Tax Allocation Agreement - Reliant Energy Inc. and Reliant Resources Inc.


                            TAX ALLOCATION AGREEMENT

                                  BY AND AMONG

                          RELIANT ENERGY, INCORPORATED

                          AND ITS AFFILIATED COMPANIES

                                       AND

                             RELIANT RESOURCES, INC.

                          AND ITS AFFILIATED COMPANIES


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                            TAX ALLOCATION AGREEMENT

         THIS TAX ALLOCATION AGREEMENT (this "Agreement") is entered into as of
December 31, 2000, by and among Reliant Energy, Incorporated ("REI"), a Texas
corporation, each REI Affiliated Company (as defined below), Reliant Resources,
Inc. ("UNREGCO"), a Delaware corporation, and each UNREGCO Affiliated Company
(as defined below) in connection with the Restructuring and Spinoff (as defined
below).

                                    RECITALS

         WHEREAS, REI is the common parent of an affiliated group of
corporations within the meaning of Section 1504(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), which currently files a consolidated Federal
Income Tax (as defined below) return, and which, together with other affiliated
corporations, is a successor party to the Tax Sharing Agreement (as defined
below);

         WHEREAS, as set forth in the Master Separation Agreement entered into
as of December 31, 2000 (the "Master Separation Agreement"), and subject to the
terms and conditions thereof, REI, UNREGCO and each member of the REI
Consolidated Group (as defined below) have determined it would be appropriate
and desirable for REI to reorganize its operations to separate further its
unregulated businesses from its regulated businesses (the "Restructuring"), and
as part of such restructuring, as more fully discussed in the Master Separation
Agreement, to form REGCO (as defined below) as the new holding company for REI's
regulated businesses;

         WHEREAS REI contemplates that as part of the Restructuring, REI will
make an initial public offering (the "IPO") of UNREGCO common stock that will
reduce REI's ownership of UNREGCO to not less than the amount required for REI
to control UNREGCO within the meaning of Section 368(c) of the Code and, for REI
to satisfy the stock ownership requirement of Section 1504(a)(2) of the Code
with respect to the stock of UNREGCO;

         WHEREAS subsequent to the IPO, REGCO will be formed and MERGERCO2, a
transitory wholly-owned subsidiary of REGCO, has been or will be formed to merge
with and into REI, with REI surviving as a wholly-owned subsidiary of REGCO;

         WHEREAS, in connection with the Restructuring, REI will distribute its
shares of UNREGCO common stock to REGCO (the "First Distribution") and REGCO
will distribute all of its shares of UNREGCO common stock, on a pro rata basis,
to the holders of the common stock of REGCO, subject to the terms and conditions
of the Master Separation Agreement (the "Distribution");

         WHEREAS, the First Distribution and the Distribution are intended to
qualify as tax free distributions under Section 355 of the Code;

         WHEREAS, upon the Distribution, UNREGCO and REGCO will cease to be
members of the same affiliated group for Federal Income Tax purposes; and

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         WHEREAS, in contemplation of the Distribution the parties hereto have
determined to enter into this Agreement, setting forth their agreement with
respect to certain Tax matters.

         NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:

SECTION 1. DEFINITIONS

           1.1 In General. As used in this Agreement, the following capitalized
terms shall have the following meanings:

           "Adequate Assurances" means posting a bond or providing a letter of
credit reasonably acceptable to the Indemnitee; provided, however, if the
Indemnifying Party fails to post such bond or provide such letter of credit, the
Indemnifying Party shall provide cash equal to the Indemnity Amount to the
Indemnitee not less than thirty (30) days prior to the date on which such Tax
would become due and payable by the Indemnitee.

           "Audit" includes any audit, assessment of Taxes, other examination by
any Tax Authority, proceeding, or appeal of such a proceeding relating to Taxes,
whether administrative or judicial, including proceedings relating to competent
authority determinations.

           "Code" means the Internal Revenue Code of 1986, as amended, including
interpretations issued thereunder through (i) Treasury Regulations, (ii) court
decisions and (iii) revenue rulings, notices and other generally applicable
pronouncements of the Service.

           "Consolidated Group" means an affiliated group under Section 1504(a)
of the Code that files a Consolidated Return.

           "Consolidated Return" means any Tax Return with respect to Federal
Income Taxes filed on a consolidated basis.

           "Consolidated Return Regulations" means the Treasury Regulations
promulgated under Chapter 6 of Subtitle A of the Code, including, as applicable,
any predecessors or successors thereto.

           "Consolidated Return Year" means any taxable year for which a
Consolidated Return is filed.

           "Consolidated State Tax" means any Tax incurred by a Legal Entity
that is not a Federal Income Tax and that is filed on a combined, unitary, or
consolidated basis.

           "Consolidated State Tax Return" means a Tax Return filed with respect
to a Consolidated State Tax liability.

           "Control" means stock constituting a 50% or greater interest under
Section 355(e) of the Code.

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         "DIT" means any "deferred intercompany transaction" or "intercompany
transaction" within the meaning of the Treasury Regulations (or predecessors
thereto).

         "Distribution" has the meaning set forth in the Recitals to this
Agreement.

         "Distribution Date" means the date on which the Distribution is
effective.

         "Estimated Federal Installment Payment" has the meaning set forth in
Section 4.1(c).

         "Estimated UNREGCO State Installment Payment" has the meaning set forth
in Section 4.1(e).

         "Estimated REI State Installment Payment" has the meaning set forth in
Section 4.1(d)(i).

         "Excluded Adjustment Payments" means (i) an increase in Tax liability
related to an UNREGCO Retained Tax liability as a result of a Redetermination,
(ii) an increase in an UNREGCO Consolidated State Tax liability as a result of a
Redetermination and (iii) an increase in Tax liability related to a Temporary
Tax Adjustment.

         "Federal Income Tax" means any Tax imposed under Subtitle A of the Code
(including the Taxes imposed by Sections 11, 55, and 1201(a) of the Code and any
Tax imposed on a Consolidated Group), and any interest, additions to Tax or
penalties applicable or related thereto, and any other income-based U.S. federal
Tax which is hereinafter imposed upon corporations.

         "Federal Income Tax Return" means a Tax Return filed with respect to a
Federal Income Tax liability.

         "Filing Party" has the meaning set forth in Section 2.3(b) of this
Agreement.

         "Final Determination" means with respect to any issue (i) a decision,
judgment, decree or other order by any court of competent jurisdiction, which
decision, judgment, decree or other order has become final and not subject to
further appeal, (ii) a closing agreement (whether or not entered into under
Section 7121 of the Code) or any other binding settlement agreement (whether or
not with the Service) entered into in connection with or in contemplation of an
administrative or judicial proceeding, or (iii) the completion of the highest
level of administrative proceedings if a judicial contest is not or is no longer
available. A "Final Determination" shall also include an agreement that the
parties mutually designate as a Final Determination regarding any issue.

