PLAN OF MERGER, CONTRIBUTION AND SALE AGREEMENT

Exhibit 2.1

 

PLAN OF MERGER, CONTRIBUTION AND SALE AGREEMENT

by and among

DYNEGY INC.,

LSP GEN INVESTORS, L.P.,

LS POWER PARTNERS, L.P.,

LS POWER EQUITY PARTNERS PIE I, L.P.,

LS POWER EQUITY PARTNERS, L.P.,

LS POWER ASSOCIATES, L.P.,

FALCON MERGER SUB CO.,

and

DYNEGY ACQUISITION, INC.

 

Dated September 14, 2006

 

 

TABLE OF CONTENTS

 

 

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INDEX OF TERMS

 

 

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PLAN OF MERGER, CONTRIBUTION AND SALE AGREEMENT

PLAN OF MERGER, CONTRIBUTION AND SALE AGREEMENT, dated September 14, 2006 (this “ Agreement ”), by and among Dynegy Acquisition, Inc., a Delaware corporation (“ Newco ”), Falcon Merger Sub Co., an Illinois corporation and a wholly owned subsidiary of Newco (“ Merger Sub ” and, together with Newco, the “ Newco Entities ”), LSP Gen Investors, L.P., a Delaware limited partnership (“ Gen Investors ”), LS Power Partners, L.P., a Delaware limited partnership (“ LS GP ”), LS Power Equity Partners PIE I, L.P., a Delaware limited partnership (“ PIE ”), LS Power Equity Partners, L.P. (“ Equity Partners ” and, together with Gen Investors, LS GP and PIE, the “ Operating Asset Contributors ”), LS Power Associates, L.P., a Delaware limited partnership (“ Associates ” and, together with the Operating Asset Contributors, the “ Contributors ”), and Dynegy Inc., an Illinois corporation (“ Dynegy ”). The Newco Entities, the Contributors and Dynegy are collectively referred to as the “ parties ” and individually as a “ party .”

RECITALS:

A. Dynegy’s Board of Directors (the “ Dynegy Board ”) has approved, and deems it advisable and in Dynegy’s best interest that Newco acquire Dynegy through the statutory merger of Merger Sub with and into Dynegy (the “ Merger ”) and, in furtherance thereof, has approved the Merger.

B. In the Merger each of Dynegy’s issued and outstanding shares of (i) Class A common stock (the “ Dynegy A Shares ”), and (ii) Class B Common Stock (the “ Dynegy B Shares ” and, together with the Dynegy A Shares, the “ Dynegy Shares ”), each having no par value, will be converted into the right to receive one share of Class A Common Stock, par value $0.01 per share (“ Newco A Shares ”), of Newco.

C. PIE owns all of the outstanding stock of LSP-Kendall Blocker, Inc., a Delaware corporation (“ Kendall Blocker ”), and LS GP, Associates, Equity Partners and Kendall Blocker own, directly or indirectly, all of the outstanding membership interests in LSP Kendall Holding, LLC, a Delaware limited liability company (“ Kendall ”). Associates owns all the outstanding membership interest in LSP Services Kendall, LLC (“ Kendall Services ”).

D. LS GP, Associates and Equity Partners desire to sell their interests in Kendall to Newco, PIE desires to sell its stock of Kendall Blocker and Associates desires to sell its interests in Kendall Services to Newco (collectively, such interests and stock the “ Kendall Interests ”) in exchange for $100,000,000 in cash (the “ Cash Consideration ”) and $112,000,000 in aggregate principal amount of notes (the “ Kendall Notes ”, and together with the Cash Consideration, the “ Kendall Consideration ”) issued pursuant to an indenture substantially in the form of Exhibit A (the “ Indenture ”) (such sales, the “ Kendall Sale ”).

E. The Contributors own interests in five limited liability companies and ten corporations identified in Part IA.(1)(a) of Section 2.3 of the LS Disclosure Letter (the “ Contributed Operating Holding Interests ”).

F. Associates will form a Delaware limited liability company (the “ Development LLC ”). Immediately prior to Closing, Associates will contribute the interests in the companies

 

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identified in Part I.B.1 of Section 2.3 of the LS Disclosure Letter (the “ Contributed Development Interests ” to Development LLC. Simultaneous with the Closing, Associates will contribute 50% of the membership interest in the Development LLC and the Contributors will contribute the Contributed Operating Holding Interests (collectively, the “ Contributed Interests ”) to Newco. These contributions along with the contribution of the Contributed Interests shall be referred to as the “ Contributions ” and, together with the Merger, the Kendall Sale and the transactions described in Recital K, the “ Formation Transactions .” Upon the Effective Time, the limited liability company agreement relating to Development LLC will be amended and restated to be substantially in the form of Exhibit C (the “ Development Master LLC Agreement ”).

G. The Contributors believe it is in their respective best interests that Newco acquire the Contributed Interests in exchange for an aggregate of (i) 340,000,000 shares of Class B Common Stock, par value $0.01 per share (the “ Newco B Shares ” and, together with the Newco A Shares, “ Newco Shares ”) of Newco (the “ Stock Consideration ”) and (ii) $163,000,000 in aggregate principal amount of notes (the “ Contribution Notes ” and together with the Kendall Notes, the “ Notes ”) issued pursuant to the Indenture.

H. The Contributors believe it is in their respective best interests that Newco purchase the Kendall Interests in exchange for the Kendall Consideration.

I. Immediately after the Closing, Associates intends to contribute its interest in the development projects identified in Part III of Section 2.3 of the LS Disclosure Letter (the “ JV Contributions ”) to the Development LLC.

J. Immediately after Closing, Newco intends to contribute to the Development LLC its interests in the development projects identified in Section J of the Dynegy Disclosure Letter.

K. At the closing of the transactions contemplated to occur at Closing under this Agreement and the agreements, instruments and documents contemplated hereby, Newco and Associates intend to enter into an LLC Agreement substantially in the form of Exhibit D (the “ Development Services LLC Agreement ”) for a limited liability company which will provide services to the Development LLC and its subsidiaries.

L. Certain of Dynegy’s officers have entered into voting agreements substantially in the form of Exhibit N with the Contributors under which such officers have agreed to vote in favor of the adoption of this Agreement and the Merger and certain other matters (the “ Voting Agreements ”).

M. Simultaneous with the execution of this Agreement, Chevron U.S.A. Inc., a Pennsylvania corporation (“ CUSA ”), has entered into a Voting Agreement substantially in the form of Exhibit E (the “ CUSA Voting Agreement ”) with the Contributors, by which CUSA has agreed to take those actions contemplated thereby and to waive certain rights in connection with the transactions contemplated hereby.

N. Simultaneous with the execution of this Agreement, CUSA and Newco intend to enter into a Registration Rights Agreement (the “ CUSA Registration Rights Agreement ”) substantially in the form of Exhibit F , under which CUSA will be granted registration rights.

 

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O. Simultaneous with the execution of this Agreement, the Contributors and Newco have entered into a Registration Rights Agreement (the “ LS Registration Rights Agreement ”) substantially in the form of Exhibit G , under which the Contributors will be granted registration rights.

P. Simultaneous with the execution of this Agreement, the Contributors and Newco have entered into a Shareholder Agreement (the “ Shareholder Agreement ”) substantially in the form of Exhibit H , under which the Contributors and Newco will make certain agreements with respect to the transferability of the Contributors’ Newco Shares, the management of Newco and certain other matters.

Q. At Closing, the Articles of Incorporation and Bylaws of Newco will be amended in their entirety to be substantially in the forms of Exhibit I and Exhibit J , respectively.

R. Simultaneous with the execution of this Agreement, Newco and LS Power Development, LLC have entered into a Corporate Opportunity Agreement (the “ Corporate Opportunity Agreement ”) with Newco, substantially in the form of Exhibit K .

S. For federal income tax purposes, the parties intend for the Merger and Contributions to qualify as contributions of the Contributed Interests and of the stock of Dynegy to Newco in exchange for Newco Shares and other property (such exchange, an “ Exchange ”) under Section 351 of the United States Internal Revenue Code of 1986, as amended (the “ Code ”).

T. For federal income tax purposes, the parties intend for the Kendall Sale to qualify as a sale or exchange of the Kendall Interests under Section 1001 of the Code.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained in this Agreement, and intending to be legally bound, the parties agree as follows:

ARTICLE I

TRANSACTIONS

Section 1.1 The Merger . At the Effective Time subject to this Agreement and Section 11.50 of the Illinois Business Corporation Act (the “ IBCA ”), Merger Sub will be merged with and into Dynegy, Merger Sub’s separate corporate existence will cease, and Dynegy will continue as the surviving corporation and as a wholly-owned subsidiary of Newco. Dynegy as the surviving corporation after the Merger is sometimes referred to as the “ Surviving Corporation .”

Section 1.2 The Contributions and Kendall Sale. (a) At the Closing, the Contributors shall contribute the Contributed Interests to Newco in exchange for the Stock Consideration and the Contribution Notes. Such consideration shall be allocated in accordance with Schedule 1.2(a) .

 

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(b) PIE, LS GP, Associates and Equity Partners shall sell the Kendall Interests to Newco in exchange for the Kendall Consideration. Such consideration shall be allocated in accordance with Schedule 1.2(b) .

