Document:

Stipulation of Settlement - Shareholder Class Action Litigation

 Exhibit 10.7 
  
 UNITED STATES DISTRICT COURT 
 SOUTHERN DISTRICT OF TEXAS 
 HOUSTON DIVISION 
  

					
	 	  	)	  	 
	 In re DYNEGY INC. SECURITIES LITIGATION
	  	)	  	 
	 	  	)	  	Master File No. H-02-1571
	 	  	)	  	 
	 This Document Relates To:
	  	)	  	 
	 	  	)	  	 
	 ALL ACTIONS.
	  	)	  	 
	 	  	)	  	 
	 	  	)	  	 

  
 STIPULATION AND
AGREEMENT OF SETTLEMENT 
  
 Class Representative Regents
of the University of California, on behalf of the Class, and Defendants Dynegy Inc., Dynegy Holdings Inc., Charles L. Watson, Robert D. Doty, Stephen Bergstrom, Michael R. Mott, Charles E. Bayless, Darald W. Callahan, Daniel L. Dienstbier, George L.
Kirkland, Richard H. Matzke, Sheli Z. Rosenberg, Joe J. Stewart, J. Otis Winters, H. John Riley, Michael D. Capellas, Jerry L. Johnson, Lehman Brothers Inc., Lehman Brothers Holdings, Inc., Citigroup, Inc., Salomon Smith Barney Inc. and Citibank,
N.A. (collectively, the “Parties,” and each one individually a “Party”), by and through their respective undersigned attorneys, submit this stipulation and agreement of settlement (the “Stipulation”), dated May 2, 2005,
under Federal Rule of Civil Procedure 23. 
  
 WHEREAS: 

 
 A. On or after April 26, 2002, putative securities class action lawsuits
were filed by plaintiffs on behalf of themselves and all others similarly situated in the United States District Court for the Southern District of Texas, Houston Division (the “Court”) and other federal 

 
courts, entitled Alidad Ghiass v. Dynegy Inc., et al., Civ. No. H-02-2231, Allan Chudwick v. Dynegy Inc., et al., Civ. No. H-02-1604, Allwyn
J. Levine, M.D. v. Dynegy Inc., et al., Civ. No. H-02-2146, Carol Rascop v. Dynegy Inc., et al., Civ. No. H-02-2133, Colbert Birnet II v. Dynegy Inc., et al., Civ. No. H-02-1606, Colton Investments, LLC v. Dynegy Inc., et
al., Civ. No. H-02-1605, Dale N. Shook v. Dynegy Inc., et al., Civ. No. H-02-1696, Diana Allen v. Dynegy Inc., et al., Civ. No. H-02-2047, Edward Kaminski v. Dynegy Inc., et al., Civ. No. H-02-1672, Gennard Rocco v.
Dynegy, Inc., et al., Civ. No. H-02-2367, IRA FBO Daniel W. Kasner v. Dynegy Inc., et al., Civ. No. H-02-2723, Isidore Mauer v. Dynegy Inc., et al., Civ. No. H-02-1657, Jamee Becker v. Dynegy Inc., et al., Civ. No.
H-02-2174, James R. Raymond v. Dynegy Inc., et al., Civ. No. H-02-1932, Joseph Sonnenberg v. Dynegy Inc., et al., Civ. No. H-02-2058, Leon E. Schrader v. Dynegy Inc., et al., Civ. No. H-02-1970, Market Street Securities, Inc.
v. Dynegy Inc., et al., Civ. No. H-02-1671, Marvin Hellman v. Dynegy Inc., et al., Civ. No. H-02-2322, Michael L. Testa v. Dynegy Inc., et al., Civ. No. H-02-1800, Michael Raposa v. Dynegy Inc., et al., Civ. No. H-02-1816,
Neal Eisenbraun v. Dynegy Inc., et al., Civ. No. H-02-1695, Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust v. Dynegy Inc., et al., Civ. No. H-02-1571, Sally McGushion v. Dynegy Inc., et al., Civ. No. H-02-1616,
Steven Baca v. Dynegy Inc., et al., Civ. No. H-02-2229, Stonebridge Investment Partners LLC v. Dynegy Inc., et al., Civ. No. H-02-2198, The Regents of the University of California v. Dynegy Inc., et al., Civ. No. H-02-2374,
Walter Roberts v. Dynegy Inc., et al., Civ. No. H-02-2199, and William Oliver v. Dynegy Inc., et al., Civ. No. H-02-1618 (collectively, the “Securities Actions”); 
  

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 B. By Orders filed June 28, 2002 and August 20, 2002, the Court consolidated the Securities Actions under
the caption In re Dynegy Inc. Securities Litigation, Civ. No. H-02-1571 (the “Consolidated Securities Litigation”); 
  
 C. By Order filed October 28, 2002, the Court appointed Regents of the University of California as Lead Plaintiff, and appointed as Lead Counsel William
S. Lerach and other lawyers with the law firm of Milberg Weiss Bershad Hynes & Lerach, LLP. Lead Counsel subsequently changed their law firm affiliation to Lerach Coughlin Stoia Geller Rudman & Robbins LLP; 
  
 D. In the Consolidated Securities Litigation, Class Representative has
asserted claims on behalf of a Class (as defined below) for violations of Sections 10(b) and 20 of the Securities Exchange Act of 1934 (“1934 Act”), and Rule 10b-5 thereunder, and Sections 11 and 15 of the Securities Act of 1933
(“1933 Act”). Class Representative’s claims are set forth in two amended Complaints, a First Amended Consolidated Complaint for Violations of the Securities Exchange Act of 1934 and a First Amended Consolidated Complaint for
Violations of the Securities Act of 1933 (collectively, the “Complaints”); 
  
 E. By Orders filed January 3, 2005 and March 10, 2005, the Court (i) appointed Regents of the University of California as Class Representative; (ii) certified a 1934 Act class consisting of all persons seeking relief
for alleged violations of §§ 10(b) and 20(a) of the 1934 Act, and Rule 10b-5 thereunder, during a proposed class period beginning on June 21, 2001 and ending on July 22, 2002 (the “1934 Act Certified Class”); and (iii) certified
a 1933 Act class consisting of all persons seeking relief for alleged violations of §§ 11 and 15 of the 1933 Act who purchased Dynegy Class A Common Stock in the December 2001 Stock Offering on either December 19, 2001, or December 20,
2001, and who suffered a loss therefrom that can be measured in accordance with § 11(e) of the 1933 Act (the “1933 Act Certified Class”); 
  

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 F. On or about June 6, 2002, a shareholder derivative suit styled Richard Derusha v. Charles L.
Watson, et al., Civ. No. H-01-2161, was filed in the United States District Court for the Southern District of Texas, Houston Division, against Dynegy (as defined below), as a nominal defendant, and certain of its present and former officers and
directors (the “Federal Derivative Suit”). The Federal Derivative Suit was voluntarily dismissed without prejudice on February 23, 2005; 
  
 G. On and after April 30, 2002, shareholder derivative suits were filed in the 164th District Court for Harris County, Texas, styled Kevin Bosse v. Charles L. Watson, et al., Civ. No. 2002-21890, and Allan Gillies v. Charles L.
Watson, et al., Civ. No. 2002-25250. These suits were subsequently consolidated by Order dated July 8, 2002, under the caption In re Dynegy Inc. Derivative Litigation, Case No. 2002-25250 (the “Texas Derivative Litigation”);

  
 H. The Settling Defendants (as defined below) deny any
wrongdoing, fault, liability or damage to Class Representative or the Class, 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 Settling Defendants further
believe that (i) they acted properly at all times, and (ii) the Consolidated Securities Litigation, the Federal Derivative Suit and the Texas Derivative Litigation are all without merit. 
  
