**Exhibit 10.8**

 

**IN THE DISTRICT COURT OF**

**HARRIS COUNTY, TEXAS**

**164th JUDICIAL DISTRICT**

 

 

**STIPULATION ANDAGREEMENT OF SETTLEMENT**

 

This stipulation andsettlement 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 DynegyInc. (“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 claimsthat have been or could have been brought in the Derivative Litigation. 

**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 DistrictCourt for Harris County, Texas, Cause No. 2002-21890. 

 

B. On orabout 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 164thDistrict 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 aidingand 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 todefend 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 theMemorandum 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 investigationrelating 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 definedbelow), (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 theDerivative 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 throughtrial 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 delaysinherent 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 Litigationafter 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 theIndividual 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 finallyand 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 derivativelawsuits 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 ofDynegy 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 theDynegy 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 onbehalf 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 fromthe 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) thefacts, 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 Claimsshall 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 couldhave 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 respectivepast 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 andsettlement agreement. 

 

r. “Unknown Claims” means anyand 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 allReleased 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 regulationsof 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 KNOWOR 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 IndemnificationClaims” 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) byany 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 orself-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 IndividualDefendants (for defense costs or otherwise); 

 

(iii) claimsagainst 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 limitedto 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 consolidatedsecurities 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 obligateDynegy 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 substantialresult 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 theState 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 theDerivative Litigation: 

 

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

 

b. the replacement of several key seniorofficers, 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 NominatingCommittee. 

 

4. The following corporate governance changesrepresent 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 bereplaced 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 publiclytraded 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, suchownership 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) tothe 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 Directorwill 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 LeadIndependent 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 ofagendas for Board meetings; 

 

(iii) work with and provideadvice 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 fullBoard, 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 notindependent 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 eachregularly scheduled Board meeting; 

 

l. a Corporate Governanceand 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 dischargingits responsibilities; 

 

n. the Audit and Compliance Committeewill 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 SECfilings, 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 ResourcesCommittee 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 CommitteeChair, to oversee and 

 

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administer the Code of Business Conduct and Ethics, to foster a culture that integrates ethics and compliance intobusiness 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 4herein 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 PayPlan); 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 guidelineconflicts 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 withany 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 publicstockholders 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 asreasonably 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 finaldisposition 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, withrespect 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 prosecutingagainst 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 occurrencesalleged 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 thefederal 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 claimsagainst 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 orjudgments 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 11600134 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 SettlementAgreement 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 shallpreserve 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 orcould 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, Plaintiffsshall 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 thathave 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 grantingfinal 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) ofPlaintiffs’ 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 soawarded 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, refundto 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 withinfive 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 isoverturned 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 revertto 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 theDerivative Litigation. 

 

**NO ADMISSION OF WRONGDOING**

 

16. This Stipulation, whether or not consummated, and anyact 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 theIndividual 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 thetruth 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 theDerivative 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 apresumption, 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 inthe claims of Plaintiffs; 

 

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c. does not constitute and shall not be offered against any or all Individual Defendants or Dynegy asevidence 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 thisStipulation, 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 orregulatory 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 referto 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 whichcould 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 FinalJudgment 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 anyother 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 ofclaim 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 referencein this Stipulation as though fully set forth herein. 

 

19. ThisStipulation 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 inthis Stipulation and its exhibits. 

 

20. The Parties intend theSettlement 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 consultationwith experienced legal counsel. 

 

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21. Plaintiffs expressly represent and warrant that, in entering into the Settlement, they relied upontheir 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 IndividualDefendants 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 byDynegy 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 anydocuments 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 allimages 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 courseof 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. 

 

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23. This Stipulation may not be modified or amended, nor may any of its provisions be waived (except theconditions 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 theauthority 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 otherparty 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 sameinstrument 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 mannersand 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 thisStipulation 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 thisStipulation, and each such Party forever waives any such defense. 

 

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

 

29. Theconstruction, 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 thatfederal 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 anyaction to enforce the Settlement. 

 

30. This Stipulation shallnot 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 lengthnegotiations 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 thatthey 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 oneanother 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 theCourt’s final approval of the Settlement and the entry of a Take Nothing Judgment. 

 

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Within 5 business days of execution of this Stipulation, the Parties shall apply to the Court for approval of theSettlement. 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 thisStipulation. 

 

34. Nothing in this Stipulation, the negotiationsrelating 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 theSettlement 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 contemplatedtransactions. 

 

36. The Parties acknowledge, represent andwarrant 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 causesof 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 applicableTexas law, including Texas Rule of Civil Procedure 13, and is being settled voluntarily after consultation with competent legal counsel. 

 

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39. Dynegy shall be responsible for and shall pay all costs and expenses incident to providing to itsstockholders 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 

DATE: May 4, 2005 
            /s/ Kevin Bosse
  Kevin BosseDATE: May 1, 2005 
            /s/ Alan Gillies
  Alan Gillies  DYNEGY INC.DATE: May 2, 2005 By: 
            /s/ Carol F. Graebner
  Its:             Executive Vice PresidentDATE:                        
            /s/ Charles L. Watson
    Charles L. WatsonDATE:                        
            /s/ Robert D. Doty
    Robert D. DotyDATE:                        
            /s/ Stephen Bergstrom
    Stephen BergstromDATE: May 2, 2005   
            /s/ Charles E. Bayless
    Charles E. Bayless
 

25 

DATE: April 30, 2005   
            /s/ Darald W. Callahan
    Darald W. CallahanDATE: April 29, 2005   
            /s/ Daniel L. Dienstbier
    Daniel L. DienstbierDATE: May 1, 2005   
            /s/ George L. Kirkland
    George L. KirklandDATE: May 2, 2005   
            /s/ Richard H. Matzke
    Richard H. MatzkeDATE: May 1, 2005   
            /s/ Sheli Z. Rosenberg
    Sheli Z. RosenbergDATE: April 30, 2005   
            /s/ Joe J. Stewart
    Joe J. StewartDATE: April 30, 2005   
            /s/ J. Otis Winters
    J. Otis WintersDATE: May 2, 2005   
            /s/ H. John Riley
    H. John RileyDATE: April 29, 2005   
            /s/ Michael D. Capellas
    Michael D. Capellas
 

26 

DATE: May 2, 2005   
            /s/ Patricia M. Eckert
    Patricia M. EckertDATE: April 29, 2005   
            /s/ Jerry L. Johnson
    Jerry L. JohnsonDATE: May 2, 2005   
            /s/ Glenn F. Tilton
    Glenn F. TiltonDATE: April 30, 2005   
            /s/ John S. Watson
    John S. Watson
 

 

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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 COURTDERIVATIVE 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) 

 

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HAYNESAND 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

 

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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 DEFENDANTROBERT 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 DEFENDANTSTEPHEN BERGSTROM**

 

GARDERE WYNNESEWELL & 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

 

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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 DEFENDANTSCHARLES 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**

 

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