         "First Distribution" has the meaning set forth in the Recitals to this
Agreement.

         "First Spinoff" means the separation of UNREGCO from REI through the
First Distribution.

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         "Foreign Country" means any country, or political subdivision of a
country, other than the United States of America.

         "Foreign Legal Entity" means any Legal Entity that is organized under
the laws of a Foreign Country.

         "Income Taxes" means (1) any Tax based upon, measured by, or calculated
with respect to (A) net income or profits (including any capital gains tax,
minimum tax and any tax on items of Tax preference, but not including sales,
use, real or personal property, gross or net receipts, transfer or similar
taxes) or (B) multiple bases if one or more of the bases upon which such tax may
be based, measured by, or calculated with respect to, is described in clause (A)
above, or (2) any U.S. state or local income and/or franchise tax.

         "Indemnified Liability" has the meaning set forth in Section 6.3.

         "Indemnifying Party" has the meaning set forth in Section 6.2(d) of
this Agreement.

         "Indemnitee" has the meaning set forth in Section 6.2(d) of this
Agreement.

         "Indemnity Amount" has the meaning set forth in Section 6.5.

         "Initial Private Letter Ruling" means the first private letter ruling
issued by the Service to REI or its successor, REGCO, in connection with the
First Spinoff and the Spinoff.

         "Legal Entity" means a corporation, partnership, limited liability
company or other legal entity under the corporation, partnership, limited
liability company or other organizational laws of a state or other jurisdiction.

         "Master Separation Agreement" has the meaning set forth in the Recitals
to this Agreement.

         "MERGERCO2" has the meaning set forth in the Recitals to this
Agreement.

         "Non-Filing Party" means with respect to a particular Tax Return (i)
UNREGCO if the Legal Entity that filed such Tax Return was REI or a member of
the REI Group (or as successors, REGCO or a member of the REGCO Group) or (ii)
REI (or its successor REGCO) if the Legal Entity that filed such Tax Return was
UNREGCO or a member of the UNREGCO Group.

         "Non-Filing Party Responsible Taxes" has the meaning set forth in
Section 7.3(a).

         "Option Deduction Reallocation" has the meaning set forth in Section
5.4(h).

         "Other Tax Item Refund" has the meaning set forth in Section 5.2(c).

         "Post-Distribution Period" means any taxable period beginning after the
Distribution Date.

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         "Pre-Distribution Period" means any taxable period ending on or prior
to the Distribution Date.

         "Pre-1997 Tax Liability" means the Tax liability of the former NorAm
Energy Corp. and any Legal Entity that was in the same Consolidated Group as
NorAm Energy Corp. prior to August 6, 1997, to the extent such Tax liability (i)
relates to a Tax period ending on or before, or that includes, August 6, 1997,
and (ii) relates to a Legal Entity that is or was a member (or whose successor
is a member) of the UNREGCO Consolidated Group.

         "Pro Forma UNREGCO Returns" has the meaning set forth in Section
2.4(a).

         "Prohibited Act" has the meaning set forth in Section 6.2(c).

         "Prohibited Transaction" has the meaning set forth in Section 6.2(b).

         "Redetermination" means any redetermination that occurs as the result
of an Audit by the Service (or the relevant state, local or foreign governmental
authority), a claim for refund, an amended Tax Return or otherwise, and that is
resolved by a Final Determination.

         "Redetermination Interest" has the meaning set forth in Section 5.6(e).

         "Redetermination Tax" has the meaning set forth in Section 5.6(e).

         "REGCO" has the meaning set forth in the Recitals to this Agreement and
is the Legal Entity referred to as Regco in the Master Separation Agreement.

         "REGCO Affiliated Company" means at a given time any corporation that
(i) would be a member of the affiliated group, as defined under Section 1504(a)
of the Code, on the assumption that REGCO is the common parent of such
affiliated group and (ii) is not a member of the UNREGCO Group.

         "REGCO Consolidated Group" means with respect to a particular Tax
period a Consolidated Group in which REGCO is the common parent for all or a
portion of such Tax period.

         "REGCO Group" means REGCO and each REGCO Affiliated Company.

         "REI Affiliated Company" means at a given time any corporation that (i)
would be a member of the affiliated group, as defined under Section 1504(a) of
the Code, on the assumption that REI is the common parent of such affiliated
group and (ii) is not a member of the UNREGCO Group.

         "REI Consolidated Group" means with respect to a particular Tax period
a Consolidated Group in which REI is the common parent for all or a portion of
such Tax period.

         "REI Consolidated State Tax" means a Consolidated State Tax for a
particular Tax period for which REI or a member of the REI Group (or its
successors REGCO or the 

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REGCO Group) has the legal obligation to file a Tax Return with respect to such
Consolidated State Tax.

         "REI Consolidated State Tax Return" means a Tax Return filed with
respect to an REI Consolidated State Tax.

         "REI Estimated UNREGCO State Installment Payment" has the meaning set
forth in Section 4.1(e)(ii).

         "REI Estimated UNREGCO State Installment Refund" has the meaning set
forth in Section 4.1(e)(ii).

         "REI Group" means REI and each REI Affiliated Company.

         "REI Stock Award" means an award of stock options, restricted stock,
performance shares or other equity-based award which is payable in, or measured
based on the value of, the common stock of REI (or its successor REGCO).

         "RES Temporary Tax Adjustment" means a Temporary Tax Adjustment that is
caused as a result of a Redetermination that resulted in an increase or decrease
to an item of income, deduction, gain or loss attributable to Reliant Energy
Services, Inc.

         "Restricted Period" means the period beginning two years before the
Distribution Date and ending two years after the Distribution Date.

         "Restructuring" has the meaning set forth in the Recitals to this
Agreement.

         "Restructuring Tax" means any Tax imposed as a result of the
transactions contemplated by the Restructuring.

         "Ruling Documents" means (1) the request for a ruling under Section 355
and various other sections of the Code, that have been or will be filed with the
Service in connection with the First Spinoff or the Spinoff, together with any
supplemental filings or ruling requests or other materials subsequently
submitted on behalf of REI (or its successor, REGCO), its subsidiaries and
shareholders to the Service, the appendices and exhibits thereto, and any
rulings issued by the Service to REI in connection with the First Spinoff or the
Spinoff or (2) any similar filings submitted to, or rulings issued by, any other
Tax Authority in connection with the First Spinoff or the Spinoff.

         "Separate State Tax" means any Tax incurred by a Legal Entity that is
not a Federal Income Tax and that is filed on a separate company basis.

         "Separate State Tax Return" means any Tax Return filed with respect to
a Separate State Tax liability.

         "Separate UNREGCO Tax Item" has the meaning set forth in Section
2.4(b).

         "SFAS 109" has the meaning set forth in Section 5.6(b).

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         "Service" means the Internal Revenue Service.

         "Spinoff" means the separation of UNREGCO from REGCO through the
Distribution.