 I. In view of the uncertainty and risk of the outcome of any litigation (especially complex securities litigation), the
difficulties and substantial distractions, burdens, expense and length of time necessary to defend the proceeding, possibly through conclusion of discovery, 

  

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possible summary judgment motions, a possible trial, possible post-trial motions and possible appeals, and to eliminate the distractions, burdens and
expenses of further litigation, the Parties signed the Memorandum of Understanding (as defined below) to settle the Consolidated Securities Litigation and put the Released Claims to rest, finally and forever; 
  
 J. This Stipulation shall not be construed or deemed to be a concession by
Class Representative of any infirmity in the claims asserted in the Consolidated Securities Litigation or as a concession by any or all of the Settling Defendants of any wrongdoing, fault, liability or damage to Class Representative, any Class
member, or any other person or entity, or any infirmity in any defense any or all Settling Defendants asserted or could have asserted. The Parties have voluntarily agreed to settle the Consolidated Securities Litigation after consultation with
competent legal counsel; 
  
 K. Lead Counsel states that it has
conducted and completed extensive research, discovery and investigation relating to the claims and the underlying events and transactions alleged in the Complaints, including (i) interviews and depositions of current and former Dynegy officers and
employees and other witnesses, (ii) review and analysis of over 1,000,000 pages of documents produced by the Settling Defendants (as defined below) and others, (iii) review and analysis of various public statements and filings made by Dynegy and its
senior officers with the SEC, securities analysts’ reports, press releases, news articles, and other media reports regarding Dynegy, and (iv) consultation with accounting and damages experts. 
  
 L. The Parties, through their respective counsel, have engaged in substantial
arm’s-length discussions and negotiations to attempt to settle the Consolidated Securities Litigation (including numerous meetings and telephone conferences at which the Settlement’s terms and conditions were extensively debated and
negotiated) and achieve the best relief possible consistent with the interests of the Class; and 
  

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 M. Lead Counsel have carefully researched, considered and evaluated, among other things, the relevant
legal authorities and evidence to support the claims asserted against the Settling Defendants, the likelihood of prevailing on those claims, the attendant risks of further litigation (including likely appeals and subsequent proceedings), the
substantial financial benefits that the Class will receive from the Settlement, the existence and settlement of the Texas Derivative Litigation, and the Insurers’ (as defined below) contribution of one-hundred fifty million dollars
($150,000,000) toward the Settlement, and have concluded that the Settlement set forth in this Stipulation is fair, reasonable, and adequate to the Class, and in its best interests. 
  
 NOW, THEREFORE, without any admission or concession on the part of Class Representative of any lack of merit of the
Consolidated Securities Litigation whatsoever, and without any admission or concession of any liability or wrongdoing or lack of merit in defenses whatsoever by any or all of the Settling Defendants, it is hereby STIPULATED AND AGREED, by and among
the Parties to this Stipulation, through their respective attorneys, subject to Court approval under Federal Rule of Civil Procedure 23(e), in consideration of the benefits flowing to the Parties from the Settlement, that all Released Claims (as
defined below) against the Released Parties (as defined below) shall be fully and finally compromised, settled, and released, and the Consolidated Securities Litigation shall be dismissed with prejudice, upon and subject to the following terms and
conditions: 
  
 CERTAIN DEFINITIONS 
  
 1. As used in this Stipulation, the following terms shall have the following
meanings: 
  
 a. “Authorized Claimant” means a
Settlement Class Member who submits a timely and valid Proof of Claim form to the Claims Administrator. 
  

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 b. “Cash Escrow Account” means the escrow account established and maintained by Lead Counsel
(in its capacity as Escrow Agent) to receive the deposit of the monetary payments included in the Settlement Fund. 
  
 c. “Citigroup Entities” means Citigroup, Inc., Salomon Smith Barney Inc., Citibank, N.A., their respective subsidiaries and affiliates, and
their respective predecessors and successors. 
  
 d. “Claims
Administrator” means Gilardi & Co. LLC, appointed by the Court to serve as claims administrator in connection with the Settlement. 
  
 e. “Class” means the 1934 Act Certified Class, the 1933 Act Certified Class, all persons or entities (including the ERISA Plans) who purchased
Dynegy Securities during the Class Period, and all persons or entities (including the ERISA Plans) who purchased Dynegy Securities in, or traceable to, the March 2001 Notes Offering from the effective date of the offering through and including July
22, 2002, or the February 2002 Notes Offering. 
  
 f. “Class
Period” means June 21, 2001 through and including July 22, 2002, as set forth in the Court’s January 3, 2005 order. 
  
 g. “Class Representative” means Regents of the University of California. 
  

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 h. “Common Stock Escrow Account” means the escrow account established and maintained by Lead
Counsel (in its capacity as Escrow Agent) to receive any deposit of Dynegy Class A Common Stock made under the Settlement. 
  
 i. “December 2001 Stock Offering” means Dynegy Inc.’s public offering of common stock pursuant to a registration statement dated July 27,
2001, and a prospectus supplement dated December 19, 2001. 
  
 j.
“Dynegy” means Dynegy Inc. and its subsidiaries and affiliates, including without limitation, Dynegy Holdings Inc. 
  
 k. “Dynegy Class A Common Stock” means Dynegy Inc. Class A Common Stock or the equivalent security of its successors and assigns. 
  
 l. “Dynegy Inc.” means the entity of that name currently
incorporated in the State of Illinois, the Class A Common Stock of which is traded on the New York Stock Exchange under the symbol “DYN.” 
  
 m. “Dynegy Securities” means any common stock, bond, note, warrant, option or other security issued by Dynegy that is publicly traded.

  
 n. “Dynegy’s Counsel” means the law firm of
Haynes and Boone, LLP. 
  
 o. “Effective Date” means the
date upon which the Settlement described in this Stipulation shall become effective, as set forth in paragraph 43 below. 
  
 p. “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. 
  

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 q. “Escrow Accounts” means the Cash Escrow Account and the Common Stock Escrow Account.

  
 r. “Escrow Agent” means the law firm of Lerach
Coughlin Stoia Geller Rudman & Robbins LLP. 
  
 s.
“February 2002 Notes Offering” means Dynegy Holdings Inc.’s public offering of 8.75% Notes due February 15, 2012, pursuant to a registration statement dated July 27, 2001, and a prospectus supplement dated February 15, 2002.

  
 t. “Insurer Payment” means the aggregate sum of
one-hundred fifty million dollars ($150,000,000) that the Insurers have agreed to contribute to the Settlement Fund. 
  
 u. “Insurers” means the insurance companies that issued directors’ and officers’ insurance policies covering the claims asserted in
the Consolidated Securities Litigation, namely Associated Electric & Gas Insurance Services, Ltd. (“AEGIS”), Energy Insurance Mutual (“EIM”), National Union Fire Insurance Company of Pittsburgh (“National Union”),
Executive Risk Indemnity Inc. (“Chubb”) and Continental Casualty Company (“CNA”). 
  
 v. “LIBOR” means the one-month London Interbank Offered Rate as reported by The Wall Street Journal. 
  
 w. “Lead Counsel” means the law firm of Lerach Coughlin Stoia
Geller Rudman & Robbins LLP. 
  
 x. “March 2001 Notes
Offering” means Dynegy Holdings Inc.’s public offering of 6.875% Senior Notes due April 1, 2011, pursuant to a registration statement dated September 26, 2000, and a prospectus supplement dated March 15, 2001. 
  

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 y. “Memorandum of Understanding” means the memorandum of understanding to resolve the
Consolidated Securities Litigation signed by the Parties on April 15, 2005. 
  
 z. “Net Settlement Fund” means the Settlement Fund less the costs of providing Notice to the Class, administrative expenses incurred in connection with the Settlement, including any Taxes, and any
attorneys’ fees and expenses award. 
  
 aa.
“Notice” means the Notice of Pendency of Class Action, Hearing on Proposed Settlement and Attorneys’ Fee Petition and Right to Share in Settlement Fund, to be sent to Class members substantially in the form attached as Exhibit A-1.

  
 bb. “Officer/Director Defendants” means Charles L.
Watson, Robert D. Doty, Stephen Bergstrom, Michael R. Mott, Charles E. Bayless, Darald W. Callahan, Daniel L. Dienstbier, George L. Kirkland, Richard H. Matzke, Sheli Z. Rosenberg, Joe J. Stewart, J. Otis Winters, H. John Riley, Michael D. Capellas,
and Jerry L. Johnson. 
  
 cc. “Order and Final Judgment”
means the proposed order to be entered by the Court approving the Settlement substantially in the form attached as Exhibit B. 
  
 dd. “Plaintiffs’ Counsel” means any counsel who have appeared on behalf of any of the plaintiffs in the Consolidated Securities Litigation.

  
 ee. “Plan of Distribution” means the terms and
procedures for allocation and distribution of the Settlement Fund. 
  
 ff. “Preliminary Approval Order” means the proposed order of the Court preliminarily approving the Settlement and directing notice thereof to the Class substantially in the form attached as Exhibit A. 
  