Section 1.3 Closing. The closing of the Formation Transactions (the “ Closing ”) will take place at the offices of Akin Gump Strauss Hauer & Feld LLP in Houston, Texas, commencing 9:00 am local time on the second business day following the satisfaction or waiver of all conditions to consummate the Transactions (other than conditions with respect to actions the respective parties will take at the Closing itself) or such other date as Dynegy and the Contributors may mutually determine (the “ Closing Date ”).

Section 1.4 Actions and Deliveries at Closing.

(a) Merger . On the Closing Date, the parties will cause the Merger to be consummated by filing Articles of Merger with the Secretary of State of Illinois (the “ Merger Certificate ”), in accordance with the IBCA. The date and time the Merger becomes effective as specified in the Merger Certificate is referred to as the “ Effective Time .”

(b) Contribution . On the Closing Date the Contributors shall deliver to Newco executed (i) stock powers, and (ii) limited liability company interest powers, in each case contributing the applicable Contributed Operating Holding Interests and 50% of the membership interests in the Development LLC to Newco free and clear of any Liens except as contemplated hereby, in exchange for the Stock Consideration and the Contribution Notes.

(c) Kendall Sale . On the Closing Date, PIE, LS GP, Associates and Equity Partners shall sell to Newco and Newco shall purchase executed (i) limited liability company interest powers and (ii) stock powers, in each case conveying the applicable Kendall Interests free and clear of all Liens except as contemplated hereby, in exchange for the Kendall Consideration.

Section 1.5 Effect of the Merger. At the Effective Time, the effect of the Merger will be as provided in the IBCA. At the Effective Time all of Dynegy’s and Merger Sub’s property, rights, privileges, powers, and franchises will vest in the Surviving Corporation, and all of Dynegy’s and Merger Sub’s debts, liabilities, and duties will become the Surviving Corporation’s debts, liabilities, and duties.

Section 1.6 Charter and Bylaws. The Articles of Incorporation of Dynegy as the Surviving Corporation as in force and effect at the Effective Time shall be the Articles of Incorporation of said Surviving Corporation except that Articles 4 and 7 will be amended and changed so as to read at the Effective Time as indicated in Exhibit L , and said Articles of Incorporation as so amended and changed shall continue in full force and effect until further amended and changed in the manner prescribed by the provisions of IBCA. At the Effective Time, the bylaws of Dynegy as in effect immediately prior to the Effective Time shall be amended to read in their entirety in the form of Exhibit M , and, as so amended shall be the bylaws of the Surviving Corporation.

 

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Section 1.7 Directors and Officers. Merger Sub’s director(s) and officers immediately before the Effective Time will be the Surviving Corporation’s initial director(s) and officers.

Section 1.8 Effect of Merger on Dynegy’s Capital Stock. At the Effective Time, because of the Merger and without any action on the part of any party:

(a) Cancellation of Newco-Owned and Dynegy-Owned Stock . Each Dynegy Share that either Newco Entity or Dynegy or any direct or indirect wholly owned subsidiary of either Newco Entity or Dynegy owns immediately before the Effective Time (collectively, “ Excluded Dynegy Shares ”) will be canceled and extinguished without conversion.

(b) Cancellation of Dynegy-Owned Stock . Each Newco Share the Dynegy Entities hold will be canceled and extinguished without any further action simultaneous with the Closing.

(c) Common Stock of Merger Sub . Each share of Merger Sub’s common stock issued and outstanding immediately before the Effective Time will be converted into and exchanged for one validly issued, fully paid, and nonassessable share of the Surviving Corporation’s common stock. Each stock certificate of Merger Sub evidencing ownership of any such shares will from and after the Effective Time evidence ownership of shares of the Surviving Corporation’s common stock.

(d) Conversion of Dynegy Stock . Subject to Section 1.13 , each Dynegy Share issued and outstanding immediately before the Effective Time (other than Excluded Dynegy Shares) will be converted into the right to receive one Newco A Share (the “ Exchange Ratio ”). All such Dynegy Shares, when so converted, will no longer be outstanding and will automatically be canceled and retired and will cease to exist, and the holder of a certificate (a “ Dynegy Stock Certificate ”) that, immediately before the Effective Time, represented outstanding Dynegy Shares will cease to have any rights with respect thereto, except the right to receive, upon the surrender of such Dynegy Stock Certificate: (i) the number of Newco A Shares as calculated above, (ii) certain dividends and other distributions in accordance with Section 1.8(f) , and (iii) cash in lieu of fractional Newco A Shares under Section 1.11, in each case without interest (collectively, the “ Merger Consideration ”).

(e) Rights Before Surrender, Stock Splits, etc. and Stock Transfer Books . Until surrendered as contemplated by Section 1.9 , each Dynegy Stock Certificate will be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration. If between the date hereof and the Effective Time the outstanding Dynegy Shares or Newco Shares are changed into a different number of shares or a different class because of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares, the Exchange Ratio will be correspondingly adjusted to reflect such stock dividend, subdivision,

 

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reclassification, recapitalization, split, combination or exchange of shares. After the Effective Time, Dynegy’s stock transfer books will be closed and there will be no further transfers of Dynegy Shares. If, at or after the Effective Time, Dynegy Stock Certificates are presented to the Surviving Corporation, they will be canceled and exchanged in accordance with this Agreement.

(f) Dividends and Distributions on Merger Consideration . No dividends or other distributions declared or made having a record date after the Effective Time will be paid to the holder of any unsurrendered Dynegy Stock Certificate until the record holder of such Dynegy Stock Certificate has surrendered it under Section 1.9 . Subject to the effect of applicable Laws (including escheat and abandoned property Laws), following surrender of any such Dynegy Stock Certificate there will be paid to the record holder of the certificates representing the Merger Consideration issued in exchange therefor, without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time that, absent the failure to surrender such Dynegy Stock Certificate, theretofore would have been required to be paid with respect to such Merger Consideration, and (ii) if the payment date for any dividend or distribution payable with respect to such Merger Consideration has not occurred before the surrender of such Dynegy Stock Certificate, at the appropriate payment date therefor, the amount of such dividends or other distributions.

Section 1.9 Surrender of Certificates .

(a) Exchange Procedures .

(i) At or before the Effective Time, Newco will deposit the aggregate Merger Consideration with an exchange agent selected by Dynegy (the “ Exchange Agent ”) for the benefit of the holders of Dynegy Shares, for exchange in accordance with this Section 1.9 . The stock certificates and cash described above are referred to as the “ Exchange Fund .” The Exchange Agent, pursuant to irrevocable instructions, will deliver the Merger Consideration out of the Exchange Fund. No interest will be paid or will accrue on any cash amount payable upon the surrender of any Dynegy Stock Certificate with respect to fractional shares. Except as contemplated by Section 1.9(a)(iii) , the Exchange Fund shall not be used for any other purpose.

(ii) Promptly after the Effective Time, but not later than five business days thereafter, Newco will send, or will cause the Exchange Agent to send, to each holder of a Dynegy Stock Certificate a letter of transmittal and instructions for use in effecting the exchange of such Dynegy Stock Certificates for the Merger Consideration (including certificates representing the Newco A Shares) owing to such holder. Newco shall make arrangements for CUSA to exchange its Dynegy Stock Certificates for the Merger Consideration (including certificates representing Newco A Shares) on the Closing Date.

(iii) Any Merger Consideration that remains unclaimed by holders of Dynegy Shares for one year after the Effective Time will be returned to Newco

 

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upon demand, and any such holder who has not exchanged such holder’s Dynegy Stock Certificates in accordance with this Section 1.9 before that time will thereafter look only to Newco, as a general creditor thereof, to exchange such Dynegy Stock Certificates or to pay amounts to which they are entitled under Section 1.8 . If any Dynegy Stock Certificates are not surrendered within six years after the Effective Time, the Merger Consideration issuable in respect of such Dynegy Stock Certificates, and the amount of dividends and other distributions, if any, which have become payable and which thereafter become payable on the Merger Consideration evidenced by such Dynegy Stock Certificates as provided herein will, to the extent permitted by applicable Law, become the property of Newco, free and clear of all claims or interest of any person previously entitled thereto. Notwithstanding the foregoing, none of Newco or its subsidiaries will be liable to any holder of Dynegy Stock Certificates for any amount paid, or Merger Consideration, cash or dividends delivered, to a public official under abandoned property, escheat or similar applicable Laws.

(b) Transfers of Ownership . If any certificate representing Newco Shares is to be issued in a name other than that in which the Dynegy Stock Certificate surrendered in exchange therefor is registered, Newco will not be required to issue such Newco Shares until (i) the Dynegy Stock Certificate so surrendered has been properly endorsed and is otherwise in proper form for transfer and (ii) the person requesting such exchange has paid to Newco or any agent it designates any transfer or other Taxes required because of the issuance of a certificate representing Newco Shares in any name other than that of the registered holder of the Dynegy Stock Certificate surrendered, or established to the satisfaction of Newco or any agent it designates that such Tax has been paid or is not payable.

(c) No Further Ownership Rights in Dynegy Shares . All Merger Consideration will be deemed to have been issued in full satisfaction of all rights pertaining to the Dynegy Shares.

(d) Lost, Stolen or Destroyed Certificates . If any Dynegy Stock Certificate has been lost, stolen, or destroyed, Newco will issue the Merger Consideration deliverable in respect thereof upon (i) the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen, or destroyed and (ii) if Newco requires, the posting by such person of a bond in such reasonable amount as Newco may direct as indemnity against any claim that may be made against it with respect to such certificate.