         "Straddle Period" means any Tax period that begins before but ends
after the Distribution Date.

         "Subpart F Tax" has the meaning set forth in Section 5.4(g).

         "Tax" includes any charges, fees, levies, imposts, duties, or other
assessments of a similar nature, including income, alternative or add-on
minimum, gross receipts, profits, lease, service, service use, wage, wage
withholding, employment, workers compensation, business occupation, occupation,
premiums, environmental, estimated, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
withholding, social security, unemployment, disability, ad valorem, estimated,
highway use, commercial rent, capital stock, paid up capital, recording,
registration, property, real property gains, value added, business license,
custom duties, or other tax or governmental fee of any kind whatsoever, imposed
or required to be withheld by any Tax Authority including any interest,
additions to tax, or penalties applicable or related thereto.

         "Tax Adjustment" has the meaning set forth in Section 5.6(a).

         "Tax Authority" means any governmental authority or any subdivision,
agency, commission or authority thereof or any quasi-governmental or private
body having jurisdiction over the assessment, determination, collection or
imposition of any Tax (including the Service).

         "Tax Expert" means a partner specializing in Federal Income Tax matters
at a nationally recognized law firm or a partner specializing in Federal Income
Tax matters at a Big 5 accounting firm.

         "Tax Item" means any item of income, gain, loss, deduction or credit,
or other attribute that may have the effect of increasing or decreasing any Tax.

         "Tax Law" means any federal, state, local or foreign law with respect
to Taxes, including the Code and Treasury Regulations.

         "Tax Return" means any return, report, certificate, form or similar
statement or document (including, any related or supporting information or
schedule attached thereto and any information return, amended Tax Return, claim
for refund or declaration of estimated Tax) required to be supplied to, or filed
with, a Tax Authority in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.

         "Tax Sharing Agreement" means the Tax Sharing Agreement, dated as of
August 6, 1997, entered into by and among Houston Industries, Incorporated,
NorAm Energy Corp., and Houston Industries Energy, Inc.

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         "Temporary Tax Adjustment" has the meaning set forth in Section 5.6(b).

         "Temporary Tax Adjustment Balance" has the meaning set forth in Section
5.6(d).

         "Temporary Tax Adjustment Payment" has the meaning set forth in Section
5.6(g).

         "Temporary Tax Adjustment Payment Balance" has the meaning set forth in
Section 5.6(f).

         "Transition Services Agreement" refers to the agreement entered into
between the parties as of December 31, 2000.

         "Treasury Regulations" means the final, temporary and proposed income
tax regulations promulgated under the Code, as such regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).

         "UNREGCO" has the meaning set forth in the Recitals to this Agreement.

         "UNREGCO Affiliated Company" means at a given time any corporation that
would be a member of the affiliated group, as defined under Section 1504(a) of
the Code, on the assumption that UNREGCO is the common parent of such affiliated
group.

         "UNREGCO Basket Interest" means UNREGCO Interest that is not UNREGCO
Non-Basket Interest.

         "UNREGCO Consolidated Group" means with respect to a particular Tax
period a Consolidated Group in which UNREGCO is the common parent for all or a
portion of such Tax period.

         "UNREGCO Consolidated State Tax" means a Consolidated State Tax for a
particular Tax period for which UNREGCO or a member of the UNREGCO Group has the
legal obligation to file a Tax Return with respect to such Consolidated State
Tax.

         "UNREGCO Consolidated State Tax Return" means a Tax Return filed with
respect to an UNREGCO Consolidated State Tax.

         "UNREGCO Estimated Federal Installment Payment" has the meaning set
forth in Section 4.1(c)(ii).

         "UNREGCO Estimated Federal Installment Refund" has the meaning set
forth in Section 4.1(c)(ii).

         "UNREGCO Estimated REI State Installment Payment" has the meaning set
forth in Section 4.1(d) (ii).

         "UNREGCO Estimated REI State Installment Refund" has the meaning set
forth in Section 4.1(d)(ii).

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           "UNREGCO Group" means UNREGCO and each UNREGCO Affiliated Company.

           "UNREGCO Interest" has the meaning set forth in Section 5.6(h)(i).

           "UNREGCO Non-Basket Interest" means UNREGCO Interest that relates to
a Federal Income Tax that is incurred by the REI Consolidated Group (or
successor REGCO Consolidated Group) for a Pre-Distribution Period or Straddle
Period as a result of a Redetermination and that is related to a transaction
that UNREGCO or an UNREGCO Affiliated Company entered into on or after January
1, 2001.

           "UNREGCO Option Payment" means a payment UNREGCO is obligated to make
to REI pursuant to Section 5.4(h) as a result of an Option Deduction
Reallocation.

           "UNREGCO Retained Tax Liability" means a Pre-1997 Tax Liability, an
NOL Carryback Refund, or an Other Tax Item Refund.

           "UNREGCO Stock Award" means an award of stock options, restricted
stock, performance shares or other equity-based award which is payable in, or
measured based on the value of, the common stock of UNREGCO.

           1.2 Construction Principles. As used in this Agreement, the singular
shall be deemed to include the plural and vice versa, and the captions and
section headings are inserted for convenience of reference only and are not
intended to have any significance for the interpretation of, or construction of,
the provisions of this Agreement.

SECTION 2. PREPARATION AND FILING OF TAX RETURNS.

           2.1 In General.

           (a) (i) With respect to any Pre-Distribution Period and any Straddle
Period, except as provided in Section 2.1(a)(ii), REI (or its successor REGCO)
shall timely file or cause to be filed all Tax Returns required to be filed that
include any member or members of the REI Group, the REGCO Group or the UNREGCO
Group for any portion of such period; any such return that includes a member of
the UNREGCO Group shall be subject to the reasonable review and approval of
UNREGCO.

               (ii) With respect to any Pre-Distribution Period and any Straddle
Period, UNREGCO (on behalf of itself and each UNREGCO Affiliated Company) shall
timely file or cause to be filed all Tax Returns for UNREGCO Consolidated State
Taxes and for Separate State Taxes of UNREGCO or any UNREGCO Affiliated Company.

           (b) REI (or its successor REGCO) shall timely file or cause to be
filed any Tax Return required to be filed that includes any member of the REI
Group or REGCO Group for any Post-Distribution Period. UNREGCO shall timely file
or cause to be filed any Tax Return required to be filed that includes any
member of the UNREGCO Group for any Post-Distribution Period.

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           (c) Notwithstanding this Section 2.1, for the term of the Transition
Services Agreement, the allocation of responsibility for preparing Tax Returns
between REI (or its successor REGCO) and UNREGCO shall be as set forth in the
Transition Services Agreement.