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 gg. “Proof of Claim” means the proposed Proof of Claim and Release form substantially in the
form attached as Exhibit A-2. 
  
 hh. “Publication
Notice” means the summary notice of proposed Settlement and hearing for publication substantially in the form attached as Exhibit A-3. 
  
 ii. “Released Officer/Director 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 Officer/Director Defendants arising from, related to, or in connection with any acts, transactions or occurrences
alleged or that could have been alleged in the Consolidated Securities Litigation; provided, however, that Released Officer/Director Defendant Indemnification Claims does not include Unreleased Officer/Director Defendant Indemnification
Claims (defined below). 
  
 jj. “Released Claims” means
(a) all claims, known or Unknown (as defined below), which have been or could have been asserted by any member of the Class in the Consolidated Securities 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 Consolidated Securities Litigation and (ii) purchases of, sales of, or decisions not to sell Dynegy Securities during the Class Period; and (b) all claims, known or Unknown
(as defined below), which have been or could have been asserted by any member of the Class in the Consolidated Securities Litigation that relate to the defense or settlement of the Consolidated Securities Litigation (other than claims to enforce the
Settlement); provided, however, Released Claims shall not include any claims under the Employee Retirement Income Security Act of 1974, 29 

  

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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. 
  
 kk. “Released Parties” means the Settling Defendants, the Insurers, Kenneth E. Randolph, Louis Dorey, Matthew Schatzman, Merrill Lynch, Pierce,
Fenner & Smith, Inc., Merrill Lynch & Co., Inc., ABN AMRO Inc., ABN AMRO Holding N.V., ABN Amro Bank N.V., Banc One Capital Markets, Inc., Bank One Corp., Bank of America Securities LLC, Bank of America Corp., Commerzbank Capital Markets
Corp., Commerzbank AG, Credit Lyonnais, Credit Lyonnais Securities (USA), Inc., Credit Suisse First Boston LLC, The Royal Bank of Scotland plc, The Royal Bank of Scotland Group plc, SG Cowen Securities Corp., TD Securities (USA), Inc., WestLB AG and
Societe Generale Group, and each of their respective past and present parents, subsidiaries, affiliates, directors, officers, attorneys, consultants, agents, representatives, successors and assigns. 
  
 ll. “Settled Defense Claims” means all claims of every nature and
description, known or unknown, that have been or could have been asserted in the Consolidated Securities Litigation or any forum by the Settling Defendants, the Released Parties or any of them individually, or the successors and assigns of any of
them against any of the Class Representative, Class members, Plaintiffs’ Counsel and their legal representatives, heirs, successors or assigns, and/or their attorneys, which arise out of or relate in any way to the institution, prosecution, or
settlement of the Consolidated Securities Litigation; provided, however, Settled Defense Claims shall not include any claim arising out of the violation or breach of this Stipulation. 
  

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 mm. “Settlement” means the settlement described in this Stipulation. 
  
 nn. “Settlement Class” means the Class, excluding (a) those
individuals and entities who timely and validly opt out of the Settlement; (b) those individuals who were officers and/or directors of Dynegy during the Class Period and (i) their affiliates and (ii) members of their immediate families; (c) those
individuals who were officers and/or directors of Dynegy at any time during the pendency of the Consolidated Securities Litigation and (i) their affiliates and (ii) members of their immediate families; (d) officers and/or directors of Dynegy at the
Effective Date and (i) their affiliates and (ii) members of their immediate families; and (e) the Settling Defendants and (i) their affiliates and (ii) members of their immediate families. In the event that any affiliate referenced in provision
(e)(i) of the preceding sentence beneficially owned Dynegy Securities in a fiduciary capacity or otherwise held Dynegy Securities on behalf of third-party clients or any employee benefit plans that otherwise fall within the Settlement Class, such
third-party clients and employee benefit plans shall not be excluded from the Settlement Class, irrespective of the identity of the entity or person in whose name the Dynegy Securities were beneficially owned or otherwise held. 
  
 oo. “Settlement Fund” means the settlement payments and deliveries
described in paragraphs 8 and 9 below and the Insurer Payment. 
  
 pp. “Settlement Hearing” means the hearing held by the Court to determine whether the Settlement is fair, reasonable, adequate and in the Class’s best interests, and should be approved. 
  
 qq. “Settling Defendants” means Dynegy, Charles L. Watson, Robert
D. Doty, Stephen Bergstrom, Michael R. Mott, Charles E. Bayless, Darald W. Callahan, Daniel L. Dienstbier, 
  

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 George L. Kirkland, Richard H. Matzke, Sheli Z. Rosenberg, Joe J. Stewart, J. Otis Winters, H. John Riley, Michael D.
Capellas, Jerry L. Johnson, Lehman Brothers Inc., Lehman Brothers Holdings Inc. and the Citigroup Entities. 
  
 rr. “Taxes” means any taxes (including, without limitation, estimated taxes, interest, penalties and additions to tax and any taxes that may be
imposed on the Settlement Fund with respect to any income earned thereon for any period in which the Settlement Fund does not qualify as a “qualified settlement fund” for federal or state income tax purposes) on or arising with respect to
(a) the income of the Settlement Fund, and (b) expenses and costs incurred in connection with the taxation of the Settlement Fund (including, without limitation, expenses of tax attorneys and accountants). 
  
 ss. “Unreleased Officer/Director Defendant Indemnification Claims”
means any claim by any one or more Officer/Director 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 Officer/Director Defendants that do not arise from, relate to, or have any connection with any acts,
transactions or occurrences alleged in the Consolidated Securities Litigation; 

  

	 	(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 

  

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Officer/Director Defendants, including for sums already advanced by Dynegy to the Officer/Director Defendants (for defense costs or otherwise); 

 

	 	(iii)	any claim by any member of the Class who opts out of the Settlement, or otherwise pursues a claim that is ultimately determined to be barred, released or otherwise compromised by
the Settlement; 

  

	 	(iv)	claims against or losses by any one or more of the Officer/Director 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 the 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 

  

	 	(v)	reasonable attorneys’ fees and expenses incurred to defend the Consolidated Securities Litigation and Texas Derivative Litigation. 

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

tt. “Unknown Claims” means any and all Released Claims that any Class member does not know or suspect to exist in his, her or its favor upon
the Released Claims’ release, and any Settled Defense Claims that any Settling Defendant does not know or suspect to exist in his, her or its favor upon the Settled Defense Claims’ release, which, if known by him, her or it, might have
affected his, her or its decision(s) with respect to the Settlement. With 

  

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respect to any and all Released Claims and Settled Defense Claims, the Parties stipulate and agree that upon the Effective Date, Class Representative and the
Settling Defendants shall expressly, and each Settlement Class member shall be deemed to have, and by operation of the 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. 
  
 Class Representative and the Settling Defendants acknowledge, and the Settlement Class members by operation of law shall be deemed to have acknowledged, that the
inclusion of Unknown Claims in the definition of Released Claims and Settled Defense Claims was separately bargained for and was a key element of the Settlement. 
  
 SCOPE AND EFFECT OF SETTLEMENT 
  
 2. The obligations incurred in this Stipulation shall be in full and final disposition of the Consolidated Securities
Litigation and any and all Released Claims against any and all Released Parties. 
  
 3. Upon the Effective Date, Class Representative shall dismiss the Consolidated Securities Litigation with prejudice, and Class Representative and the Settlement Class members, on behalf of themselves and each of
their past or present officers, directors, shareholders, employees, agents, representatives, general or limited partners, managers, members, affiliates, 

  

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parents, subsidiaries, heirs, executors, administrators, successors and assigns, and any persons they represent, shall, 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. 
  
 4. Upon the Effective Date, each of the Released Parties shall release and forever discharge each and every one of the Settled Defense Claims, and shall
forever be enjoined from prosecuting the Settled Defense Claims. 
  
 5. Upon the Effective Date, each Settling Defendant shall release and forever discharge, and shall forever be enjoined from prosecuting against each of the other Settling Defendants, 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 Consolidated Securities 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 Officer/Director Defendants, individually or
collectively, of the Unreleased Officer/Director Defendant Indemnification Claims; 
  
 b. by the Officer/Director Defendants, individually or collectively, of any claims against Dynegy arising out of or relating to such
Officer/Director Defendant’s (or Defendants’) (i) agreements in respect of such Officer/Director Defendant’s (or 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 

  

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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 paragraph shall preserve or revive any Released Officer/Director Defendant Indemnification Claims; 
  
 c. by Dynegy of any claims against the Officer/Director 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 Consolidated Securities Litigation; provided, however, that nothing in this subparagraph shall revive any claims against any
one or more Officer/Director Defendant(s) that Dynegy has previously released; or 
  
 d. of any claims arising out of the violation or breach of this Stipulation. 
  