Section 1.10 Dynegy Stock Options and Other Awards .

(a) Assumption of Options . Dynegy and Newco shall take all necessary corporate actions so that, at the Effective Time, automatically and without any action on the part of the holder thereof, Newco will assume each outstanding current or former employee or director stock option of Dynegy described on Section 4.3(a) of the Dynegy Disclosure Letter whether or not vested, outstanding at the Effective Time (the “ Dynegy Options ”) and it will become an option (“ Newco Option ”) (i) to purchase that number of

 

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Newco A Shares obtained by multiplying the number of Dynegy Shares issuable under each such Dynegy Option immediately prior to the Effective Time by the Exchange Ratio, (ii) at an exercise price per share equal to the per share exercise price of such Dynegy Option divided by the Exchange Ratio, and (iii) otherwise upon the same terms and conditions as such outstanding Dynegy Options but taking into account any changes thereto, including acceleration thereof, provided in the Dynegy Plans, any grant document or any agreement, in each case, as in effect on the date hereof, because of this Agreement or the Formation Transactions; except that if Section 421 of the Code applies to any Dynegy Option because of the qualifications under Section 422 or 423 of the Code, the exercise price, the number of shares purchasable pursuant to such Dynegy Option and the terms and conditions of exercise of such Dynegy Option will be determined consistent with Section 424(a) of the Code.

(b) Assumption of Dynegy Stock-Based Awards . At the Effective Time, each right of any kind, contingent or accrued, to receive Dynegy Shares or benefits measured by the value of a number of shares of Dynegy, and each award of any kind consisting of shares of Dynegy A Shares, granted under the Dynegy Plans (including restricted stock, performance units and deferred stock units), other than Dynegy Options (each a “ Dynegy Stock-Based Award ”), whether vested or unvested, which is outstanding immediately prior to the Effective Time shall cease to represent a right or award with respect to Dynegy Shares and shall be converted, at the Effective Time, into a right or award with respect to Newco A Shares (a “ Newco Stock-Based Award ”), on the same terms and conditions as were applicable under the Dynegy Stock-Based Awards (but taking into account any changes thereto, including the acceleration thereof, provided for in the Dynegy Plans, in any award agreement or in such Dynegy Stock-Based Award, in each case, as in effect on the date hereof, because of this Agreement or the Formation Transactions). The number of Newco A Shares subject to each such Newco Stock-Based Award shall be equal to the number of Dynegy A Shares subject to the Dynegy Stock-Based Award, multiplied by the Exchange Ratio.

(c) Newco Notices . As soon as practicable after the Effective Time, Newco shall deliver to the holders of Dynegy Stock Options and Dynegy Stock-Based Awards appropriate notices setting forth such holders’ rights pursuant to the respective Dynegy Plans and agreements evidencing the grants of such Dynegy Stock Options and Dynegy Stock-Based Awards, and stating that such Dynegy Stock Options and Dynegy Stock-Based Awards and agreements have been assumed by Newco and shall continue in effect on the same terms and conditions (subject to the adjustments required by this Section 1.10 after giving effect to the Merger and the terms of the Dynegy Plans).

(d) Reservation of Shares . Newco shall reserve for issuance a number of Newco A Shares at least equal to the number of Newco A Shares that may be issued under the Dynegy Plans.

(e) Form S-8 . Newco will prepare, and on the Closing Date, Newco shall file with the Securities and Exchange Commission (“ SEC ”) a registration statement on Form S-8 (or any successor or other appropriate form) with respect to the Newco A Shares subject to such Newco Stock Options and Newco Stock-Based Awards and shall

 

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use its reasonable best efforts to maintain the effectiveness of such registration statement(s) (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such Newco Stock Options and Newco Stock-Based Awards remain outstanding. In addition, Newco will prepare, and on the Closing Date, Newco shall file with the SEC a registration statement on Form S-8 (or any successor or other appropriate form) with respect to the Newco A Shares: (i) for a number of shares that are equivalent to the number of Dynegy Shares reserved for issuance under the Dynegy Plans as listed in Section 4.3(a)(1)(iii); and (ii) for the number of Newco A Shares that are equivalent to the number of Dynegy Shares currently registered under a Form S-8 with respect to the Dynegy Plans that provide for matching contributions in Dynegy Shares.

(f) Amendments to Plans . Newco will assume as of the Effective Time each Dynegy Plan providing for the issuance or grant of Dynegy Options, Dynegy Stock-Based Awards and Dynegy Shares. Upon assumption of such plans, such amendments thereto as may be required to reflect the Merger will be deemed to have been made.

Section 1.11 No Fractional Shares. No fractional Newco Shares will be issued in the Merger and fractional share interests will not entitle the owner thereof to vote or to any rights of a Newco stockholder. In lieu of such fractional shares, Newco shall pay to all Dynegy shareholders an amount in cash determined by multiplying the fraction of a Newco Share to which such holder would otherwise have been entitled by the closing sale price of the Dynegy A Shares on the trading day before the Effective Time divided by the Exchange Ratio.

Section 1.12 Tax Treatment. (a) The Parties intend that the Merger and, to the extent Newco Shares are received as a result thereof, the Contributions constitute an Exchange under Section 351 of the Code.

(b) The Parties intend for the Kendall Sale to qualify as a sale or exchange of the Kendall Interests under Section 1001 of the Code.

Section 1.13 Shares of Dissenting Shareholders. Any Dynegy Shares a Dynegy shareholder properly exercising its dissent or appraisal rights under the IBCA (a “ Dissenting Shareholder ”) holds will be converted into the right to receive such consideration as may be determined to be due to such Dissenting Shareholder under the IBCA. Dynegy will give Newco and the Contributors (a) prompt notice of any written demands for the exercise of dissenters or appraisal rights, withdrawals of demands for the exercise of dissenters or appraisal rights and any other instruments served under the IBCA, and (b) the opportunity to direct all negotiations and proceedings with respect to demands for exercise of dissenters or appraisal rights under the IBCA. Without the Contributors’ prior written consent, Dynegy will not voluntarily make any payment with respect to any Dissenting Shareholder demands and will not settle, or offer to settle, any such demands or agree to do any of the foregoing.

Section 1.14 Taking of Necessary Action; Further Action. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets,

 

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property, rights, privileges, powers, and franchises of Dynegy and Merger Sub, the officers and directors of Dynegy, Newco, and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and Dynegy and Newco will cause them to take, all such lawful and necessary action.

Section 1.15 FIRPTA Certificates. At the Closing, each Contributor shall provide to Newco a duly executed certificate complying with the requirements of Section 1.1445-2(b) or (c) of the Treasury regulations. If such certificate is not delivered to Newco by any Contributor, Newco may withhold from the applicable consideration to such Contributor any Taxes required to be withheld under applicable Law.

Section 1.16 Withholding Rights. Notwithstanding any provision in this Agreement to the contrary, Dynegy and Newco shall take all reasonable necessary steps between the date hereof and the Effective Time to determine if any amounts should be withheld or deducted pursuant to the Code or under any provision of any state, county, local or foreign Tax Law from payments or distributions made pursuant to this Agreement. Each of Dynegy, Newco and Exchange Agent will be entitled to deduct and withhold from amounts otherwise payable under this Article II any amounts that it is required to deduct and withhold with respect to such payments under any provision of Tax law. Any amounts so deducted and withheld will be treated for all purposes of this Agreement as having been paid to the person in respect of which such deduction and withholding was made.

ARTICLE II

REPRESENTATIONS AND WARRANTIES REGARDING THE CONTRIBUTORS

Except as set forth in the LS Disclosure Letter (with specific reference to the relevant sections of the representations and warranties or covenants in this Agreement or disclosure in such a way to make its relevance to the information called for by the representations and warranties or covenants readily apparent), each Contributor, jointly and severally (except for Section 2.3 with respect to which, each Contributor, severally, but not jointly), represents and warrants to Newco and Dynegy as follows:

Section 2.1 Organization; Etc. Such Contributor (a) is duly formed, validly existing and in good standing under the laws of its jurisdiction of organization, (b) has all requisite entity power and authority, as applicable, to execute and deliver this Agreement and the agreements, instruments and documents contemplated hereby (the “ Transaction Documents ”) to which it is party and to consummate the transactions contemplated by the Transaction Documents (the “ Transactions ”), and (c) is duly qualified or licensed to do business, and is in good standing, in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not reasonably be expected to, individually or in the aggregate, prevent or materially impair or delay the ability of such Contributor to perform its obligations hereunder.

Section 2.2 Authority Relative to the Transaction Documents. The execution, delivery and performance of each Transaction Document to which it is a party by such Contributor have been duly and validly authorized by all requisite entity action necessary to authorize the execution, delivery and performance by such Contributor or for such

 

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Contributor to consummate the Transactions. Other than approvals received on or before the date hereof, no vote of the holders of equity interests of any Contributor is necessary to approve or to consummate the Transactions. Each Transaction Document to which it is a party has been, or will be, duly and validly executed and delivered by such Contributor and, with respect to each such Transaction Document, assuming it has been duly authorized, executed and delivered by any other party thereto, constitutes, or will constitute when executed, a valid and binding agreement of such Contributor, enforceable against such Contributor in accordance with its terms, except that (a) enforcement may be subject to any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other laws, now or hereafter in effect, relating to or limiting creditors’ rights generally, and (b) enforcement of such Transaction Document, including, among other things, the remedy of specific performance and injunctive and other forms of equitable relief, may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought (collectively the “ Enforceability Exceptions ”).