           2.2 Information and Cooperation.

           (a) In addition to any obligation imposed elsewhere under this
Agreement, REI, REGCO and UNREGCO shall provide each other all documents and
information, and make available employees and officers of REI, REGCO and
UNREGCO, as reasonably requested by the other party, on a mutually convenient
basis during normal business hours, to aid the other party (i) in preparing any
Tax Return described in Section 2.1 of this Agreement to the extent the
information needed for completing such Tax Return relates to any
Pre-Distribution Period or Straddle Period, (ii) in preparing any Tax Return
required to be completed by REI (or its successor REGCO) under the Transition
Services Agreement, (iii) to contest any Audit of any such Tax Return, (iv) to
assist on a timely basis the other party to respond in a timely manner to
requests for information or similar inquiries from the Public Utility Commission
of Texas (or its successor) or a similar body from any other state in connection
with a rate case (or similar proceeding) and (v) in preparing the notice in
accordance with Section 5.6(e).

           (b) In the case of any Tax Return for a Pre-Distribution Period or a
Straddle Period described in Section 2.1 of this Agreement, REI (or its
successor REGCO) will provide UNREGCO with a copy of that portion of each such
Tax Return to the extent it relates to UNREGCO or any UNREGCO Affiliated
Company, together with all related Tax accounting work papers, as soon as
practicable after such Tax Return becomes available. In addition, REI (or its
successor REGCO) will provide to employees of UNREGCO responsible for preparing
a Tax Return of UNREGCO or any UNREGCO Affiliated Company for any
Pre-Distribution Period, Straddle Period or Post-Distribution Period with access
to any private letter rulings, together with any requests therefor and related
documents and any other relevant information, as it relates to UNREGCO or an
UNREGCO Affiliated Company for any period prior to the Distribution Date, and
will provide UNREGCO with a copy of such rulings or documents to the extent that
the issues discussed therein are relevant to UNREGCO or a UNREGCO Affiliated
Company, not later than thirty (30) days after the receipt of a written request
therefor.

           (c) Notwithstanding any other provision of this Agreement, neither
REI, any REI Affiliated Company, REGCO nor any REGCO Affiliated Company shall be
required to provide UNREGCO or any UNREGCO Affiliated Company access to or
copies of any information that relate to REI, any REI Affiliated Company, REGCO
or any REGCO Affiliated Company unless it also relates to UNREGCO or an UNREGCO
Affiliated Company. In the event that REI or REGCO determines that the provision
of any information to UNREGCO or any UNREGCO Affiliated Company could be
commercially detrimental, violate any law or agreement or waive any privilege
that may be asserted under applicable law including, any privilege arising under
or relating to the attorney-client relationship (including the attorney-client
(including the protections under Section 7525 of the Code) and work product
privileges), the accountant-client privilege, and any privilege relating to
internal evaluation processes, the parties shall take all reasonable measures to
permit the compliance with such obligations in a manner that avoids any such
harm or consequence.

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           (d) Notwithstanding any other provision of this Agreement (except
that nothing in this Section 2.2(d) shall be interpreted to prevent or relieve
UNREGCO or any UNREGCO Affiliated Company from complying with Section 2.4),
neither UNREGCO nor any UNREGCO Affiliated Company shall be required to provide
REI, any REI Affiliated Company, REGCO or any REGCO Affiliated Company access to
or copies of any information that relates to UNREGCO or any UNREGCO Affiliated
Company unless it also relates to REI, any REI Affiliated Company, REGCO or any
REGCO Affiliated Company. In the event that UNREGCO determines that the
provision of any information to REI, any REI Affiliated Company, REGCO or any
REGCO Affiliated Company could be commercially detrimental, violate any law or
agreement or waive any privilege that may be asserted under applicable law
including, any privilege arising under or relating to the attorney-client
relationship (including the attorney-client (including the protections under
Section 7525 of the Code) and work product privileges), the accountant-client
privilege, and any privilege relating to internal evaluation processes, the
parties shall take all reasonable measures to permit the compliance with such
obligations in a manner that avoids any such harm or consequence.

           2.3 Manner of Filing Tax Returns.

           (a) REI (for itself and the REI Affiliated Companies), REGCO (for
itself and REGCO Affiliated Companies) and UNREGCO (for itself and the UNREGCO
Affiliated Companies) agree to file all Tax Returns for any Pre-Distribution
Period and any Straddle Period, and to take all other actions in a manner
consistent with the position that UNREGCO and the UNREGCO Affiliated Companies
are part of the REI Consolidated Group for Federal Income Tax purposes for all
Tax periods through and including the Distribution Date.

           (b) Except as otherwise provided in this Section 2.3 and Section 2.4
of this Agreement, the party that is required to file a Tax Return under Section
2.1(a) or (b) of this Agreement (the "Filing Party") shall have the exclusive
right to determine (1) the manner in which such Tax Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions
and principles of taxation to be used and the manner in which any Tax Item shall
be reported, (2) whether any extensions may be requested, (3) the elections that
will be made in such Tax Return, (4) whether any amended Tax Returns shall be
filed, (5) whether any claims for refund shall be made, (6) whether any refunds
shall be paid by way of refund or credited against any liability for the related
Tax, and (7) whether to retain outside specialists to prepare such Tax Return,
whom to retain for such purpose and the scope of any such retainer.
Notwithstanding the foregoing, if UNREGCO requests REI (or its successor REGCO)
to make a particular determination under this Section 2.3(b) with respect to a
Tax Item of UNREGCO or an UNREGCO Affiliated Company, REI (or its successor
REGCO) shall not unreasonably withhold its consent to such request.

           2.4 Pro Forma UNREGCO Returns.

           (a) Initial Preparation of Pro Forma UNREGCO Returns. For each
taxable year for which an REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Return is filed and UNREGCO or any UNREGCO
Affiliated Company is a member of the REI Consolidated Group (or successor REGCO
Group) for all or a portion of such taxable year, UNREGCO shall prepare (on its
own behalf and on the behalf of each UNREGCO Affiliated 


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Company) a pro forma Federal Income Tax Return for UNREGCO and for each UNREGCO
Affiliated Company (the "Pro Forma UNREGCO Returns") covering all of the taxable
year or the portion of such taxable year in which UNREGCO or any UNREGCO
Affiliated Company is a member of the REI Consolidated Group (or successor REGCO
Group). The Pro Forma UNREGCO Returns shall be complete and accurate, and shall
be in such form and include such information as shall be determined from time to
time by REI (or its successor REGCO). The Pro Forma UNREGCO Returns shall be
prepared in accordance with subsections (b) and (c) of this Section 2.4 and
shall report the federal taxable income (including, for all purposes of this
Agreement, alternative minimum taxable income) for such taxable year (or the
portion thereof) that UNREGCO and each UNREGCO Affiliated Company would have
reported if each such company had not been included in the Consolidated Return
filed for the REI Consolidated Group (or successor REGCO Consolidated Group)
with respect to such taxable year (or portion thereof) and all prior Pro Forma
UNREGCO Returns filed after December 31, 2000, had been actual Tax Returns. The
provisions of the Code that require consolidated calculations, including,
without limitation, Sections 1201, 1211, 1212 and 1231, shall be applied
separately to UNREGCO and each UNREGCO Affiliated Company, but with any
simplifying conventions approved or suggested by the Tax Director of REI (or its
successor REGCO). The Pro Forma UNREGCO Returns shall include gains and losses
with respect to DITs if, and only if, and to the extent that, such gains or
losses are actually restored and reflected on the REI Consolidated Group (or
successor REGCO Consolidated Group) Consolidated Return.