 BAR ORDERS 
  
 6. To the extent permitted by applicable law, on the Effective Date, all persons or entities shall be forever enjoined and barred from commencing any
action or asserting any claim against the Settling Defendants, seeking, as damages or otherwise, the recovery of all or any part of any liability or settlement which such person or persons (or entity or entities) pay or cause to be paid on their
behalf or are obligated to pay or agree to pay to the Settlement Class, arising out 

  

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of or in any way related to such person’s or persons’ (or entity’s or entities’) participation in any acts, facts, statements or
omissions that were or could have been alleged in the Consolidated Securities Litigation. Any person or entity so enjoined and barred shall be entitled to appropriate judgment reduction. 
  
 7. To the extent permitted by applicable law, on the Effective Date, all persons or entities shall be forever enjoined and
barred from commencing any action or asserting any claim against the Insurers seeking, as damages or otherwise, any payment under the insurance policies underlying the Insurer Payment (the “Insurer Bar Order”). 
  
 THE SETTLEMENT CONSIDERATION 
  
 8. Subject to the conditions set forth herein, including the Right of
Recoupment set forth in paragraph 11 below, Dynegy shall deposit (or cause to be deposited) into the Settlement Fund the amounts and shares set forth in this paragraph as follows: 
  
 a. On or before May 2, 2005, Dynegy Holdings Inc. shall deliver to the Cash Escrow Account the sum of one-hundred
seventy-five million dollars ($175,000,000); 
  
 b. Not later than
five (5) business days following the Court’s entry of the Order and Final Judgment, subject to the conditions set forth herein, Dynegy Holdings Inc. shall deliver to the Cash Escrow Account the additional sum of seventy-five million dollars
($75,000,000) plus an amount equal to interest thereon at LIBOR plus 500 basis points from May 2, 2005 until Dynegy Holdings Inc. deposits such sum into the Cash Escrow Account; and 
  
 c. Not later than five (5) days following the Effective Date, subject to the conditions set forth herein, Dynegy shall
deliver into the Common Stock Escrow Account 17,578,781 shares of Dynegy Class A Common Stock or such number of other securities as may 

  

 19 

 
be exchanged for or converted from those shares of Dynegy Class A Common Stock between the date of this Stipulation and the date on which Dynegy deposits
such shares. Dynegy will exercise its best efforts to cause the shares to be approved for listing on the New York Stock Exchange, subject to official notice of issuance, before the Effective Date. Nothing herein shall obligate Dynegy to issue any
additional shares of Dynegy Class A Common Stock. The deposit, distribution, and any sale of the Dynegy Class A Common Stock shall be subject to the availability of the exemption from registration under Section 3(a)(10) of the 1933 Act. 

 
 9. Subject to the conditions set forth herein, including the Right of
Recoupment set forth in paragraph 11 below, the Citigroup Entities shall, on or before May 15, 2005, deliver to the Cash Escrow Account the sum of five million dollars ($5,000,000). 
  
 10. Subject to the conditions set forth herein, including the Right of Recoupment set forth in paragraph 11 below, Dynegy
shall cause the Insurers to deliver the Insurer Payment to the Cash Escrow Account as soon as possible, but in any event by the later of (i) five (5) business days after the entry by the Court of its preliminary approval of the Settlement or (ii)
May 15, 2005. 
  
 11. If for any reason the Effective Date does
not (and cannot) occur or the Settlement is terminated pursuant to paragraphs 44 or 46, the funds and stock on deposit in the Escrow Accounts from any payment by Dynegy, the Insurers, and the Citigroup Entities, respectively, including interest
earned on such funds, but excluding notice and administrative costs paid and incurred and Taxes, shall be returned within five (5) business days to Dynegy, the Insurers and the Citigroup Entities, proportionate to their respective contributions to
the Escrow Accounts 

  

 20 

 
(the “Right of Recoupment”). The Effective Date (defined in paragraph 43 below) cannot occur if any of the following events transpire: 

 
 a. the Court fails to enter the Preliminary Approval Order in all
material respects in the form attached as Exhibit A; 
  
 b. the
Court fails to approve the Settlement, following Notice to the Class and the Settlement Hearing, as prescribed by Federal Rule of Civil Procedure 23; 
  
 c. the Court fails to enter an Order and Final Judgment in all material respects in the form set forth in attached Exhibit B; 
  
 d. the Order and Final Judgment is reversed or materially modified on appeal
and not reinstated in all material respects; or 
  
 e. the
164th District Court for Harris County, Texas, fails to approve the settlement of the Texas Derivative Litigation,
including dismissal of all claims that have been or could have been asserted in the Texas Derivative Litigation. 
  
 Provided, however, that any (i) award, or appeal from any award, of attorneys’ fees or costs, (ii) approval or denial of any Plan of Distribution, or (iii)
entry or denial of the Insurer Bar Order shall not delay the Effective Date or prevent the Effective Date from occurring. 
  
 12. Any cash payment made pursuant to paragraphs 8 and 9 shall be made by wire transfer in accordance with instructions from Lead Counsel. 
  
 13. The amount of settlement proceeds that Class Representative will propose
to the Court be allocated to claims under Sections 11 and 15 of the 1933 Act will not exceed thirty-five million six-hundred thousand dollars ($35,600,000) of the Settlement Fund. The Parties agree that any distribution of the Settlement Fund by the
Claims Administrator for alleged damages arising from violations of Section 11 and 15 of the 1933 Act shall be paid from the Insurer Payment. 
  

 21 

 14. All claims of the Settlement Class, all fees and expenses of Plaintiffs’ Counsel, experts,
consultants, and agents, and all administrative or other approval expenses of the Settlement, including Taxes, if any, shall be paid from the Settlement Fund. Settlement Class members shall look solely to the Settlement Fund for settlement and
satisfaction of any and all Released Claims against any and all of the Released Parties. Except as expressly provided in this Stipulation or by Court order, no Settlement Class member shall have any interest in the Settlement Fund or any portion
thereof. 
  
 15. The Settlement Fund, net of any Taxes, shall be
used to pay (i) the costs of providing Notice to the Class, (ii) the remaining administrative expenses in connection with the Settlement (including the Claims Administrator’s costs and expenses), and (iii) the attorneys’ fees and expenses
award described in paragraph 21. The Net Settlement Fund shall be distributed to the Authorized Claimants as provided in paragraphs 28–40. Except as expressly stated in this Stipulation, the Settling Defendants, the Released Parties, and the
Insurers shall not be liable for Notice costs and administrative expenses, fees to the Claims Administrator or Escrow Agent, any other costs of administering the Settlement Fund and/or related expenses, attorneys’ fees and reimbursement of
expenses awarded by the Court, and amounts due and payable to Settlement Class members. Any sums required to be held hereunder shall be held in escrow by Lead Counsel, as Escrow Agent, shall be deemed to be in the custody, and shall remain subject
to the jurisdiction, of the Court until the funds are distributed pursuant to this Stipulation and/or further Court order. 
  

 22 

 16. The Parties agree that the Settlement Fund is intended to be a Qualified Settlement Fund within the
meaning of Treasury Regulation § 1.468B-1. The Parties further agree to treat the Settlement Fund as coming into existence on the earliest date allowed under Treasury Regulation § 1.468B-1(j)(2). The Escrow Agent, as custodian of the funds
and administrator of the Settlement Fund within the meaning of Treasury Regulation § 1.468B-2(k)(3), shall (i) take all actions necessary for the Settlement Fund’s treatment as a Qualified Settlement Fund to relate back to the earliest
possible date under Treasury Regulation § 1.468B-1(j)(2)(ii), (ii) file the Settlement Fund’s tax returns, and (iii) pay from the Settlement Fund any Taxes owed with respect to the Settlement Fund. 
  
