

            /s/ Alan Gillies

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

    Alan Gillies     DYNEGY INC. DATE: May 2, 2005   By:  

            /s/ Carol F. Graebner

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

    Its:               Executive Vice President DATE:                           

            /s/ Charles L. Watson

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

        Charles L. Watson DATE:                           

            /s/ Robert D. Doty

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

        Robert D. Doty DATE:                           

            /s/ Stephen Bergstrom

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

        Stephen Bergstrom DATE: May 2, 2005      

            /s/ Charles E. Bayless

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

        Charles E. Bayless

 

25

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DATE: April 30, 2005      

            /s/ Darald W. Callahan

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

        Darald W. Callahan DATE: April 29, 2005      

            /s/ Daniel L. Dienstbier

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

        Daniel L. Dienstbier DATE: May 1, 2005      

            /s/ George L. Kirkland

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

        George L. Kirkland DATE: May 2, 2005      

            /s/ Richard H. Matzke

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

        Richard H. Matzke DATE: May 1, 2005      

            /s/ Sheli Z. Rosenberg

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

        Sheli Z. Rosenberg DATE: April 30, 2005      

            /s/ Joe J. Stewart

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

        Joe J. Stewart DATE: April 30, 2005      

            /s/ J. Otis Winters

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

        J. Otis Winters DATE: May 2, 2005      

            /s/ H. John Riley

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

        H. John Riley DATE: April 29, 2005      

            /s/ Michael D. Capellas

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

        Michael D. Capellas

 

26

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DATE: May 2, 2005      

            /s/ Patricia M. Eckert

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

        Patricia M. Eckert DATE: April 29, 2005      

            /s/ Jerry L. Johnson

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

        Jerry L. Johnson DATE: May 2, 2005      

            /s/ Glenn F. Tilton

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

        Glenn F. Tilton DATE: April 30, 2005      

            /s/ John S. Watson

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

        John S. Watson

 

 

27

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IT IS HEREBY AGREED by the undersigned on behalf of their respective clients.

 

Dated: May 2, 2005

REICH & BINSTOCK LLP

            /s/ Paul T. Warner

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

Paul T. Warner

State Bar No. 00791884

4265 San Felipe, Suite 1000

Houston, TX 77027

Telephone: 713/622-7271

713/623-8724 (fax)

 

LIAISON COUNSEL FOR STATE COURT DERIVATIVE PLAINTIFFS KEVIN BOSSE AND ALAN
GILLIES

 

ROBBINS UMEDA & FINK, LLP

Brian J. Robbins

610 West Ash Street, Suite 1800

San Diego, CA 92101-3350

Telephone: 619/525-3990

619/525-3991 (fax)

 

BRANSTETTER, KILGORE, STRANCH & JENNINGS

James G. Stranch, III

J. Gerard Stranch, IV

227 Second Avenue, North 4th Floor

Nashville, TN 37201

Telephone: 615/254-1631

615/255-5419 (fax)

 

LEAD COUNSEL FOR STATE COURT DERIVATIVE PLAINTIFFS KEVIN BOSSE AND ALAN GILLIES

 

WHATLEY DRAKE, LLC

Joe R. Whatley, Jr.

State Bar No. 24003554

P.O. Box 10647

Birmingham, AL 35203

Telephone: 205/328-9576

205/328-9669 (fax)

 

28

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HAYNES AND BOONE, LLP

 

            /s/ Michael T. Powell

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

Michael T. Powell

Attorney-in-Charge

State Bar No. 16204300

Kirk L. Worley

State Bar No. 00797696

One Houston Center

1221 McKinney, Suite 2100

Houston, Texas 77010-2007

[713] 547-2000 - Telephone

[713] 236-5541 - Facsimile

 

Noel M.B. Hensley

State Bar No. 09491400

901 Main Street, Suite 3100

Dallas, Texas 75202

[214] 651-5000 - Telephone

[214] 651-5940 - Facsimile

 

ATTORNEYS FOR DYNEGY INC.

 

FULBRIGHT & JAWORSKI L.L.P.

 

            /s/ Tom Godbold

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

Tom Godbold

Attorney-in-Charge

State Bar No. 08050500

1301 McKinney, Suite 5100

Houston, Texas 77010-3095

[713] 651-5151 - Telephone

[713] 651-5246 – Facsimile

 

29

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ATTORNEYS FOR INDIVIDUAL DEFENDANT CHARLES L. WATSON

 

WILSON FULKERSON, LLP

            /s/ Michael M. Wilson

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

Michael M. Wilson

Attorney-in-Charge

State Bar No. 21704800

1000 Louisiana, Suite 1800

Houston, Texas 77002

[713] 654-7600 – Telephone

[713] 654-7690 – Facsimile

 

ATTORNEYS FOR INDIVIDUAL DEFENDANT ROBERT D. DOTY

 

DENNIS HERLONG

            /s/ Dennis Herlong

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

State Bar No. 09510500

440 Louisiana, Suite 900

Houston, Texas 77002

[713]228-9222 – Telephone

[713] 228-9225 – Facsimile

 

ATTORNEY FOR INDIVIDUAL DEFENDANT STEPHEN BERGSTROM

 

GARDERE WYNNE SEWELL & RIGGS, L.L.P.

 

            /s/ William E. Matthews

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

William E. Matthews

State Bar No. 13219000

1000 Louisiana, Suite 3400

Houston, Texas 77002-5007

[713] 276-5500 – Telephone

[713] 276-5555 – Facsimile

 

30

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ATTORNEYS FOR INDIVIDUAL DEFENDANT PATRICIA M. ECKERT

 

HUGHES HUBBARD & REED LLP

            /s/ Kevin T. Abikoff

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

Kevin T. Abikoff

State Bar No. 24034118

1775 I Street, NW

Washington, DC 20006-2401

[202] 721-4770 – Telephone

[202] 721-4646 – Facsimile

 

ATTORNEY FOR INDIVIDUAL DEFENDANTS CHARLES E. BAYLESS, DARALD W. CALLAHAN,
MICHAEL D. CAPELLAS, DANIEL L. DIENSTBIER, JERRY L. JOHNSON, GEORGE L. KIRKLAND,
RICHARD H. MATZKE, H. JOHN RILEY, SHELI Z. ROSENBERG, JOE J. STEWART, GLENN F.
TILTON, JOHN S. WATSON AND J. OTIS WINTERS

 

31