Section 2.3 Ownership of Equity Interests. As of the date hereof, such Contributor owns beneficially and of record the equity interests of each entity identified on Part I.A. of Section 2.3 of the LS Disclosure Letter (collectively, the “ Contributed First Tier Entities ”) free of preemptive (or similar) rights and free and clear of any security interests, liens, claims, pledges, limitations in voting, dividend or transfer rights, charges or other encumbrances of any nature whatsoever (“ Liens ”). No Contributor or any affiliate thereof that is not a Contributed Entity owns any assets, tangible or intangible, used in or necessary for the operation of the business of the Contributed Entities other than the Contributed Interests.

Section 2.4 Consents and Approvals; No Violations. Except for the Required Approvals, neither the execution, delivery and performance of any Transaction Document by such Contributor, nor the consummation by such Contributor of the Transactions, will (a) conflict with, violate or result in any breach of any provision of the certificate of formation, limited partnership agreement or similar documents, as applicable, of such Contributor, (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or any right or obligation to purchase or sell securities or assets) under, or require any consent or result in a material loss of a material benefit to such Contributor under, any contract (written or oral), obligation, plan, undertaking, arrangement, commitment, note, bond, mortgage, indenture, agreement, lease, other instrument or Approval (collectively, “ Contracts ” and individually, a “ Contract ”) to which such Contributor is a party or other than pursuant to the Transaction Documents by which it or any of its businesses, properties or assets are bound, (c) violate any Order, applicable Law or Permit that is currently in effect applicable to such Contributor or its business, properties or assets, or (d) require any permit, license, authorization, certification, tariff, consent, approval, concession or franchise from, action by, filing with or notification to (collectively, “ Approvals ” and, individually, an “ Approval ”), any foreign, federal, state, or local government or regulator or any court, arbitrator, administrative agency, or commission or other governmental, quasi-governmental, taxing or regulatory (including a stock exchange or other self-regulatory body) authority, official or agency (including a public utility commission, public services commission or similar regulatory body), domestic, foreign or supranational (a “ Governmental Authority ”), except in the case of Sections 2.4(b)-(d) , those which would not

 

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reasonably be expected to, individually or in the aggregate, prevent or materially impair or delay the ability of such Contributor to perform its obligations hereunder.

Section 2.5 Accredited Investors. Such Contributor is an “accredited investor” as that term is defined in Regulation D under the Securities Act. Such Contributor is receiving the Newco Shares and the Notes to be issued hereunder for its own account and not with a view to, or for resale in connection with, the distribution thereof in violation of the Securities Act.

Section 2.6 Brokers; Finders and Fees. Except as set forth in Section 3.19 , no agent, broker, person or firm acting on behalf of any Contributor or under any Contributor’s authority is or will be entitled to any financial advisory, broker’s or finder’s fee or similar commission from any Contributed Entity or Dynegy Entity or any of the parties other than the Contributors in connection with any of the Transactions.

Section 2.7 No Other Representations or Warranties. No Contributor or any other person makes any other express or implied representation or warranty on behalf of or with respect to the Contributors other than as expressly set forth in this Article II .

ARTICLE III

REPRESENTATIONS AND WARRANTIES REGARDING THE CONTRIBUTED

ENTITIES

Except as set forth in the LS Disclosure Letter (with specific reference to the relevant sections of the representations and warranties or covenants in this Agreement or disclosure in such a way to make its relevance to the information called for by the representations and warranties or covenants readily apparent), each Contributor, jointly and severally (except for the penultimate sentence of Section 3.8 with respect to which, each Contributor, severally, but not jointly), represents and warrants to Dynegy and Newco as follows:

Section 3.1 Organization; Etc. Each Contributed First Tier Entity and its direct and indirect subsidiaries (the Contributed First Tier Entities and such direct and indirect subsidiaries are referred to as the “ Contributed Entities ”) (a) are duly organized or formed, validly existing and in good standing under the laws of their respective jurisdictions of organization, (b) have all requisite entity power and authority to own, lease and operate all of their respective properties and assets and to carry on its business substantially as it is now being conducted, and to execute and deliver the Transaction Documents to which it is a party, to perform its obligations thereunder and to consummate the Transactions and (c) are duly qualified or licensed to do business, and in good standing in each jurisdiction in which the nature of their respective businesses or the ownership, operation or leasing of their respective properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not reasonably be expected to, individually or in the aggregate, have a LS MAE. “ LS MAE ” means any state of facts, change, development, event, effect, condition or occurrence individually or in the aggregate (x) that is materially adverse to the business, assets, properties, liabilities or condition (financial or otherwise) or results of operations of the Contributed Entities taken as a whole or (y) that, directly or indirectly, prevents or materially impairs or delays the Contributors’ ability to perform their obligations hereunder or any Contributor’s or any

 

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Contributed Entity’s ability to perform its obligations under any other Transaction Document to which they are a party; provided , however , that with respect to clause (x) any adverse change, development, event, effect, condition or occurrence or effect attributable to (a) any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any rule, regulation, ordinance, Order, protocol or any other applicable Law of or by any Governmental Authority, (b) changes or developments in national, regional, state or local wholesale or retail markets for power or fuel, including changes in commodity prices, related products, or availability or costs of transportation, (c) system-wide changes or developments in national, regional or state electric transmission or distribution systems, other than changes or developments involving physical damage or destruction thereto, (d) the announcement, pendency or consummation of the Transactions and (e) changes or developments in financial or securities markets or the economy in general shall, in each case, be excluded from such determination to the extent (other than with respect to clause (d)) any such Laws, changes and developments do not have a disproportionate adverse effect on the Contributed Entities as compared to other entities engaged in the power generation business. The Contributors have made available to Dynegy true and complete copies of the certificate of incorporation, bylaws, certificate of formation, LLC Agreement, partnership agreement or similar document of each Contributed Entity.

Section 3.2 Authority Relative to the Transaction Documents. The execution, delivery and performance of each Transaction Document to which it is a party and the consummation of the relevant Transactions have been duly and validly authorized by all requisite entity action on the part of the applicable Contributed Entity and no other actions or proceedings on the part of any Contributed Entity are necessary to authorize the execution, delivery and performance of the Transaction Documents to which such Contributed Entity may be a party. Other than approvals received on or before the date hereof, no vote of the holders of equity interests of any Contributed Entity is necessary to approve or to consummate the Transactions. Each Transaction Document has been, or will be, duly and validly executed and delivered by the applicable Contributed Entity party thereto and, with respect to such Transaction Document, assuming it has been duly authorized, executed and delivered by any other party thereto, constitutes, or will constitute when executed, a valid and binding agreement of such Contributed Entity, enforceable against such Contributed Entity in accordance with its terms, except for the Enforceability Exceptions.

Section 3.3 Capitalization .

(a) As of the date hereof, the authorized and outstanding equity interests of the Contributed Entities are as listed on Section 3.3(a)(i) of the disclosure letter delivered by the Contributors to Dynegy and Newco concurrently with the execution hereof (the “ LS Disclosure Letter ”) and such section sets forth the name, jurisdiction of incorporation or organization and capitalization of each Contributed Entity. All outstanding shares of capital stock of or other equity interests in each Contributed Entity are validly issued, fully paid and nonassessable, and owned by a Contributed Entity (except in the case of equity interests in the Contributed First Tier Entities) free of preemptive (or similar) rights and free and clear of any Liens. As of the date hereof, except as set forth in Section 3.3(a) of the LS Disclosure Letter, there are not (A) any capital stock or other equity interests or voting securities in any Contributed Entity

 

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issued or outstanding, (B) any securities convertible into or exchangeable or exercisable for shares of any capital stock or equity interests or voting securities in any Contributed Entity, (C) any subscriptions, options, warrants, calls, rights, convertible securities or other Contracts or commitments of any character obligating any Contributed Entity to issue, transfer or sell any of its capital stock or other equity interests or voting securities, or (D) any equity equivalents, interests in the ownership or earnings or similar rights, or any agreements, arrangements or understandings granting any person any rights in any Contributed Entity similar to capital stock or other equity interests or voting securities (the items in clauses (A), (B), (C) or (D), collectively, “ Contributed Entity Securities ”). None of the Contributed Entities nor their respective affiliates (other than the Contributed Entities) owns any Contributed Entity Securities. Except as set forth in the Transaction Documents, there are no (1) outstanding obligations of any Contributed Entity to repurchase, redeem or otherwise acquire any Contributed Entity Securities or (2) outstanding obligations of any Contributed Entity to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other Contributed Entity or any other person, including as a result of the Transactions.

(b) Section 2.3 of the LS Disclosure Letter contains a list of all of the Contributed Entities. The Contributed Entities have no direct or indirect equity interest in any person other than in any other Contributed Entities.