 17. All Taxes shall be paid out of the Settlement Fund, shall be considered
to be a cost of the Settlement’s administration and shall be timely paid by the Escrow Agent without prior Court order. None of the Settling Defendants, the Released Parties, or the Insurers shall have any liability with respect to any Taxes,
expenses and/or costs incurred in connection with the taxation of the Settlement Fund or the payment or withholding of Taxes, or the preparation or filing of any returns. 
  
 18. The Settlement will be non-recapture, i.e. it is not a claims-made settlement. If all Settlement conditions are
satisfied, the Settling Defendants and Insurers will have no right to a refund of any of the settlement consideration provided in paragraphs 8–10. 
  
 19. Class Representative expressly represents and warrants that, in entering into the Settlement, it relied upon its own knowledge and investigation
(including the knowledge of and investigation performed by Lead Counsel), and not upon any promise, representation, warranty or other statement made by or on behalf of any Settling Defendant not expressly contained in this Stipulation. 

 

 23 

 CORPORATE GOVERNANCE 
  
 20. Within ninety (90) days after the motion for preliminary approval of the Settlement is filed with the Court, Class
Representative will provide a slate of not fewer than five prospective directors to be evaluated by an external search firm of national standing to compare skills, backgrounds and experience with that of Dynegy Inc.’s current directors to
confirm fit and complement to Dynegy Inc.’s board of directors. By the later of (i) ninety (90) days following the Effective Date, or (ii) ninety (90) days following Class Representative’s providing its slate of director candidates to
Dynegy Inc., the Dynegy Inc. Board of Directors will review and confirm the qualifications of said proposed directors. If so confirmed, (a) the Dynegy Inc. Board of Directors will, as promptly as practicable, cause two existing Dynegy Inc. directors
constituting Officer/Director Defendants to resign and will fill such vacancies with two new director nominees selected from the list of five or more proposed by the Class Representative, and (b) Dynegy Inc. management will include in Dynegy
Inc.’s proxy statement, as part of management’s slate, and will recommend for election to the Dynegy Inc. Board of Directors by its shareholders at its next annual meeting at which directors are elected, the two new director nominees
selected under subparagraph (a) above. If the Dynegy Inc. Board of Directors is unable to confirm the qualifications of two proposed directors from the original slate of five, Class Representative shall provide an additional slate of five
prospective directors. Class Representative shall continue to propose prospective directors in slates of five until such time as the Dynegy Inc. Board has confirmed the qualifications of two such prospective directors and 

  

 24 

 
named them to the Dynegy Inc. Board of Directors. The qualifications for prospective directors and the specifics of the selection process are set forth in
the Dynegy Inc. Corporate Governance Guidelines, a copy of which is attached as Appendix A. 
  
 ATTORNEYS’ FEES AND EXPENSES 
  
 21. Lead Counsel may submit an application or applications (the “Fee and Expense Application”) for distributions to them from the Settlement Fund for an award of attorneys’ fees and reimbursement of
expenses incurred in connection with prosecuting the Consolidated Securities Litigation, plus any interest on such attorneys’ fees and expenses at the same rate and for the same periods as earned by the Settlement Fund (until paid). Lead
Counsel reserve the right to make additional applications for fees and expenses incurred. Class Representative may submit an application for reimbursement of its expenses (including lost wages) incurred in representing the Class in the Consolidated
Securities Litigation. 
  
 22. The cash portion, if any, of such
attorneys’ fees, expenses and interest award shall be paid exclusively from the Settlement Fund to Lead Counsel and/or Class Representative upon award and before the Settlement Fund’s distribution to Settlement Class members,
notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the Settlement or any part thereof. Lead Counsel unconditionally guarantees to refund or repay the Settlement Fund up to
the entire cash amount (if any) of such attorneys’ fees and expenses award, plus accrued interest at the same net rate earned by the Settlement Fund, within five (5) business days if and when the attorneys’ fees and expenses award is
reduced or reversed. 
  

 25 

 23. Lead Counsel may withdraw from the Settlement Fund the stock, if any, awarded to Lead Counsel as part
of their attorneys’ fees award, on the later of (i) the date of the stock’s deposit into the Settlement Fund or (ii) the date of the Court’s decision on the Fee and Expense Application. Any award of stock shall be paid exclusively
from the Settlement Fund upon award and before the Settlement Fund’s distribution to Settlement Class members, notwithstanding the existence of any timely filed objections thereto, or potential for appeal therefrom, or collateral attack on the
Settlement or any part thereof. If any attorneys’ fees and expenses award including stock is reduced or reversed, Lead Counsel unconditionally guarantees to return, refund or repay the Settlement Fund up to (i) the total number of such shares
awarded or (ii) if any such awarded shares were sold, the proceeds received from such sale(s). 
  
 24. Lead Counsel shall allocate the attorneys’ fees amongst other Plaintiffs’ Counsel in a manner in which they in good faith believe reflects the contributions of such counsel to the prosecution and
settlement of the Consolidated Securities Litigation. The Settling Defendants shall have no responsibility for or liability relating to the allocation of attorneys’ fees and/or the reimbursement of expenses among Plaintiffs’ Counsel. Any
decision by the Court or any other court concerning the amount of any fee award shall not affect the validity or finality of the Order and Final Judgment. Lead Counsel hereby agrees that it will be subject to the continuing jurisdiction of the Court
in connection with the award of any attorneys’ fees and/or the reimbursement of expenses. 
  
 25. The Court’s granting any application by Lead Counsel for attorneys’ fees and reimbursement of expenses is not a condition of the Settlement. Lead Counsel’s request for attorneys’ fees and
reimbursement of expenses is to be considered separately from the Court’s 

  

 26 

 
consideration of whether the Settlement is fair, reasonable, adequate and in the Class’s best interests. Any order or proceedings related to any request
for attorneys’ fees or reimbursement of expenses, or any appeal from any order or proceedings related thereto, shall not affect or delay the Effective Date or the finality of the Order and Final Judgment approving the Settlement. 
  
 ADMINISTRATION 
  
 26. Lead Counsel may request the Court to appoint a Claims Administrator for
the Settlement. The Settling Defendants, the Released Parties, and the Insurers shall have no responsibility or liability concerning the appointment of the Claims Administrator or any actions taken by the Claims Administrator. The Claims
Administrator shall be responsible for mailing and publishing the Notice and Publication Notice, respectively, and costs for such notice shall be paid from the Settlement Fund. Dynegy shall direct its transfer agent to provide to the Claims
Administrator Dynegy’s shareholder lists solely for purposes of providing notice to the Class. Class Representative agrees that Dynegy’s shareholder lists will not be used for any purposes other than providing notice to the Class as
provided in this paragraph and will otherwise not be disclosed to any other persons. All reasonable costs associated with obtaining the shareholder lists shall be paid from the Settlement Fund and Dynegy shall have no liability to the Class with
respect to the provision of such shareholder lists. 
  
 27. The
Court’s approval of the Plan of Distribution (described in the Notice attached as Exhibit A-1) is not a condition of the Settlement. The Plan of Distribution and determinations made thereunder shall be considered separately from the
Court’s consideration of whether the Settlement is fair, reasonable, adequate and in the Class’s best interests. Any order or proceedings relating to the Plan of Distribution and determinations thereunder, or any appeal 

  

 27 

 
from any order or proceedings relating to the Plan of Distribution or any determinations thereunder, shall not affect or delay the Effective Date and the
finality of the Order and Final Judgment. 
  
 DISTRIBUTION TO
AUTHORIZED CLAIMANTS 
  
 28. The Claims Administrator
shall determine each Authorized Claimant’s pro rata share of the Net Settlement Fund based upon each Authorized Claimant’s Claim (as defined in the Plan of Distribution described in the Notice attached as Exhibit A-1, or in such
other Plan of Distribution as the Court approves). 
  
 29. The
Plan of Distribution proposed in the Notice is not a necessary term of this Stipulation, and this Stipulation is not conditioned on its approval. 
  
 30. Each Authorized Claimant shall be allocated a pro rata share of the Net Settlement Fund based on his or her Claim compared to the total Claims
of all accepted claimants. 
  
 31. Any Settlement Class member who
does not submit a valid Proof of Claim will not be entitled to receive any proceeds from the Net Settlement Fund, but will otherwise be bound by all of the terms of this Stipulation, the Settlement, and the Order and Final Judgment, including the
releases and injunctions provided for herein and therein, and will be barred from bringing any action against any or all of the Released Parties concerning any or all of the Released Claims. 
  