           (b) Standards for Positions Taken on Pro Forma UNREGCO Returns.
UNREGCO shall prepare the Pro Forma UNREGCO Returns by reporting the Tax
treatment of any item by utilizing such positions that, in UNREGCO's discretion,
are appropriate for UNREGCO and each UNREGCO Affiliated Company; provided, that
each position is more likely than not to be ultimately sustained; and provided
further that the positions reflected other than positions which are Legal Entity
specific in the context of an UNREGCO Tax Item within a Consolidated Return of
REI (or its successor REGCO) ("Separate UNREGCO Tax Item") by UNREGCO on the Pro
Forma UNREGCO Returns shall be consistent with the elections made and the
positions reflected on the relevant portion of the REI Consolidated Group (or
successor REGCO Consolidated Group) Consolidated Return (including carryovers or
carrybacks of net operating losses, net capital losses, excess Tax credits or
other Tax attributes from prior or subsequent taxable years). UNREGCO may
utilize a position on the Pro Forma UNREGCO Returns that does not meet this
standard but that does have a reasonable basis in law and in fact, but only if
UNREGCO has obtained, after prior notice to and consultation with REI (or its
successor REGCO), REI's (or its successor REGCO's) written consent to utilize
such position on Pro Forma UNREGCO Returns for such taxable year. Except as
otherwise required by Tax law and with respect to a Separate UNREGCO Tax Item,
UNREGCO may not utilize a position on the Pro Forma UNREGCO Returns that is
inconsistent with any position utilized on a Pro Forma UNREGCO Return or REI
Consolidated Group Consolidated Return for a prior taxable year.

           (c) Standards for Methods and Elections on Pro Forma UNREGCO Returns.
The Pro Forma UNREGCO Returns shall reflect any elections made and Tax methods
used by REI (or its successor REGCO) with respect to the REI's Consolidated
Group (or successor REGCO's Consolidated Group) Consolidated Return (other than
with respect to a Separate UNREGCO Tax Item) that in the sole and absolute
discretion of REI (or its successor REGCO), but after prior good faith
consultation with UNREGCO (if requested by the Tax Director of UNREGCO), 


                                      -12-
   14

should be made, taken or used consistently by the REI Consolidated Group (or
successor REGCO Group) in filing such Consolidated Return. UNREGCO may utilize
any other election, method or simplifying convention subject to REI's (or its
successor REGCO's) approval, which approval shall not be unreasonably withheld,
in preparing the Pro Forma UNREGCO Returns. Notwithstanding the foregoing,
UNREGCO may not utilize any election or Tax method in preparing the Pro Forma
UNREGCO Returns for a taxable year that is inconsistent with any election,
position or method utilized on a Pro Forma UNREGCO Return or REI Consolidated
Return for a prior taxable year if the effect of such treatment is to allow a
double deduction or benefit with respect to any item (or unless UNREGCO has
eliminated such double deduction or benefit in a manner acceptable to REI (or
its successor REGCO)).

           (d) Delivery to REI of Pro Forma UNREGCO Returns; Assistance. UNREGCO
will deliver to REI (or its successor REGCO) the Pro Forma UNREGCO Returns on or
before August 1 of each year or later if mutually agreed. Appropriate personnel
of UNREGCO or a UNREGCO Affiliated Company that are responsible for the
preparation of the Pro Forma UNREGCO Returns shall be available upon reasonable
notice to meet with appropriate personnel of REI (or successor REGCO) to discuss
all aspects of such Tax Returns and upon request by REI (or its successor REGCO)
shall furnish or make available for inspection any and all documents used in
preparation of the Pro Forma UNREGCO Returns (documents relied upon by UNREGCO
in ascertaining whether any position is more likely than not to be ultimately
sustained or has a reasonable basis in law or in fact shall be furnished only to
the principal Tax legal officer of REI (or its successor REGCO) under cover of
the attorney-client privilege (including the protections under Section 7525 of
the Code) and work product doctrine).

           (e) Adjustment by REI of Pro Forma UNREGCO Returns. REI (or its
successor REGCO), within 15 days of the due date of the REI Consolidated Group's
(or successor REGCO Consolidated Group's) Consolidated Return (taking into
account any extensions thereof that have been granted to REI (or its successor
REGCO)) shall adjust the Pro Forma UNREGCO Returns, as appropriate (i) in
accordance with the terms of this Agreement, (ii) consistent with the elections,
methods of accounting, positions, conventions and principles of taxation (other
than with respect to a Separate UNREGCO Tax Item) as reflected on the most
recently filed prior Tax Returns of the REI Consolidated Group involving similar
matters and (iii) after prior notice to and good faith consultation with
UNREGCO, to correct any error of fact or law thereon or any error in mechanical
calculation and any failure to reflect the principles set forth in this Section
2.4; provided, however, that if REI (or its successor REGCO) proposes an
adjustment to a Pro Forma UNREGCO Return to which REI has not previously
consented to under Section 2.4(b) and UNREGCO objects to such adjustment, REI
(or its successor REGCO) and UNREGCO shall jointly select and pay a Tax Expert
to render a legal opinion as to whether the position advocated by UNREGCO is
more likely than not to be sustained. The adjustment proposed by REI (or its
successor REGCO) will only be made if the legal opinion from a Tax Expert
concludes that the position asserted by UNREGCO does not meet the more likely
than not standard. Similarly, except as stated in the following sentence, any
failure by REI (or its successor REGCO) to properly and fully adjust the Pro
Forma Returns within the 15-day period set forth in this Section 2.4(e) shall
not prevent REI (or its successor REGCO), in its sole and absolute discretion,
but after prior good faith consultation with the Tax Director of UNREGCO, from
making subsequent adjustments as circumstances warrant within the applicable
statute of limitation (determined as if the Pro Forma UNREGCO Returns were
actual Tax Returns that are 


                                      -13-
   15

subject to any extensions that have been granted by REI (or its successor REGCO)
with respect to the REI Consolidated Group (or successor REGCO Consolidated
Group) Consolidated Return), nor relieve UNREGCO of liability for such
adjustments. The adjustment described in the preceding sentence shall not be
made if such adjustment would increase UNREGCO's obligations set forth in
Section 5.2, Section 5.3, Section 5.4(h) or Section 5.6, in accordance with the
procedures of this Section 2.4(e).