(c) Section 3.3(c) of the LS Disclosure Letter sets forth a true and complete list of each Contract in effect on the date hereof under which any Debt (as defined below) of each of LSP Ontelaunee Holdings LLC, LSP Kendall Holdings LLC, LS Power Generation Holdings LLC and LSP Plum Point Holdings LLC and each of their subsidiaries (collectively, the “ Contributed Operating Entities ”) in excess of $5,000,000 is outstanding or may be incurred thereunder as of the date hereof. No Contract under which any Debt of any Contributed Operating Entity is outstanding or may be incurred provides for the right to vote (or is convertible into, or exchangeable for, securities having the right to vote) on any matters on which the equityholders of any Contributed Operating Entity may vote. “ Debt ” means (A) indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), including indebtedness evidenced by a note, bond, debenture or similar instrument, (B) obligations required to be classified and accounted for as capital leases on a balance sheet under United States generally accepted accounting principles (“ GAAP ”), (C) obligations in respect of outstanding letters of credit, acceptances and similar obligations created for the account of such person, (D) to the extent not otherwise included in the foregoing, any financing of accounts receivable or inventory and (E) guarantees of any of the foregoing of another person. For the sake of clarity, Debt does not include the obligation of any person under any Derivative Product. Excluding this Agreement and the Transactions, no event has occurred which either entitles, or would reasonably be expected to entitle (with or without notice or lapse of time or both) the holder of any Debt described in Section 3.3(c) of the LS Disclosure Letter to accelerate, or which does accelerate, the maturity of any such Debt.

 

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(d) No Contributed Entity has in effect any stockholder rights plan or similar device or arrangement, commonly or colloquially known as a “poison pill” or “anti-takeover” plan, or any similar plan, device or arrangement (a “Rights Plan“), and no Contributed Entity has directly or indirectly adopted or authorized the adoption of such a plan, device or arrangement.

Section 3.4 Consents and Approvals; No Violations. Except for the applicable requirements of the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the “ HSR Act ”), approval from the Federal Energy Regulatory Commission (“ FERC ”) under Section 203 of the Federal Power Act of 1935, as amended (“ FPA ”) and of a change in status filing pursuant to 18 C.F.R. Section 35.27(c), approval of the effectiveness of the Registration Statement by the SEC, an order of the New York State Public Service Commission under Section 70 of the New York State Public Service Law approving or declining jurisdiction over the Transactions, notice pursuant to the Operation Standards for Generating Asset Owners under California Public Utilities Commission General Order No. 167, approval of the California Energy Commission to the extent required under Title 20 of the California Code of Regulations, Section 1769, approvals from the Federal Communications Commission under the Communications Act of 1934 for license transfers and approval by any Governmental Authority pursuant to any applicable Environmental Law or Environmental Approval, or as set forth in Section 3.4 of the LS Disclosure Letter (collectively, the “ Required Approvals ”), neither the execution, delivery and performance of any Transaction Document by any Contributor or any Contributed Entity, nor the consummation by any Contributor or any Contributed Entity of the Transactions, will (a) conflict with, violate or result in any breach of any provision of the certificate of formation, certificate of incorporation, limited liability company agreement, limited partnership agreement, regulations, bylaws or similar documents, as applicable, of any Contributed Entity, (b) result in (i) a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration or any right or obligation to purchase or sell securities or assets) under, or require any consent or result in a material loss of a material benefit to any Contributed Entity under, or conflict with any Contract to which any Contributed Entity is a party or by which any Contributed Entity or its businesses, properties or assets are bound or (ii) the imposition of any Lien upon any assets or properties of any Contributed Entity, (c) violate any order, judgment, writ, injunction, decree, settlement, stipulation or award of a Governmental Authority (each an “ Order ”) or law, statute, rule or regulation of a Governmental Authority (collectively, “ Laws ”, and individually, a “ Law ”) or Permit applicable to any Contributed Entity or any of their respective businesses, properties or assets, or (d) require any Approvals from or by any Governmental Authority, except in the case of Sections 3.4(b)-(d) for those which would not reasonably be expected to, individually or in the aggregate, have a LS MAE.

Section 3.5 Reports and Financial Statements.

(a) Since the applicable Acquisition Date of each Contributed Operating Entity, each Contributed Operating Entity has timely filed with each Governmental Authority with jurisdiction all material forms, reports, schedules, registrations, declarations and other filings (other than Tax Returns, for which representations and warranties of Contributors are exclusively set forth in Section 3.12 ) required to be filed by it under all applicable Laws, all of which, as amended if applicable, complied in all

 

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material respects with all applicable requirements of the appropriate act and the rules and regulations promulgated thereunder, except as has not and would not be reasonably expected, to individually or in the aggregate, have a LS MAE.

(b) Set forth on Section 3.5(b) of the LS Disclosure Letter are the following financial statements (the, “ LS Financial Statements ” and the entities with respect to which such LS Financial Statements relate, the “ LS Financial Statement Entities ”):

(i) audited consolidated balance sheets and statements of operations, members’ equity and cash flows as of and for the fiscal year ended December 31, 2005 and as of December 31, 2004 and for the period from July 29, 2004 (Inception) to December 31, 2004 for LSP Kendall Holding, LLC;

(ii) audited balance sheet and statement of operations, members’ equity and cash flows as of December 31, 2005 and for the period from October 6, 2005 (Inception) to December 31, 2005 for Ontelaunee Power Operating Company, LLC; and

(iii) unaudited (and to the extent applicable consolidated) balance sheets and statements of operations, members’ equity and cash flows (each, individually, “ LS Interim Financial Statements ”) as of and for the six months ended June 30, 2006 for LSP Kendall Holding, LLC, Plum Point Energy Associates, LLC and Ontelaunee Power Operating Company, LLC and unaudited combined balance sheet and statement of operations, members’ equity and cash flows as of June 30, 2006 and for the period from February 3, 2006 to June 30, 2006 for LSP General Finance Co., LLC, LSP Morro Bay Holdings, LLC, LSP South Bay Holdings, LLC and LSP Oakland Holdings, LLC.

(c) Since the applicable Acquisition Date of each LS Financial Statement Entity, each of the applicable LS Financial Statements, was prepared from, and is in accordance with, the books and records of the applicable LS Financial Statement Entity, which books and records have been maintained, and which financial statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except as may be indicated therein or in the notes thereto), present fairly in all material respects the financial condition of the applicable LS Financial Statement Entity as of the dates thereof and the results of operations of the applicable LS Financial Statement Entity for such periods, are correct and complete, and are consistent with the books and records of such LS Financial Statement Entity; provided , however , that the LS Interim Financial Statements are subject to normal year-end adjustments (which will not be material individually or in the aggregate) and lack footnotes and other presentation items. Since June 30, 2006, no LS Financial Statement Entity has effected any change in any method of accounting or accounting practice, except for any such change required by GAAP.

Section 3.6 Absence of Undisclosed Liabilities. Except (a) for liabilities and obligations incurred in the ordinary course of business and consistent with past practice since June 30, 2006, (b) as otherwise disclosed in the LS Financial Statements or reflected in the notes

 

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thereto, or (c)(i) as of the date hereof, as would not reasonably be expected, individually or in the aggregate, to result in liabilities, debts or obligations described below in excess of $20,000,000 or (ii) as of the Closing Date, as would not reasonably be expected to have, individually or in the aggregate (as to all Contributed Operating Entities), a LS MAE, no Contributed Operating Entity has incurred any liabilities, debts or obligations of any nature (whether direct, indirect, accrued, asserted, unasserted, contingent, known or unknown, determined or determinable, matured or unmatured or otherwise) that would be required to be reflected or reserved against in a balance sheet of the Contributed Operating Entities prepared in accordance with GAAP.

Section 3.7 Absence of Certain Changes. Since June 30, 2006 and until the date hereof, the Contributed Operating Entities have conducted their businesses only in the ordinary course and in a manner consistent with past practice. Since June 30, 2006 there has not been any state of facts, change, development, event, effect, condition or occurrence that has, had or would reasonably be expected to have, individually or in the aggregate, a LS MAE.

Section 3.8 Litigation. There is no litigation, suit, claim, action, administrative, arbitral or other proceeding, inquiry, audit, hearing, petition, grievance, complaint or governmental or regulatory investigation (each an “ Action ”) or group of Actions pending or, to the Contributors’ knowledge, threatened against any Contributed Operating Entity by or before any Governmental Authority, nor are there any outstanding Orders that affect or bind any of them or any of their respective businesses, properties or assets except as would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $5,000,000, or (ii) as of the Closing Date, have a LS MAE. There are no Actions pending or threatened by any Contributed Entity against any Contributor or any Contributor against any Contributed Entity, and no basis exists for any such Action. This Section 3.8 shall not relate to environmental matters, which are the subject of Section 3.13 .

Section 3.9 Compliance with Applicable Law .

(a) Each Contributed Operating Entity is, and since the applicable Acquisition Date, has been, in compliance with all applicable Laws and no Contributed Operating Entity has received any notice (including through any Action), and there has been no Action filed, commenced or, to the Contributors’ knowledge, threatened against any Contributed Operating Entity, alleging any violation of applicable Law, except for any noncompliance or violation that would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Entities), (i) as of the date hereof, result in damages in excess of $10,000,000 or (ii) as of the Closing Date have a LS MAE. “ Acquisition Date ” means the date on which the Contributors, directly or indirectly, acquired an ownership interest in the applicable Contributed Entity.