 28 

 32. Except for the obligation of Dynegy, the Citigroup Entities, and the Insurers to pay into the
Settlement Fund, as described in paragraph 8–10 above, the Settling Defendants and the Insurers shall have no liability, obligation or responsibility for the administration of the Settlement or disbursement of the Net Settlement Fund. Lead
Counsel shall have the right, but not the obligation, to waive what they deem to be formal or technical defects in any Proof of Claim submitted in the interests of achieving substantial justice. 
  
 33. For purposes of determining the extent, if any, to which a Settlement
Class member shall be entitled to be treated as an “Authorized Claimant,” the following conditions shall apply: 
  
 a. Each Settlement Class member shall be required to submit a Proof of Claim (see attached Exhibit A-2), supported by such documents as are designated
therein, including proof of the Claimant’s loss, or such other documents or proof as Lead Counsel, in its discretion, may deem acceptable; 
  
 b. All Proofs of Claim must be submitted by the date specified in the Notice unless such period is extended by Order of the Court. Any Settlement Class
member who fails to submit a Proof of Claim by such date shall be forever barred from receiving any payment pursuant to the Settlement, but shall in all other respects be bound by all of the terms of this Stipulation and the Settlement, including
the terms of the Order and Final Judgment to be entered in the Consolidated Securities Litigation and the releases and injunctions provided for herein and therein, and will be barred from bringing any action against any or all of the Released
Parties concerning any or all of the Released Claims. Notwithstanding the foregoing, Lead Counsel may, in their discretion, accept for processing late-filed claims so long as the distribution of the 

  

 29 

 
Net Settlement Fund to Authorized Claimants is not materially delayed. A Proof of Claim shall be deemed to have been submitted when posted, if received with
a postmark indicated on the envelope and if mailed by first-class mail and addressed in accordance with the instructions thereon. In all other cases, the Proof of Claim shall be deemed to have been submitted when actually received by the Claims
Administrator; 
  
 c. Each Proof of Claim shall be submitted to
and reviewed by the Claims Administrator, who shall determine in accordance with this Stipulation the extent, if any, to which each claim shall be allowed, subject to review by the Court pursuant to subparagraph (e) below; 
  
 d. Proofs of Claim that do not meet the submission requirements may be
rejected. Prior to rejection of a Proof of Claim, the Claims Administrator shall communicate with the Claimant in order to remedy the curable deficiencies in the Proof of Claim submitted. The Claims Administrator shall notify, in a timely fashion
and in writing, all Claimants whose Proofs of Claim they propose to reject in whole or in part, setting forth the reasons therefor, and shall indicate in such notice that the Claimant whose claim is to be rejected has the right to a review by the
Court if the Claimant so desires and complies with the requirements of subparagraph (e) below; and 
  
 e. If any Claimant whose claim has been rejected in whole or in part desires to contest such rejection, the Claimant must, within twenty (20) calendar
days after the date of mailing of the notice required in subparagraph (d) above, serve upon the Claims Administrator a notice and statement of reasons indicating the Claimant’s grounds for contesting the rejection along with any supporting
documentation, and requesting a review thereof by the Court. If a dispute concerning a claim cannot be otherwise resolved, Lead Counsel shall thereafter present the request for review to the Court. 
  

 30 

 34. Each Claimant shall be deemed to have submitted to the jurisdiction of the Court with respect to the
Claimant’s claim, and the claim will be subject to investigation and discovery under the Federal Rules of Civil Procedure, provided that such investigation and discovery shall be limited to that Claimant’s status as a Class member and the
validity and amount of the Claimant’s claim. No discovery shall be allowed of the Settling Defendants, the Insurers, or the Released Parties or on the merits of the Consolidated Securities Litigation or Settlement in connection with processing
of the Proofs of Claim, and the Settling Defendants shall not be required to provide any information or discovery in connection with processing Proofs of Claim, except as provided herein or ordered by the Court. 
  
 35. No person or entity shall have any claim against Class Representative,
Lead Counsel, the Claims Administrator or the Released Parties or their counsel based on the distributions made substantially in accordance with the Stipulation and the Settlement, the Plan of Distribution, or further order(s) of the Court.

  
 36. If there is any balance remaining in the Net Settlement
Fund after six (6) months from the date of distribution of the Net Settlement Fund (whether by reason of tax refunds, uncashed checks or otherwise) Lead Plaintiff either shall reallocate such balance among Authorized Claimants in an equitable and
economic fashion or shall donate it to appropriate 501(c)(3) non-profit organizations. 
  
 37. Payment pursuant to this Stipulation shall be deemed final and conclusive against all Settlement Class members. All Settlement Class members whose claims are rejected by the 

  

 31 

 
Court shall be barred from participating in distributions from the Net Settlement Fund, but otherwise shall be bound by all of the terms of this Stipulation,
the Settlement, and the Order and Final Judgment including the releases and injunctions provided for herein and therein, and will be barred from bringing any action against any or all of the Released Parties concerning any or all of the Released
Claims. 
  
 38. All proceedings with respect to the
administration, processing, and determination of claims described by paragraphs 26–40 of this Stipulation and the determination of all controversies relating thereto, including disputed questions of law and fact with respect to the validity of
claims, shall be subject to the jurisdiction of the Court. 
  
 39.
The Net Settlement Fund shall be distributed to Authorized Claimants by the Claims Administrator only after the Effective Date and after: (i) all Claims have been processed, and all Claimants whose Claims have been rejected or disallowed, in whole
or in part, have been notified and provided the opportunity to be heard concerning such rejection or disallowance; (ii) all objections with respect to all rejected or disallowed claims have been resolved by the Court, and all appeals therefrom have
been resolved or the time therefor has expired; (iii) all matters with respect to attorneys’ fees, costs, and disbursements have been resolved by the Court and all appeals therefrom have been finally resolved or the time therefor has expired;
and (iv) all costs of administration have been paid. 
  
 40. None
of the Settling Defendants or their counsel shall have any responsibility for, interest in, or liability whatsoever with respect to: 
  
 a. any act, omission or determination of Lead Counsel, the Escrow Agent or the Claims Administrator, or any of their respective designees
or agents, in connection with the administration of the Settlement or otherwise; 
  

 32 

 b. the management, investment, or distribution of the Settlement Fund; 
  
 c. the determination, administration, calculation, or
payment of any claims asserted against the Settlement Fund; 
  
 d. the Plan of Distribution; or 
  
 e. any losses suffered by, or fluctuations in the value of, the Settlement Fund. 
  
 TERMS OF PRELIMINARY APPROVAL ORDER 
  
 41. Within five (5) business days of this Stipulation’s execution, the Parties shall jointly apply to the Court for entry of a Preliminary Approval
Order, substantially in the form attached as Exhibit A, and for the scheduling of the Settlement Hearing. 
  
 TERMS OF ORDER AND FINAL JUDGMENT 
  
 42. If the Settlement described in this Stipulation is approved by the Court, counsel for the Parties shall request that the Court enter the Order and
Final Judgment substantially in the form attached as Exhibit B. 
  

 33 

 EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION 
  
 43. The Effective Date of Settlement shall be the date when all the following
shall have occurred: 
  
 a. entry of the Preliminary Approval
Order in all material respects in the form attached as Exhibit A; 
  
 b. the Court’s approval of the Settlement, following Notice to the Class and the Settlement Hearing, as prescribed by Federal Rule of Civil Procedure 23; 
  
 c. the Court’s entry of an Order and Final Judgment, in all material respects in the form set forth in attached Exhibit
B, and the expiration of any time for appeal or review of such Order and Final Judgment, or, if any appeal is filed and not dismissed, five (5) days after such Order and Final Judgment is upheld on appeal in all material respects and is no longer
subject to review upon appeal or review by writ of certiorari, or, if the Court enters an order and final judgment in form other than that provided above (the “Alternative Judgment”) and none of the Parties hereto elect to terminate this
Settlement, the date that such Alternative Judgment becomes final and no longer subject to appeal or review; and 
  
 d. the settlement of the Texas Derivative Litigation and entry of an order and final, appealable judgment of the 164th District Court for Harris County, Texas, which approves in all respects the dismissal of the claims that have been or could have been asserted in the
Texas Derivative Litigation. 
  