           2.5 Agent.

           (a) UNREGCO hereby irrevocably designates, and agrees to cause each
UNREGCO Affiliated Company to so designate, REI (and its successor REGCO) as its
sole and exclusive agent and attorney-in-fact to take such action (including
execution of documents) as REI (and its successor REGCO), in its sole
discretion, may deem appropriate in any and all matters (including Audits)
relating to any Consolidated Return or Consolidated State Tax Return filed on a
combined, unitary or consolidated basis described in Section 2.1(a) of this
Agreement or Section 2.1(b) if the filing of such Tax Return is the
responsibility of REI (or its successor REGCO) under the Transition Services
Agreement; provided, however, that REI (and its successor REGCO) shall not
exercise its rights as agent and attorney-in-fact in any manner that is
inconsistent with the rights granted to UNREGCO under this Agreement, and
nothing in this Section 2.5(a) shall limit the rights granted to UNREGCO under
this Agreement.

           (b) REI (or its successor REGCO) hereby irrevocably designates, and
agrees to cause each REI Affiliated Company (or successor REGCO Affiliated
Company) to so designate, UNREGCO as its sole and exclusive agent and
attorney-in-fact to take such action (including execution of documents) as
UNREGCO, in its sole discretion, may deem appropriate in any and all matters
(including Audits) relating to any UNREGCO Consolidated State Tax Return
described in Section 2.1(b) of this Agreement; provided, however, that UNREGCO
shall not exercise its rights as agent and attorney-in-fact in any manner that
is inconsistent with the rights granted to REI (or its successor REGCO) under
this Agreement, and nothing in this Section 2.5(b) shall limit the rights
granted to REI (or its successor REGCO) under this Agreement.

SECTION 3. REPRESENTATIONS AND COVENANTS.

           3.1 REI Representations and Covenants. REI hereby represents,
warrants and covenants that:

           (a) REI will review the information and representations made in the
Ruling Documents that will be submitted to the Service, and, REI covenants that
all of such information or representations that relate to REI or any REI
Affiliated Company, or the business or operations of either, will be true,
correct and complete to REI's knowledge and will identify to UNREGCO any
information or representations that are incorrect or incomplete.

           (b) REI (or its successor REGCO) will not, and will cause each REI
Affiliated Company (and REGCO will cause each REGCO Affiliated Company) not to,
take any action, or fail or omit to take any action, that would cause any of the
information or representations made in the Ruling Documents that relate to REI
or any REI Affiliated Company (or as successors, REGCO or any REGCO Affiliated
Company) or the business or operations of each, to be untrue, 


                                      -14-
   16

regardless of whether such information or representations are included in the
Initial Private Letter Ruling (or any supplemental ruling).

           (c) REI covenants and agrees for itself and on behalf of REGCO to
comply with the covenants set forth in this Section 3.1, and REI covenants and
agrees to cause REGCO to expressly assume the obligations under this Agreement
required to be performed by REI, REGCO, or any REGCO Affiliated Company.

           3.2 UNREGCO Representations and Covenants. UNREGCO hereby represents,
warrants, and covenants that:

           (a) UNREGCO will review the information and representations made in
the Ruling Documents that will be submitted to the Service, and UNREGCO
covenants that all of such information or representations that relate to UNREGCO
or any UNREGCO Affiliated Company, or the business or operations of either, will
be true, correct and complete to UNREGCO's knowledge and will identify to REI
(or its successor REGCO) any information or representations that are incorrect
or incomplete.

           (b) UNREGCO will not, and will cause each UNREGCO Affiliated Company
not to, take any action, or fail or omit to take any action, that would cause
any of the information or representations made in the Ruling Documents that
relate to UNREGCO or any UNREGCO Affiliated Company or the business or
operations of each, to be untrue, regardless of whether such information or
representations are included in the Initial Private Letter Ruling (or any
supplemental ruling).

SECTION 4. TAX ALLOCATION AND PAYMENTS.

           4.1 In General. Except to the extent modified or supplemented herein,
the Tax Sharing Agreement shall continue in full force and effect. The
provisions of the Tax Sharing Agreement shall fix the rights and obligations of
the parties as to the matters covered thereby.

           (a) Except as provided to the contrary in Section 5.2, Section 5.3,
Section 5.4(h) or Section 5.6, and except for any Restructuring Taxes for which
REI or any REI Affiliated Company (or as successors, REGCO or any REGCO
Affiliated Company) is liable under Section 5 of this Agreement,

                (i) UNREGCO shall be responsible for, and shall indemnify and
hold harmless REI (or its successor REGCO) against, any and all Taxes incurred
by UNREGCO or the UNREGCO Group, in accordance with past practices and the
principles set forth in the Tax Sharing Agreement, for any Pre-Distribution
Period and Straddle Period.

                (ii) REI (or its successor, REGCO) shall be responsible for, and
shall indemnify and hold harmless UNREGCO against, any and all Taxes incurred by
REI or any REI Affiliated Company (other than Taxes attributable to UNREGCO or
any UNREGCO Affiliated Company) in accordance with past practices and the
principles set forth in the Tax Sharing Agreement for any Pre-Distribution
Period and Straddle Period.

                                      -15-
   17

           (b) Except as provided to the contrary in Section 5.2, Section 5.3,
Section 5.4(h) or Section 5.6, UNREGCO shall be responsible for all Taxes that
relate to the UNREGCO Group with respect to any Post-Distribution Period and
REGCO shall be responsible for all Taxes that relate to the REGCO Group with
respect to any Post-Distribution Period.

           (c) Estimated Federal Tax Payments.

                (i) In the case of any Federal Income Taxes for any
Pre-Distribution Period for the REI Consolidated Group (or successor REGCO
Consolidated Group), UNREGCO (on behalf of itself and each UNREGCO Affiliated
Company) shall provide to REI (or its successor REGCO) no later than 8 days
prior to the due date for each payment of an installment of estimated Federal
Income Taxes (as determined under Section 6655 of the Code or successor
provision then in effect) of the REI Consolidated Group (or successor REGCO
Consolidated Group) ("Estimated Federal Installment Payment") such information
pertaining to UNREGCO or an UNREGCO Affiliated Company as is necessary for REI
(or its successor REGCO) to compute the amount of such Estimated Federal
Installment Payment.