(b) Except as would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $15,000,000 or (ii) as of the Closing Date have a LS MAE, (A) each Contributed Operating Entity holds all Approvals, authorizations, certificates, licenses, consents and permits of Governmental Authorities (“ Permits ”) necessary for such Contributed Operating Entity to own, lease and operate its respective

 

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properties and assets and to carry on its respective businesses as currently conducted, and (B) all such Permits are in full force and effect. Except as would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $15,000,000, or (ii) as of the Closing Date have a LS MAE, (A) there has occurred no breach of or default under (with or without notice or lapse of time or both) any such Permit, and no Contributed Operating Entity has received any notice (including through any Action) of any such breach or default, and (B) to the Contributors’ knowledge, there has been no Action filed, commenced or threatened against any Contributed Operating Entity, alleging any such breach or default or otherwise seeking to revoke, terminate, suspend or modify any Permit or impose any fine, penalty or other sanctions for violation of any applicable Laws relating to any Permit.

Notwithstanding the foregoing, no representation or warranty is made in this Section 3.9 regarding ERISA matters, which are covered in Section 3.10 or in Section 3.9 regarding Environmental Laws, which are covered in Section 3.13 .

Section 3.10 Employee Benefit Plans .

(a) Section 3.10(a)(i) of the LS Disclosure Letter sets forth a true and complete list of (i) each “employee benefit plan” (within the meaning of Section 3(3) of and subject to the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) including multiemployer plans within the meaning of Section 3(37) of ERISA and multiple employer plans within the meaning of 29 CFR § 4001.2, (ii) each equity-based compensation plan and (iii) each other material employment, change-in-control, incentive, employee loan, deferred compensation, pension, profit sharing, retirement, bonus, retention bonus, severance and other employee benefit or fringe benefit plans, agreements, programs, policies or other arrangements, under which (i) any current or former employee, director, member or manager of any Contributed Operating Entity (the “ Contributed Entity Employees ”) has any present or future right to benefits and which are maintained or sponsored by or with respect to which contributions are made by any Contributed Operating Entity in any such case, for the benefit of Contributed Operating Entity Employees, or (ii) any Contributed Entity has had or has any present or future liability (collectively, the “ Contributed Entity Plans ” and individually, the “ Contributed Entity Plan ”). With respect to each Contributed Entity Plan, the Contributed Entities have made available to Dynegy true and complete copies, to the extent applicable, of (i) the most recent Contributed Entity Plan documents and any amendments thereto, (ii) the most recent summary plan description and all related summaries of material modifications, if any, (iii) for any Contributed Entity Plan intended to be qualified under Section 401(a) of the Code, a copy of the most recent favorable determination letter received from the Internal Revenue Service (the “ IRS ”), or, if no such letter exists, a copy of the filing for a favorable determination letter, (iv) for the most recent year (A) the annual report on Form 5500 filed with the IRS, (B) audited financial statements, and (C) actuarial valuation reports, (v) for any Contributed Entity Plan that is an equity-based compensation plan, individual and form agreements and schedules showing outstanding grants, and (vi) for any Contributed Entity Plan that is a nonqualified deferred compensation plan, trust or insurance or other funding mechanism documents, if any, and a schedule of assets and liabilities under each such plan.

 

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(b) All Contributed Entity Plans and their related trusts have been and are, in all material respects, maintained in accordance with applicable requirements of ERISA, the Code, and all other applicable Laws. Each Contributed Entity Plan intended to be “qualified” within the meaning of Section 401(a) of the Code either (i) has applied to the IRS for a favorable determination letter prior to the expiration of the requisite period under the applicable Treasury Regulations or IRS pronouncements in which to apply for such determination letter and will adopt any amendments necessary to obtain a favorable determination or (ii) is so qualified and, to the Contributors’ knowledge, there are no facts which would adversely affect the qualified status of any such Contributed Entity Plan. No event has occurred and no condition exists that would subject any of the Contributed Entities, Newco or Dynegy, either directly or because of the Contributed Entities’ affiliation with any Contributed Entity ERISA Affiliate, to any material tax, fine, Lien, penalty or other liability imposed by ERISA, the Code or other applicable Laws. Except as otherwise contemplated by this Agreement, no Contributing Entity has announced any present intention that any Contributed Entity Plan be materially amended, suspended or terminated, or otherwise modified to adversely change benefits (or the levels thereof) under any Contributed Entity Plan at any time within the 12 months immediately following the date hereof.

(c) No Contributed Entity Plan (including any employee pension plan within the meaning of Section 3(2) of ERISA maintained by any of the Contributed Operating Entities), or any entity that is required to be treated as a single employer together with the Contributed Operating Entities under Section 414 of the Code (“ Contributed Entity ERISA Affiliate ”) that is subject to Section 412 of the Code (each, a “ Contributed Entity Pension Benefit Plan ”), has had an “accumulated funding deficiency” (as such term is defined in Section 412 of the Code and in Section 303 of ERISA), that remains unsatisfied, whether or not waived, and no unsatisfied liability to the Pension Benefit Guaranty Corporation (“ PBGC ”) has been incurred with respect to any such plan by any Contributed Operating Entity (other than liabilities for premiums not yet due and payable).

(d) None of the Contributed Operating Entities nor any Contributed Entity ERISA Affiliate contributes to or has or had any liability (including withdrawal liability as defined in Section 4201 of ERISA) under, or with respect to, any multiemployer plan within the meaning of Section 3(37) of ERISA that remains unsatisfied.

(e) No Contributed Operating Entity has incurred any current or projected liability in respect of post-employment or post-retirement health, medical or life insurance benefits for current, former or retired employees of any Contributed Operating Entity, except as required under Section 4980B of the Code and Section 601 et seq. of ERISA or otherwise except as may be required pursuant to any other applicable Law.

(f) (i) No Contributed Entity Plan that is a Contributed Entity Pension Benefit Plan has been completely or partially terminated or been the subject of a

 

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“reportable event” under Section 4043 of ERISA as to which notices would be required to be filed with the PBGC during the six years preceding the Closing Date, (ii) no proceeding by the PBGC to terminate any such Contributed Entity Pension Benefit Plan has been instituted or, to the Contributors’ knowledge, threatened and (iii) no administrative investigation, audit or other administrative proceeding by the Department of Labor, the PBGC, the IRS or other governmental agencies are pending, in progress or, to the Contributors’ knowledge, threatened (including any routine requests for information from the PBGC).

(g) To the Contributors’ knowledge, with respect to any Contributed Entity Plan, there has been no prohibited transaction under Section 406 of ERISA and Section 4975 of the Code, and no fiduciary under Section 3(21) of ERISA has any material liability for breach of fiduciary duty with respect to any Contributed Entity Plan or any other failure to act or comply in connection with the administration or investment of the assets of any Contributed Entity Plan, in each case that would result in material liability to any Contributed Entity. No Action involving any Contributed Entity Plan (other than routine claims for benefits) is pending or, to the Contributors’ knowledge, threatened and no facts exist that could reasonably be expected to give rise to any action that is reasonably likely to result in a material liability to any Contributed Entity.

(h) No Contributed Entity Plan exists that, as a result of the execution of this Agreement or the consummation of the Transactions (whether alone or in connection with any subsequent event(s)), would (i) entitle any Contributed Entity Employee to severance pay or any increase in severance pay upon any termination of employment after the date hereof, (ii) accelerate the time of payment or vesting or result in any payment or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or result in any other material obligation pursuant to, any of the Contributed Entity Plans, (iii) limit or restrict the right of any Contributed Entity to merge, amend or terminate any of the Contributed Entity Plans, (iv) cause any Contributed Entity to record additional compensation expense on its income statement with respect to any outstanding stock option or other equity-based award, or (v) result in payments under any of the Contributed Entity Plans that would not be deductible under Section 280G of the Code or would be subject to the additional tax that may be imposed under Section 409A of the Code.

Section 3.11 Labor and Employment Matters. As of the date hereof there are no collective bargaining agreements or other similar labor force Contracts relating to any Contributed Operating Entity or covering any Contributed Operating Entity Employee to which any Contributed Operating Entity is a party or by which it is bound, and, except as would not reasonably be expected, individually or in the aggregate, to have a LS MAE, there are no (a) Actions or Orders pending or, to the Contributors’ knowledge, threatened, in each case relating to Contributed Entity Employees or employment practices or asserting that any Contributed Operating Entity has committed an unfair labor practice or is seeking to compel any Contributed Operating Entity to bargain with any labor union or labor organization, (b) pending or, to the Contributors’ knowledge, threatened labor strikes or other labor troubles affecting any Contributed Operating Entity or (c) labor strikes, disputes, walk-outs, work stoppages, slow-

 

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downs, lockouts, arbitrations or grievances involving any Contributed Operating Entity (and there has been none with respect to any Contributed Operating Entity since the applicable Acquisition Date). Except as would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $5,000,000 or (ii) as of the Closing Date, have a LS MAE, each Contributed Operating Entity is in compliance in all material respects with all collective bargaining agreements and all applicable Laws regarding employment and employment practices, terms and conditions of employment, wages and hours and occupational safety and health.

Section 3.12 Taxes .

(a) With respect to each Contributed Entity, (i) all material Tax Returns required to be filed have been or will be timely filed in accordance with any applicable Laws, and (ii) all material Taxes due have been or will be paid (whether or not such Taxes are shown as being due on any Tax Returns), except for Taxes that are being contested in a timely fashion and in good faith in appropriate proceedings.