 Provided, however, that (i) any award of
attorney’s fees or costs, (ii) the approval of any Plan of Distribution, and/or (iii) entry of the Insurer Bar Order shall not be considered a material provision of the Order and Final Judgment and any appeal of any such award, Plan of

  

 34 

 Distribution or decision with respect to the Insurer Bar Order shall not delay the Effective Date and any modification as
a result of such appeal shall not be considered a modification of a material term. 
  
 44. Dynegy’s Counsel or Lead Counsel shall have the right to terminate the Settlement and this Stipulation by providing written notice of such election to the Parties within thirty (30) calendar days of any of
the following events: (i) the Court’s declining to enter the Preliminary Approval Order in any material respect; (ii) the Court’s declining to approve this Stipulation or any material part of it; (iii) the Court’s declining to enter
the Order and Final Judgment in any material respect, other than with respect to the Plan of Distribution or award of attorneys’ fees and reimbursement of expenses to Lead Counsel; (iv) the date on which the Order and Final Judgment is modified
or reversed in any material respect by any court; or (v) the date on which an Alternative Judgment is modified or reversed in any material respect by any court. 
  

45. Notwithstanding paragraph 44, the following events or occurrences shall not create in Lead Counsel a right to terminate the Settlement: (i) a
decision by the Court to award attorneys’ fees and expenses in an amount less than the amounts applied for by Lead Counsel; (ii) the approval or denial of any Plan of Distribution; or (iii) entry of the Insurer Bar Order. 
  
 46. Class Representative, Dynegy, and the Citigroup Entities, through their
counsel, have executed a “Supplemental Agreement” setting forth certain conditions under which this Stipulation may be withdrawn or terminated by Dynegy (as to all Parties other than the Citigroup Entities) or by the Citigroup Entities (as
to the Class and the Citigroup Entities only) if potential Class members who purchased in excess of a certain number of Dynegy Class A Common Stock shares during the Class Period exclude themselves from the Class. The Supplemental Agreement 

  

 35 

 
shall not be filed with the Court unless a dispute arises about its terms or the Court so orders. In the event of a withdrawal from this Stipulation under
the Supplemental Agreement, this Stipulation shall become null and void and of no further force and effect, and the provisions of paragraph 47 shall apply. Notwithstanding the foregoing, the Stipulation shall not become null and void as a result of
Dynegy’s or the Citigroup Entities’ election to exercise its option to withdraw from the Stipulation until the conditions in the Supplemental Agreement have been satisfied. 
  
 47. Except as otherwise provided herein, if the Settlement is terminated or fails to become effective for any reason, then
(a) the Settlement shall be without force and effect upon the Parties’ rights, and none of its terms shall be effective or enforceable, except to the extent costs of Notice and administrative expenses or Taxes have been incurred or expended
under this Stipulation; (b) this Stipulation, the fact and terms of the Settlement, and all oral and written communications and other documents pertaining to the Settlement shall be null and void and without prejudice, and shall not be referred to
by any Party or admissible in any further proceedings in the Consolidated Securities Litigation; (c) the balance remaining in the Settlement Fund, together with any amounts of any fees previously awarded to Lead Counsel and paid out of the
Settlement Fund, less any costs of Notice or administrative expenses incurred before such termination, and less any Taxes, shall be returned to Dynegy, the Citigroup Entities, and the Insurers on a pro rata basis within five (5) business days; and
(d) the Parties shall revert to their litigation positions as of April 14, 2005. 
  

 36 

 NO ADMISSION OF WRONGDOING 
  
 48. 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 Released Parties 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 Released Parties with respect to the truth of any fact alleged by Class Representative or the validity of any claim that had been or could have been
asserted in the Consolidated Securities Litigation or in any litigation, or the deficiency of any defense that has been or could have been asserted in the Consolidated Securities Litigation or in any litigation, or of any liability, negligence,
fault, or wrongdoing of any or all Released Parties; 
  
 b. does
not constitute and shall not be offered against any or all Released Parties 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 Released Parties, or against Class Representative and the Class as evidence of any infirmity in the claims of Class Representative and the Class; 
  
 c. does not constitute and shall not be offered against any or all Released
Parties 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 

  

 37 

 
investigation or inquiry by the SEC 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 Released Parties may refer to it to effectuate the liability protection granted them hereunder; 
  
 d. does not constitute and shall not be offered or construed against any or
all Released Parties 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. does not constitute and shall not be offered or construed as an admission, concession or presumption against Class
Representative or the Class or any of them that any of their claims are without merit or that damages recoverable under the Complaints would not have exceeded the Settlement Fund. Any or all Released Parties may file the Stipulation and/or the Order
and 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. Class Representative understands, acknowledges and agrees that the Released Parties have denied and continue to deny each and all claims of alleged
wrongdoing. 
  
 49. The Parties to this Stipulation intend the
Settlement to be a final and complete resolution of all disputes asserted or that could be or could have been asserted by Class Representative, the Class or Plaintiffs’ Counsel against any or all Settling Defendants and/or Released Parties with
respect to the Released Claims. Accordingly, Class Representative, the Settlement Class, and the Settling Defendants agree not to assert in any forum that the 

  

 38 

 
Consolidated Securities Litigation was brought by Class Representative or defended by Defendants in bad faith or without a reasonable basis. The Parties
shall assert no claims of any violation of Rule 11 of the Federal Rules of Civil Procedure relating to the prosecution, defense, or settlement of the Consolidated Securities Litigation. The Parties agree that the amount paid and the other Settlement
terms were negotiated at arm’s length in good faith by the Parties, and reflect a settlement that was reached voluntarily after consultation with experienced legal counsel. 
  
 PUBLIC ANNOUNCEMENTS OF SETTLEMENT 
  
 50. Dynegy, Lead Counsel and Class Representative agree to use their best efforts to coordinate, review and provide comments
to all public announcements, by press release or otherwise, regarding the Settlement, but will not have any right to edit, veto or otherwise control the content or form of such communications other than their own. 
  
 MISCELLANEOUS PROVISIONS 
  
 51. All of the exhibits attached hereto are hereby incorporated by reference
in this Stipulation as though fully set forth herein. 
  
 52.
Counsel for each Settling Defendant is authorized to warrant on behalf of such Settling Defendant, and hereby warrants on his, her or its behalf that, as to the payments made by or on behalf of him, her, or it, at the time of such payment that
Settling Defendant made or caused to be made pursuant to paragraphs 8 or 9 above, he, she, or it was not insolvent nor will the payment required to be made by or on behalf of him, her, or it render such Settling Defendant insolvent within the
meaning of and/or for the purposes of the United States Bankruptcy Code, including §§ 101 and 547 thereof. This warranty and all other representations, warranties or statements in this Stipulation, unless expressly indicated otherwise, are
made by the Parties and not by their counsel. 
  

 39 

 53. If a case is commenced in respect to any Settling Defendant under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator is appointed under any similar law, and in the event of the entry of a final order of a court of competent jurisdiction determining the transfer of the Settlement Fund, or any portion thereof, by
or on behalf of such Settling Defendant, to be a preference, voidable transfer, fraudulent transfer or similar transaction, then, as to such Settling Defendant, the releases given and Order and Final Judgment entered in favor of such Settling
Defendant under this Stipulation shall be null and void. 
  
 54.
This Stipulation may not be modified or amended, nor may any of its provisions be waived, except by a writing signed by all Parties or their respective successors-in-interest. 
  
 55. 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. 
  
 56. The administration and consummation of
the Settlement embodied in this Stipulation shall be under the Court’s authority, and the Court shall retain jurisdiction for the purpose of entering orders providing for awards of attorneys’ fees and expenses to Lead Counsel and enforcing
the terms of this Stipulation. 
  
 57. 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. 
  
 58. This Stipulation and its exhibits, together with the Supplemental Agreement, constitute the entire agreement among the Parties concerning the
Settlement of the Consolidated Securities Litigation, and supersede any prior agreements or understandings between the Parties 

  

 40 

 
with respect to the Settlement (including, without limitation, the Memorandum of Understanding). No representations, warranties, or inducements have been
made by any Party concerning this Stipulation, its exhibits or the Supplemental Agreement, other than those contained and memorialized in such documents. 
  
 59. 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. 
  
 60. This Stipulation shall be binding upon, and inure to the benefit of, the successors and assigns of the Parties and the Released Parties. There are no third-party beneficiaries to this Stipulation. 
  
