<PAGE>

                                  SENIOR NOTE

     This Security is a Book-Entry Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depository or a
nominee of a Depository.  This Security is exchangeable for Securities
registered in the name of a Person other than the Depository or its nominee only
in the limited circumstances described in the Indenture, and no transfer of this
Security (other than a transfer of this Security as a whole by the Depository to
a nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository) may be registered except in such limited
circumstances.

     UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

                              DYNEGY HOLDINGS INC.

                     8.125% Senior Notes due March 15, 2005

No. R-005                                                CUSIP 26816L AC 6

     Dynegy Holdings Inc., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company," which term includes
any successor Person under the Indenture referred to on the reverse hereof), for
value received, hereby promises to pay to Cede & Co. or registered assigns, the
principal sum of $300,000,000 on March 15, 2005 and to pay interest thereon from
March 20, 2000 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually in arrears on March 15 and
September 15 in each year, commencing September 15, 2000, at the rate of 8.125%
per annum, until the principal hereof is paid or made available for payment.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the March 1 or September 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date.  Except as
otherwise provided in the Indenture, any such interest not so punctually paid or
duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided
<PAGE>

in the Indenture. Payment of the principal of and interest on this Security will
be made at the Corporate Trust Office of the Trustee, or such other office or
agency of the Company as may be designated by it for such purpose in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts; provided, however,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.

     Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof, directly or through an Authenticating
Agent, by manual signature of an authorized signatory, this Security shall not
be entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.

     IN WITNESS WHEREOF, the Company has caused this instrument to be signed in
its name by its Chairman of the Board, President, Treasurer or Chief Financial
Officer, manually or by a facsimile of his signature, and its corporate seal (or
a facsimile thereof) to be hereunto affixed and the same to be attested by its
Secretary or an Assistant Secretary, all either manually or in facsimile.

Dated: March 20, 2000

                                     DYNEGY HOLDINGS INC.

                                     By:
                                        -------------------------------------
                                     Name:  John U. Clarke
                                     Title:  Executive Vice President and
                                             Chief Financial Officer

Attest:


-----------------------------
         Secretary
<PAGE>

                    TRUSTEE'S CERTIFICATE OF AUTHENTICATION

     This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.

                                     BANK ONE TRUST COMPANY, N.A.,
                                      as Trustee

                                     By:
                                        ------------------------------
                                         Authorized Officer
<PAGE>

                             Reverse of Senior Note

     This Senior Note is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of September 26, 1996, and as amended and
restated on March 23, 1998 (herein called the "Indenture"), among the Company
and Bank One Trust Company, NA (formerly The First National Bank of Chicago), as
Trustee (herein called the "Trustee," which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.  This Security is one of the series
designated on the face hereof, limited in aggregate principal amount of
$300,000,000.

     The Securities of this series are not subject to any sinking fund.

     The Securities of this series shall be redeemable, at the option of the
Company, in whole at any time or in part from time to time, on at least 30 days
but not more than 60 days prior notice mailed to the registered address of each
holder of Securities to be so redeemed, at a redemption price equal to the
greater of (i) 100% of the principal amount of the Securities to be so redeemed
plus accrued interest thereon to the date of redemption, and (ii) the sum of the
present values of the remaining scheduled payments of principal of the
Securities to be so redeemed and interest thereon discounted to the date of
redemption, on a semiannual basis (assuming 360-day year consisting of twelve
30-day months), at the Treasury Rate (as defined below) plus 25 basis points
plus accrued interest thereon to the date of redemption.

     "Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.

     "Independent Investment Banker" means one of the Reference Treasury
Dealers.

     "Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.

     "Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, the average of
the Reference Treasury Dealer Quotations for such redemption date.
<PAGE>

     "Reference Treasury Dealer Quotations" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by the Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date.

     "Reference Treasury Dealer" means Banc of America Securities LLC or Lehman
Brothers Inc. and their respective successors; provided however, that if either
party shall cease to be a primary U.S. Government securities dealer in New York
City (a "Primary Treasury Dealer"), the Company shall substitute therefor
another Primary Treasury Dealer.

     The Indenture contains provisions for defeasance of (a) the entire
indebtedness of the Company on this Security and (b) certain restrictive
covenants upon compliance by the Company with certain conditions set forth
therein which provisions apply to this Security.

     If an Event of Default with respect to the Securities of this series shall
occur and be continuing, the principal hereof may be declared due and payable in
the manner and with the effect provided in the Indenture.

     The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected.  The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences.  Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.

     As set forth in, and subject to, the provisions of the Indenture, no Holder
of any Security of this series will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default with respect to this series, the Holders of not less than 25% in
principal amount of the Outstanding Securities of this series shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as trustee, and the Trustee shall not have received from the
Holders of a majority in principal amount of the Outstanding Securities of this
series a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days; provided, however, that such
limitations do not apply to a suit instituted by the Holder hereof for the
enforcement of payment of the principal of or interest on this Security on or
after the respective due dates expressed herein.

     No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the
<PAGE>

principal of and interest on this Security at the times, place and rate, and in
the coin or currency herein, prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and interest on this
Security are payable, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities of this series and of like tenor, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.

     The Securities of this series are issuable only in registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.  As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.

     No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security is overdue, and none of the Company, the
Trustee or any agent shall be affected by notice to the contrary.

     The Indenture and this Security shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws.

     All terms used in this Security which are defined in the Indenture shall
have the same meanings assigned to them in the Indenture.