(b) With respect to each Contributed Entity, (i) there is no material Action, written claim or assessment pending or proposed with respect to Taxes or with respect to any Tax Return, (ii) there are no waivers or extensions of any applicable statute of limitations for the assessment or collection of Taxes with respect to any Tax Return which remain in effect, and (iii) there are no material Liens for Taxes upon the assets of any Contributed Entity, except for Liens for Taxes not yet due and payable or Liens for Taxes being contested in good faith through appropriate proceedings and for which adequate reserves have been maintained in accordance with GAAP.

(c) To the knowledge of the Contributors, no Contributed Entity has any material liability for the Taxes of any other person (other than other Contributed Entities).

(d) Each Contributed Entity has withheld and paid over all material Taxes required to have been withheld and paid over, and complied in all material respects with all information reporting requirements, in connection with amounts paid or owing to any employee, creditor, partner, member, independent contractor or other third party.

(e) No Contributed Entity has been a party to any distribution occurring during the last two years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code is applicable.

(f) No Contributed Entity has engaged in any “listed transactions” within the meaning of Section §1.6011-4(b)(2) of the Treasury regulations.

(g) Each Contributed Entity that is formed as a partnership, limited partnership, limited liability company or limited liability partnership is treated as a partnership for all federal, state and local income Tax purposes except for such Contributed Entities that are disregarded, for such purposes, as separate from the owner of all the outstanding equity interests in such Contributed Entity. No Contributed Entity

 

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has received written notice of a material claim made by any taxing authority in a jurisdiction where such entity does not file Tax returns that such entity or any Contributor is or may be subject to material Tax in such jurisdiction. Section 3.12(g) of the LS Disclosure Letter sets forth a list of states, territories and jurisdictions (whether foreign or domestic) in which the Contributed Entities file Tax Returns. No material claim has been made by a taxing authority in a jurisdiction where any such Contributed Entity does not file a return that it or any Contributor is subject to material Tax in applicable jurisdiction and no such entity is required to file Tax returns in any jurisdiction.

(h) “ Taxes ” means all taxes, assessments, charges, duties, fees, levies and other governmental charges, including income, franchise, capital stock, real property, personal property, tangible, withholding, employment, payroll, social security, social contribution, unemployment compensation, disability, transfer, sales, use, excise, gross receipts, value-added and all other taxes of any kind, and any charges, interest, additions to tax, or penalties imposed by any Governmental Authority, and “ Tax Return ” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

Section 3.13 Environmental .

(a) The Contributed Operating Entities are and have been in material compliance with all applicable Environmental Laws, and no Contributors or Contributed Operating Entities have received any communication from any Governmental Authority or other party alleging that any Contributed Operating Entity or any facility owned, operated, or subject to development by any Contributed Operating Entity is not in material compliance with or has material liability under, or requesting any information pursuant to, applicable Environmental Laws, including any new source review requirements under the Federal Clean Air Act or state analogue thereto, in each case except as would not reasonably be expected to, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $20,000,000, or (ii) as of the Closing Date have a LS MAE;

(b) Each Contributed Operating Entity has obtained and possesses all material Permits required under any Environmental Law, including all air emissions authorizations and allowances, wastewater and stormwater discharge authorizations, and water rights and use requirements (collectively, the “ Environmental Permits ”) necessary for the construction and operation of its facilities or the conduct of its business, and all such Environmental Permits are in good standing or, where applicable, a renewal application has been timely filed and is pending approval by any Governmental Authority and, to the Contributors’ knowledge, such approval will be forthcoming without significant modification, and the Contributed Operating Entities are in material compliance with all material terms and conditions of the Environmental Permits and applications;

 

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(c) Except as would not reasonably be expected to have, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $20,000,000 or (ii) as of the Closing Date, have a LS MAE, there is no material Environmental Claim (i) pending or, to the Contributors’ knowledge, threatened against any Contributed Operating Entity or otherwise adversely affecting any real or personal property that any Contributed Operating Entity owns, leases or uses, in whole or in part, including any off-site facility used by any Contributed Operating Entity for the treatment, storage and disposal of any Hazardous Material; and

(d) Except as would not reasonably be expected to have, individually or in the aggregate (as to all of the Contributed Operating Entities), (i) as of the date hereof, result in damages in excess of $20,000,000 or (ii) as of the Closing Date, have a LS MAE, there has been no material Release by any Contributed Operating Entity of any Hazardous Material that has formed or would reasonably be expected to form the basis of (i) any material Environmental Claim against any Contributed Operating Entity or against any person whose liability for such claim the Contributed Operating Entities has or may have retained or assumed, either by operation of Law or by Contract, or (ii) any requirement pursuant to applicable Environmental Law on the part of any Contributed Operating Entity to undertake material Remedial Action.

(e) No claims for indemnification have been made with respect to any Environmental Claims under the purchase and sale agreement or other acquisition agreement with respect to any Contributor acquisition of any Contributed Operating Entity.

“ Environmental Claim ” means any and all Actions, demands, Liens or notices of noncompliance or violation by any person alleging potential liability (including potential responsibility or liability for enforcement costs, investigatory costs, cleanup costs, governmental response costs, removal costs, remedial costs, natural resource damages, property damages, contribution, indemnification, cost recovery, compensation, injunctive relief, personal injuries, fines or penalties) arising out of, based on or resulting from (A) the presence, or Release or threatened Release into the environment, of any Hazardous Material at any location; or (B) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law;

“ Environmental Law ” means all Laws or Orders relating to pollution, the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or protection of human health and safety, including those relating to Releases or threatened Releases of any Hazardous Material, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any Hazardous Material. The term “Environmental Law” including the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601 et seq. ), the Hazardous Materials Transportation Act (49 U.S.C. Section 5101 et seq. ), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq. ), the Clean Water Act (33 U.S.C. Section 1251 et seq. ), the Clean Air Act (42 U.S.C. Section 7401 et seq. ), the Toxic Substances Control Act (15 U.S.C. Section 7401 et seq. ), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.

 

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Section 136 et seq. ), and the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq. ) and the regulations promulgated pursuant thereto, and any similar state or local Laws, and the regulations promulgated pursuant thereto, as such Laws have been and may be amended or supplemented;

“ Hazardous Material ” means any (a) substance, material, chemical or waste regulated or prohibited pursuant to any Environmental Law, or the presence or exposure to which may form the basis for liability under any applicable Environmental Law, including those defined or classified as a pollutant or contaminant or as hazardous, toxic or radioactive pursuant to any Environmental Law and (b) petroleum or hydrocarbons in any form, and any derivative or by-product thereof, asbestos and asbestos-containing materials, mercury and polychlorinated biphenyls;

“ Release ” means any releasing, spilling, emitting, leaking, pumping, pouring, emptying, injecting, escaping, dumping, disposing, discharging, depositing, leaching or migrating into or through the environment or within any building, structure, facility or fixture; and

“ Remedial Action ” means all actions undertaken to (a) investigate, clean up, remove, treat, or in any other way mitigate or address any Release of Hazardous Material in the environment; (b) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material; or (c) perform pre-remedial studies and investigations or post-remedial monitoring and care pertaining or relating to a Release of any Hazardous Material.

Section 3.14 Contracts. (a) Section 3.14 of the LS Disclosure Letter contains a true and complete list as of the date hereof of the following Contracts to which any Contributed Operating Entity is a party or by which any Contributed Operating Entity’s properties are bound or affected as of the date hereof:

(i) Contracts containing covenants restricting the payment of dividends;

(ii) Contracts containing covenants limiting the freedom in any material respect of any Contributed Operating Entity or any of its respective affiliates to engage in any line of business or compete with any person or operate;

(iii) Joint venture agreements and limited liability company agreements, shareholder agreements, partnership agreements or similar agreements with third parties;

(iv) Contracts (other than Derivative Products) involving expenditures (capital or otherwise), liabilities or revenues to the Contributed Operating Entities which are reasonably expected to be in excess of $20,000,000 per annum;

(v) Contracts (other than Derivative Products) with terms of one year or longer, unless expenditures, liabilities or revenues to the Contributed Operating Entities are not reasonably expected to be in excess of $20,000,000 per annum;

 

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(vi) Derivative Products involving notional amounts (including the current fair market value of notional amounts of commodities the subject of such Derivative Products) in excess of $20,000,000 in the aggregate or expenditures, liabilities or revenues to the Contributed Operating Entities which are reasonably expected to be in excess of $20,000,000 in the aggregate, including any verbal confirmations of such Derivative Products not yet subject to a written confirmation, including identification of any such counterparty granted a lien in some or all of the Contributed Operating Entities’ assets. “Derivative Product“ means (i) any swap, cap, floor, collar, futures contract, forward contract, option and any other derivative financial instrument or Contract, based on any commodity, security, instrument, asset, rate or index of any kind or nature whatsoever, whether tangible or intangible, including electricity (including capacity and ancillary services products related thereto), natural gas, crude oil, coal and other commodities, emissions allowances, renewable energy credits, currencies, interest rates and indices and (ii) forward contracts for delivery of electricity (including capacity and ancillary services products related thereto), natural gas, crude oil, petcoke, lignite, coal and other commodities and emissions and renewable energy credits;

(vii) O&M agreements involving material services provided to or by the Contributed Operating Entities;

(viii) Leases of personal property (i) requiring lease payments equal to or exceeding $10,000,000 per annum or (ii) the loss of which would not reasonably be expected to, individually or in the aggregate with other such losses, have a LS MAE;

(ix) Any other Contracts material to the business of the Contributed Operating Entities, including all such Contracts involving the sale or purchase of electric products at wholesale or retail, the purchase of transmission service and interconnection service.