 61. The construction, interpretation, operation, effect and validity of this
Stipulation, and all documents necessary to effectuate it, shall be governed by the internal laws of the State of Texas without regard to conflicts of laws, except to the extent that federal law requires that federal law governs. 
  

 41 

 62. 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. 
  
 63. 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 the full authority to do so and that they have the authority to take appropriate action
required or permitted to be taken pursuant to the Stipulation to effectuate its terms. 
  
 64. Lead Counsel and the Settling Defendants’ counsel agree to cooperate fully with one another in seeking prompt Court approval of the Preliminary Approval Order, the Stipulation and the Settlement, and the
entry of the Order and Final Judgment, and to promptly agree upon 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
the Order and Final Judgment. 
  
 65. All agreements and orders
entered during the course of the Consolidated Securities Litigation relating to the confidentiality of information, including without limitation the Confidentiality Stipulation and Agreed Protective Order filed by the Court on February, 16, 2005,
shall survive this Stipulation and the Settlement. 
  
 66. Nothing
in this Stipulation, the Settlement, the negotiations relating thereto, the mediation, or the process and content of confirmatory 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. 
  

 42 

 67. 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. 
  
 68. The Parties acknowledge, represent and warrant to each other that the
mutual releases and payments hereunder are adequate consideration for the consideration given. 
  
 69. Lead Counsel shall not assign any of its rights or obligations under this Stipulation (including any rights or obligations as Escrow Agent) without Dynegy’s prior written consent, and any attempted transfer
or assignment in violation of this provision shall be null and void. 
  
  

 43 

 IT IS HEREBY AGREED by the undersigned on behalf of their respective clients. 
  
 Dated: May 2, 2005 
  
 LERACH COUGHLIN STOIA GELLER 
     RUDMAN & ROBBINS LLP 
  

	
	 /s/ Keith F. Park

	 William S. Lerach,

	 Attorney-In-Charge

	 Keith F. Park

	 Darren J. Robbins

	 Helen J. Hodges

	 Byron S. Georgiou

	 G. Paul Howes

	 James I. Jaconette

	 Michelle M. Ciccarelli

	 James R. Hail

	 John A. Lowther

	 Alexandra S. Bernay

	 Matthew P. Siben

	 Robert R. Henssler, Jr.

	 401 B Street, Suite 1600

	 San Diego, CA 92101

	 Telephone: 619/231-1058

	 619/231-7423 (fax)

	
	 LEAD COUNSEL FOR PLAINTIFF

	
	 Roger B. Greenberg

	 Federal I.D. No. 3932

	 State Bar No. 08390000

	 SCHWARTZ, JUNELL, GREENBERG

	 & OATHOUT, LLP

	 Two Houston Center

	 909 Fannin, Suite 2000

	 Houston, TX 77010

	 Telephone: 713/752-0017

	 713/752-0327 (fax)

	
	 Walter Umphrey

	 Joe Kendall

	 State Bar No. 11260700

	 PROVOST & UMPHREY LAW FIRM, LLP

	 3232 McKinney Avenue, Suite 700

	 Dallas, TX 75204

	 Telephone: 214/744-3000

	 214/744-3015 (fax)

	
	 CO-LIAISON COUNSEL

	
	HAYNES AND BOONE, LLP
	
	 /s/ Micahel T. Powell

	 Michael T. Powell

	 Attorney-in-Charge

	 State Bar No. 16204300

	 S.D. Bar No. 717

	 Kenneth E. Broughton

	 State Bar No. 03087250

	 S.D. Bar No. 13428

	 1 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

	 Nicholas Even

	 State Bar No. 24014446

	 901 Main Street, Suite 3100

	 Dallas, Texas 75202

	 [214] 651-5000 - Telephone

	 [214] 651-5940 - Facsimile

	
	 ATTORNEYS FOR
 DYNEGY INC. AND

	 DYNEGY HOLDINGS INC.

	
	 FULBRIGHT & JAWORSKI L.L.P.

	
	 /s/ Tom Godbold

	 Tom Godbold

	 Attorney-in-Charge

	 State Bar No. 08050500

	 Federal I.D. No. 1345

	 1301 McKinney, Suite 5100

	 Houston, Texas 77010-3095

	 [713] 651-5151 - Telephone

	 [713] 651-5246 – Facsimile

	
	 ATTORNEYS FOR DEFENDANT
 CHARLES L. WATSON

	
	 WILSON FULKERSON LLP

	
	 /s/ Michael M. Wilson

	 Michael M. Wilson

	 Attorney-in-Charge

	 State Bar No. 21704800

	 700 Louisiana, Suite 5200

	 Houston, Texas 77002

	 [713] 654-5800 – Telephone

	 [713] 654-5801 – Facsimile

	
	 ATTORNEYS FOR DEFENDANT

	 ROBERT D. DOTY

	
	 DENNIS HERLONG

	
	 /s/ Dennis Herlong

	 State Bar No. 09510500

	 Federal I.D. No. 184

	 440 Louisiana, Suite 900

	 Houston, Texas 77002

	 [713]228-9222 – Telephone

	 [713] 228-9225 – Facsimile

	
	 ATTORNEY FOR DEFENDANT

	 STEPHEN BERGSTROM

	
	 KING & SPALDING LLP

	
	 /s/ Mark K. Glasser

	 Mark K. Glasser

	 Attorney-in-Charge

	 State Bar No. 08014500

	 Southern District ID No. 930

	 Michael W. Youtt

	 State Bar No. 00792315

	 Southern District ID No. 18920

	 Kevin D. Mohr

	 State Bar No. 24002623

	 Southern District ID No. 28140

	 Jeremiah J. Anderson

	 State Bar No. 24040432

	 1100 Louisiana, Suite 4000

	 Houston, Texas 77002

	 [713] 751-3200 – Telephone

	 [713] 751-3290 – Facsimile

	
	 ATTORNEYS FOR DEFENDANT

	 MICHAEL R. MOTT

	
	 HUGHES HUBBARD & REED LLP

	
	 /s/ Kevin T. Abikoff

	 Kevin T. Abikoff

	 State Bar No. 24034118

	 Southern District ID No. 34731

	 1775 I Street, NW

	 Washington, DC 20006-2401

	 [202] 721-4770 – Telephone

	 [202] 721-4646 – Facsimile

	
	 ATTORNEY FOR 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 AND J. OTIS WINTERS

	
	 KING & PENNINGTON, L.L.P.

	
	 /s/ Charles G. King

	 Charles G. King

	 Attorney-in-Charge

	 State Bar No. 11470000

	 Southern District ID No. 1344

	 1100 Louisiana, Suite 5055

	 Houston, Texas 77002

	 [713] 225-8400 – Telephone

	 [713] 225-8488 – Facsimile

	
	 Michael J. Chepiga

	 Admitted Pro Hac Vice

	 Harrison J. Frahn IV

	 Admitted Pro Hac Vice

	 SIMPSON THACHER & BARTLETT LLP

	 425 Lexington Avenue

	 New York, New York 10017-3954

	 [212] 455-2000 – Telephone

	 [212] 455-2502 – Facsimile

	
	 ATTORNEYS FOR DEFENDANTS

	 LEHMAN BROTHERS INC. AND
 LEHMAN BROTHERS HOLDINGS INC.

	
	 PAUL WEISS, RIFKIND, WHARTON &
 GARRISON LLP

	
	 /s/ Brad S. Karp

	 Brad S. Karp

	 1285 Avenue of the Americas

	 New York, NY 10019-6064

	 [212] 373-3000 – Telephone

	 [212] 757-3990 – Facsimile

	
	 ATTORNEY FOR DEFENDANTS
 CITIGROUP, INC., SALOMON SMITH
 BARNEY INC. AND CITIBANK, N.A.Stipulation of Settlement - Shareholder Derivative Litigation

 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. 

 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 
  

 2 

 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. 
  

 3 

 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. 

 

 4 

 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. 
  

 5 

 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). 
  

 6 

 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; 
  

 7 

 (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. 
  

 8 

 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; 
  

 9 

 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”); 
  

 10 

 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; 
  

 11 

 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 
  

 12 

 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. 
  

 13 

 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 
  

 14 

 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. 
  

 15 

 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. 
  

 16 

 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; 
  

 17 

 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.

  

 18 

 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. 
  

 19 

 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 

 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 

 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 

 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 

 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 

					
	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 

					
	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 

					
	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 

 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 

 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 

 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 

 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

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