                (ii) On or before the due date of such Estimated Federal
Installment Payment, REI (or its successor REGCO) shall inform UNREGCO of either
(A) the amount ("UNREGCO Estimated Federal Installment Payment") that UNREGCO
(on behalf of itself and each UNREGCO Affiliated Company) must pay REI (or its
successor REGCO) with respect to such Estimated Federal Installment Payment, or
(B) the amount ("UNREGCO Estimated Federal Installment Refund") REI (or its
successor REGCO) must pay UNREGCO with respect to such Estimated Federal
Installment Payment. REI (or its successor REGCO) shall compute the amount of
each UNREGCO Estimated Federal Installment Payment or the UNREGCO Estimated
Federal Installment Refund, as the case may be, so as to equal the portion of
the Estimated Federal Installment Payment that is allocable to UNREGCO and the
UNREGCO Affiliated Companies taking into account previous UNREGCO Estimated
Federal Installment Payments and UNREGCO Estimated Federal Installment Refunds
that have been made for the same Pre-Distribution Period. REI (or its successor
REGCO) shall calculate the portion of each Estimated Federal Installment Payment
of the REI Consolidated Group (or successor REGCO Consolidated Group) that is
allocable to UNREGCO and the UNREGCO Affiliated Companies by (C) computing the
sum of the estimated Federal Income Tax payments that UNREGCO and each UNREGCO
Affiliated Company would have been required to pay if each of UNREGCO and each
UNREGCO Affiliated Company had filed a Federal Income Tax Return on a separate
company basis for such estimated Federal Income Tax period and (D) taking into
account adjustments, if any, that are applicable on a Consolidated Return basis
to the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Return for such Pre-Distribution Period. UNREGCO shall pay REI (or
its successor REGCO) the UNREGCO Estimated Federal Installment Payment within 24
hours after the due date of the Estimated Federal Installment Payment to which
it relates, and REI (or its successor REGCO) shall pay UNREGCO the UNREGCO
Estimated Federal Installment Refund within 24 hours after the due date of the
Estimated Federal Installment Payment to which it relates.

                (iii) If (A) the portion of the actual Federal Income Tax
Liability of the REI Consolidated Group (or successor REGCO Consolidated Group)
for a Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the 


                                      -16-
   18

Tax Sharing Agreement and consistent with the past practices utilized by the REI
Tax Department in completing previous REI Consolidated Group Consolidated
Returns, to UNREGCO and the UNREGCO Affiliated Companies exceeds (B)(I) the sum
of the UNREGCO Estimated Federal Installment Payments for such Pre-Distribution
Period less (II) the sum of the UNREGCO Estimated Federal Installment Refunds
for such Pre-Distribution Period, then REI (or its successor REGCO) shall inform
UNREGCO of the amount of such excess on or before the due date of the REI
Consolidated Group (or successor REGCO Group) Consolidated Return (or successor
REGCO Consolidated Group) for such Pre-Distribution Period. UNREGCO (on behalf
of itself and each UNREGCO Affiliated Company) shall pay the amount of such
excess to REI (or its successor REGCO) within 24 hours after the due date of the
REI Consolidated Group (or successor REGCO Consolidated Group) Consolidated
Return.

                (iv) If (A) (I) the sum of the UNREGCO Estimated Federal
Installment Payments for a Pre-Distribution period less (II) the sum of the
UNREGCO Estimated Federal Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual Federal Income Tax Liability of the REI
Consolidated Group (or successor REGCO Consolidated Group) for such
Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the Tax Sharing Agreement and consistent
with past practices utilized by the REI Tax Department in implementing previous
REI Consolidated Group Returns, to UNREGCO and the UNREGCO Affiliated Companies,
then REI (or its successor REGCO) shall pay the amount of such excess to UNREGCO
within 24 hours after the due date of the Consolidated REI Consolidated Group
(or successor REGCO Consolidated Group) Consolidated Return for such
Pre-Distribution Period.

                (v) REI (or its successor REGCO) shall calculate the portion of
the actual Federal Income Tax Liability of the REI Consolidated Group (or
successor REGCO Consolidated Group) that is allocable to UNREGCO and the UNREGCO
Affiliated Companies for Sections 4.1(c)(iii) and (iv) consistent with the
UNREGCO Pro Forma Returns submitted in accordance with Section 2.4 and
consistent with the principles set forth in the penultimate sentence of Section
4.1(c)(ii).

           (d) Estimated Payments of REI Consolidated State Taxes.

                (i) In the case of any REI Consolidated State Tax for any
Pre-Distribution Period that includes a member of the UNREGCO Group, UNREGCO (on
behalf of itself and each UNREGCO Affiliated Company) shall provide to REI (or
its successor REGCO) no later than 8 days prior to the due date for each payment
of an installment of REI Consolidated State Tax ("Estimated REI State
Installment Payment") such information pertaining to UNREGCO or an UNREGCO
Affiliated Company as is necessary for REI (or its successor REGCO) to compute
the amount of such Estimated REI State Installment Payment.

                (ii) On or before the due date of such Estimated REI State
Installment Payment, REI shall inform UNREGCO of either (A) the amount ("UNREGCO
Estimated REI State Installment Payment") that UNREGCO (on behalf of itself and
each UNREGCO Affiliated Company) must pay REI (or its successor REGCO) with
respect to such Estimated REI State Installment Payment, or (B) the amount
("UNREGCO Estimated REI State Installment Refund") REI (or its successor REGCO)
must pay UNREGCO with respect to such Estimated REI State 


                                      -17-
   19

Installment Payment. REI (or its successor REGCO) shall compute the amount of
each UNREGCO Estimated REI State Installment Payment or UNREGCO Estimated REI
State Installment Refund, as the case may be, so as to equal the portion of the
Estimated REI State Installment Payment that is allocable to UNREGCO and the
UNREGCO Affiliated Companies taking into account previous UNREGCO Estimated REI
State Installment Payments and UNREGCO Estimated REI State Installment Refunds
that have been made for the same Pre-Distribution Period. REI (or its successor
REGCO) shall calculate the portion of each Estimated REI State Installment
Payment that is allocable to UNREGCO and the UNREGCO Affiliated Companies by (C)
computing the sum of the estimated REI Consolidated State Tax payments that
UNREGCO and each UNREGCO Affiliated Company would have been required to pay if
each of UNREGCO and each UNREGCO Affiliated Company had filed an REI
Consolidated State Tax Return on a separate company basis for such estimated REI
Consolidated State Tax period and (D) taking into account adjustments, if any,
that are applicable on a Consolidated State Tax basis to the REI Consolidated
State Tax Return for such Pre-Distribution Period. UNREGCO shall pay REI (or its
successor REGCO) the UNREGCO Estimated REI State Installment Payment within 24
hours after the due date of the Estimated REI State Installment Payment to which
it relates, and REI (or its successor REGCO) shall pay UNREGCO the UNREGCO
Estimated REI State Installment Refund within 24 hours after the due date of the
Estimated REI State Installment Payment to which it relates.

                (iii) If (A) the portion of the actual REI Consolidated State
Tax Liability for a Pre-Distribution Period that is allocable, as determined by
REI (or its successor REGCO) in accordance with the Tax Sharing Agreement and
consistent with the past practices utilized by the REI Tax Department in
completing previous REI Consolidated State Tax Returns, to UNREGCO and the
UNREGCO Affiliated Companies exceeds (B)(I) the sum of the UNREGCO Estimated REI
State Installment Payments for such Pre-Distribution Period less (II) the sum of
the UNREGCO Estimated REI State Installment Refunds for such Pre-Distribution
Period, then UNREGCO (on behalf or itself and each UNREGCO Affiliated Company)
shall pay the amount of such excess to REI (or its successor REGCO) within 24
hours after the due date of the REI Consolidated State Tax Return for such
Pre-Distribution Period.