(b) True and complete copies of the written Contracts required to be identified in Sections 3.3(c), 3.10, 3.11, 3.14(a) and 3.16 of the LS Disclosure Letter (all such Contracts, the “ Contributed Operating Entity Contracts ”) (and true and complete written summaries of any such oral Contracts) have, to the extent such provision would not breach any confidentiality obligations associated with such Contracts, been made available to Dynegy.

(c) Except as would not reasonably be expected to, individually or in the aggregate, have a LS MAE, no Contributed Operating Entity is and, to the Contributors’ knowledge, no other party is in default under, or in breach or violation of, any Contributed Operating Entity Contract and, to the Contributors’ knowledge, no event has occurred which would result in any breach or violation of, constitute a default, require consent or result in the loss of a material benefit under, give rise to a right to permit or require the purchase or sale of assets or securities under, give rise to any right of termination, amendment, acceleration or cancellation of, or result in the creation of a

 

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Lien on any of the properties or assets of any Contributed Operating Entity (in each case, with or without notice or lapse of time or both) in connection with, any Contributed Operating Entity Contract, and each Contributed Operating Entity Contract is valid, binding and enforceable against the applicable Contributed Operating Entity in accordance with its terms and is in full force and effect subject to the Enforceability Exception.

Section 3.15 Regulatory Matters. The Contributed Entities are subject to regulation (i) under the FPA and the Public Utility Holding Company Act of 2005 (“ PUHCA 2005 ”) and the rules and regulations promulgated thereunder, although they currently are entitled to an automatic exemption from regulation under PUHCA 2005 and (ii) under the applicable Laws of the state of California. Except as set forth in the immediately preceding sentence, the Contributed Entities are not subject to regulation as a public utility, public utility holding company or public service company (or similar designation) by any Governmental Authority.

Section 3.16 Affiliate Transactions. There are no Contracts or transactions between any Contributed Entity, on the one hand, and any (A) Contributed Entity affiliates (other than the Contributed Entities), on the other hand, or (B) (i) officer, manager or director of any Contributed Entity or its affiliates, or (ii) affiliate of any such officer, manager or director, on the other hand, in each case in this clause (B) except those of a type available to Contributed Entity Employees generally and other than any Contract or transaction entered into in the ordinary course of business and on terms no less favorable than would have been reached on an arm’s-length basis or that is not material to any Contributed Entity (all Contracts and transactions referred to in clauses (A) or (B), whether entered into before or after the date hereof, “ Contributed Entity Affiliate Contracts ”).

Section 3.17 [Intentionally Omitted]

Section 3.18 Proxy/Prospectus; Registration Statement. None of the information to be supplied by the Contributors or the Contributed Entities for inclusion in (a) the proxy statement relating to the Dynegy Shareholder Meeting (also constituting the prospectus in respect of Newco A Shares into which Dynegy Shares will be converted) (the “ Proxy/Prospectus ”) Newco and Dynegy are to file with the SEC, and any amendments or supplements thereto, or (b) the Registration Statement on Form S-4 (the “ Registration Statement ”) that Newco is to file with the SEC in connection with the Merger, and any amendments or supplements thereto, will, at the respective times such documents are filed and, in the case of the Proxy/Prospectus, at the time the Proxy/Prospectus or any amendment or supplement thereto is first mailed to Dynegy’s shareholders, at the time such shareholders vote on approval and adoption of this Agreement and at the Effective Time, and, in the case of the Registration Statement, when it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be made therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.

Section 3.19 Brokers; Finders and Fees. Except for Morgan Stanley & Co., Inc. and Goldman Sachs & Co., Inc., no agent, broker, person or firm acting on behalf of any Contributed Entity or under any Contributed Entities’ authority is or will be entitled to any financial advisory, broker’s or finder’s fee or similar commission from any of the parties in connection with any of the Transactions.

 

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Section 3.20 Tax-Free Transaction. No Contributor or Contributed Entity, or to the Contributors’ knowledge, any of their affiliates has taken or agreed to take any action that would reasonably be expected to prevent the Merger or the Contributions from qualifying as an Exchange under Section 351 of the Code.

Section 3.21 Development Entities. Section 2.3 of the LS Disclosure Letter contains a list of the development entities and assets (the “ Development Entities ”) a portion of which is being indirectly contributed to Newco by and through the Development LLC. Section 3.21 of the LS Disclosure Letter contains a true and complete list of all Contracts and Permits in each case material to the applicable Development Entity. None of the Development Entities has any employees. None of the Development Entities has incurred any indebtedness for borrowed money in excess of $5,000,000, including indebtedness evidenced by a note, bond, debenture or similar instrument.

Section 3.22 Insurance. Section 3.22 of the LS Disclosure Letter contains a true and complete list of the insurance policies and fidelity bonds of or for the benefit of any Contributed Operating Entity or its assets, businesses, operations, employees, officers or directors (the “ Contributed Operating Entity Insurance Policies ”). Except as would not reasonably be expected to, individually or in the aggregate, have a LS MAE, (i) each Contributed Operating Entity Insurance Policy is valid, enforceable, existing and binding, and the premiums due thereon have been timely paid, (ii) there are no outstanding unpaid claims under any Contributed Operating Entity Insurance Policy with respect to any Contributed Operating Entity, except in the ordinary course of business consistent with past practice, (iii) since the applicable Acquisition Date, no Contributed Operating Entity has received notice of cancellation, termination or non-renewal of any Contributed Operating Entity Insurance Policy or has been denied, or to the Contributors’ knowledge, threatened to be denied, insurance coverage and (iv) the Contributed Operating Entity Insurance Policies are sufficient for compliance with Law and all Contracts to which any of the Contributed Operating Entities is a party or by which it or any of its assets are bound, and are in such amounts, against such risks and losses, and on such terms and conditions as are consistent with industry practice in the business of each Contributed Operating Entity.

Section 3.23 No Other Representation or Warranties. No Contributor, Contributed Entity or any other person makes any other express or implied representation or warranty on behalf of or with respect to the Contributed Entities other than as expressly set forth in this Article III . No Contributor or Development Entities makes any express or implied representation or warranty on behalf of or with respect to the Development Entities other than as set forth in Sections 3.1 , 3.2 , 3.3 , 3.4 , 3.12 , 3.16 , 3.19 , 3.20 and 3.21 .

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF DYNEGY

Except as set forth in the disclosure letter delivered by Dynegy to the Contributors concurrently with the execution hereof (the “Dynegy Disclosure Letter“) (with specific reference to the relevant sections of the representations and warranties or covenants in this Agreement or disclosure in such a way to make its relevance to the information called for by the representations and warranties or covenants readily apparent), Dynegy hereby represents and warrants to the Contributors as follows:

Section 4.1 Organization; Etc. Each of Dynegy and its direct and indirect subsidiaries (Dynegy and such direct and indirect subsidiaries are referred to as the “Dynegy Entities”) (a) is duly organized or formed, validly existing and in good standing under the laws of its jurisdiction of organization, (b) has all requisite entity power and authority to own, lease and operate all of its properties and assets and to carry on its business substantially as it is now being conducted, and to execute and deliver the Transaction Documents to which it is a party, to perform its obligations thereunder and to consummate the Transactions and (c) is duly qualified or licensed to do business, and is in good standing in each jurisdiction in which the nature of its business or the ownership, operation or leasing of its properties makes such qualification or licensing necessary, except where the failure to be so qualified or licensed would not reasonably be expected to, individually or in the aggregate, have a Dynegy MAE. “ Dynegy MAE ” means any state of facts, change, development, event, effect, condition or occurrence individually or in the aggregate (x) that is materially adverse to the business, assets, properties, liabilities or condition (financial or otherwise) or results of operations of the Dynegy Entities taken as a whole or (y) that, directly or indirectly, prevents or materially impairs or delays the ability of Dynegy to perform its obligations hereunder or any of the Dynegy Entities’ ability to perform their obligations under any other Transaction Document to which they are a party; provided , however , that with respect to clause (x) any adverse change, development, event, effect, condition or occurrence or effect attributable to (a) any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any rule, regulation, ordinance, Order, protocol or any other applicable Law of or by any Governmental Authority, (b) changes or developments in national, regional, state or local wholesale or retail markets for power or fuel, including changes in commodity prices, related products, or availability or costs of transportation, (c) system-wide changes or developments in national, regional or state electric transmission or distribution systems, other than changes or developments involving physical damage or destruction thereto, (d) the announcement, pendency or consummation of the Transactions, and (e) changes or developments in financial or securities markets or the economy in general, shall, in each case, be excluded from such determination to the extent (other than with respect to clause (d)) any such Laws, changes and developments do not have a disproportionate adverse effect on the Dynegy Entities as compared to other entities engaged in the power generation business.

Section 4.2 Authority Relative to the Transaction Documents. The execution, delivery and performance of each Transaction Document to which it is a party and the consummation of the relevant Transactions have been duly and validly authorized by all requisite corporate action on the part

 

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of Dynegy and no other corporate actions or proceedings on the part of Dynegy (other than obtaining the Required Dynegy Shareholder Vote) are necessary to authorize the execution, delivery and performance of the Transaction Documents to which Dynegy may be a party or to consummate the Transactions. Each Transaction Document to which Dynegy is a party has been, or will be, duly and validly executed and delivered by Dyneg