                (iv) If (A) (I) the sum of the UNREGCO Estimated REI State
Installment Payments for a Pre-Distribution period less (II) the sum of the
UNREGCO Estimated REI State Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual REI Consolidated State Tax Liability for
such Pre-Distribution Period that is allocable, as determined by REI (or its
successor REGCO) in accordance with the Tax Sharing Agreement and consistent
with the past practices utilized by the REI Tax Department in completing
previous REI Consolidated State Tax Returns, to UNREGCO and the UNREGCO
Affiliated Companies, then REI (or its successor REGCO) shall pay the amount of
such excess to UNREGCO within 24 hours after the due date of the REI
Consolidated State Tax Return for such Pre-Distribution Period.

                (v) For purposes of REI's (or its successor REGCO's)
determination under Section 4.1(d) of the portion of the actual REI Consolidated
State Tax liability that is allocable to UNREGCO and the UNREGCO Affiliated
Companies, REI (or its successor REGCO) shall allocate the amount by which the
net aggregate REI Consolidated State Tax liability for a particular
Pre-Distribution Period is increased or decreased because a Legal Entity


                                      -18-
   20

included in the REI Consolidated State Tax Return created a nexus in a
jurisdiction resulting in the imposition of an REI Consolidated State Tax by
such jurisdiction that would not otherwise had been imposed but for such nexus
either (A) completely to UNREGCO and the UNREGCO Affiliated Companies if such
Legal Entity is a member of the UNREGCO Group or (B) completely to the members
of the REI Group (or successor REGCO Group) if the Legal Entity is not a member
of the UNREGCO Group.

           (e) Estimated Payments of UNREGCO Consolidated State Taxes.

                (i) In the case of any UNREGCO Consolidated State Tax for any
Pre-Distribution Period that includes a member of the REI Group (or successor
REGCO Group), REI on behalf of itself and each REI Affiliated Company (or its
successors REGCO and each REGCO Affiliated Company) shall provide to UNREGCO no
later than 8 days prior to the due date for each payment of an installment of
UNREGCO Consolidated State Tax ("Estimated UNREGCO State Installment Payment")
such information pertaining to REI (or its successor REGCO) or an REI Affiliated
Company (or successor REGCO Affiliated Company) as is necessary for UNREGCO to
compute the amount of such Estimated UNREGCO State Installment Payment.

                (ii) On or before the due date of such Estimated UNREGCO State
Installment Payment, UNREGCO shall inform REI (or its successor REGCO) of either
(A) the amount ("REI Estimated UNREGCO State Installment Payment") that REI on
behalf of itself and each REI Affiliated Company (or its successors REGCO and
each REGCO Affiliated Company) must pay UNREGCO with respect to such Estimated
UNREGCO State Installment Payment, or (B) the amount ("REI Estimated UNREGCO
State Installment Refund") UNREGCO must pay REI with respect to such Estimated
UNREGCO State Installment Payment. UNREGCO shall compute the amount of each REI
Estimated UNREGCO State Installment Payment or the REI Estimated UNREGCO State
Installment Refund, as the case may be, so as to equal the portion of the
Estimated UNREGCO State Installment Payment that is allocable to REI and the REI
Affiliated Companies (or as successors REGCO and the REGCO Affiliated Companies)
taking into account previous REI Estimated UNREGCO State Installment Payments
and REI Estimated UNREGCO State Installment Refunds that have been made for the
same Pre-Distribution Period. UNREGCO shall calculate the portion of each
Estimated UNREGCO State Installment Payment that is allocable to REI and the REI
Affiliated Companies (or as successors REGCO and the REGCO Affiliated Companies)
by (C) computing the sum of the estimated UNREGCO Consolidated State Tax
payments that REI and the REI Affiliated Companies (or as successors REGCO and
the REGCO Affiliated Companies) would have been required to pay if each of REI
and each REI Affiliated Company (or as successors REGCO and each REGCO
Affiliated Company) had filed an UNREGCO Consolidated State Tax Return on a
separate company basis for such estimated UNREGCO Consolidated State Tax period
and (D) taking into account adjustments, if any, that are applicable on a
Consolidated State Tax basis to the UNREGCO Consolidated State Tax Return for
such Pre-Distribution Period. REI (or its successor REGCO) shall pay UNREGCO the
REI Estimated UNREGCO State Installment Payment within 24 hours after the due
date of the UNREGCO Estimated REI State Installment Payment to which it relates,
and UNREGCO shall pay REI the REI Estimated UNREGCO State Installment Refund
within 24 hours after the due date of the Estimated UNREGCO State Installment
Payment to which it relates.

                                      -19-
   21

                (iii) If (A) the portion of the actual UNREGCO Consolidated
State Tax Liability for a Pre-Distribution Period that is allocable, as
determined by UNREGCO in accordance with the Tax Sharing Agreement and
consistent with the past practices utilized by the UNREGCO Tax Department in
completing previous UNREGCO Consolidated State Tax Returns, to REI and the REI
Affiliated Companies (or as successors REGCO and the REGCO Affiliated Companies)
exceeds (B)(I) the sum of the REI Estimated UNREGCO State Installment Payments
for such Pre-Distribution Period less (II) the sum of the REI Estimated UNREGCO
State Installment Refunds for such Pre-Distribution Period, then REI on behalf
or itself and each REI Affiliated Company (or as successors, REGCO and each
REGCO Affiliated Company) shall pay the amount of such excess to UNREGCO within
24 hours after the due date of the UNREGCO Consolidated State Tax Return for
such Pre-Distribution Period.

                (iv) If (A) (I) the sum of the REI Estimated UNREGCO State
Installment Payments for a Pre-Distribution period less (II) the sum of the REI
Estimated UNREGCO State Installment Refunds for such Pre-Distribution period
exceeds (B) the portion of the actual UNREGCO Consolidated State Tax Liability
for such Pre-Distribution Period that is allocable, as determined by UNREGCO in
accordance with the Tax Sharing Agreement and consistent with the past practices
utilized by the UNREGCO Tax Department in completing previous UNREGCO
Consolidated State Tax Returns to REI, and the REI Affiliated Companies (or as
successors, REGCO and the REGCO Affiliated Companies), then UNREGCO shall pay
the amount of such excess to REI within 24 hours after the due date of the
UNREGCO Consolidated State Tax Return for such Pre-Distribution Period.

                (v) For purposes of UNREGCO's determination under Section 4.1(e)
of the portion of the actual UNREGCO Consolidated State Tax liability that is
allocable to REI and the REI Affiliated Companies (or as successors REGCO and
the REGCO Affiliated Companies), UNREGCO shall allocate the amount by which the
net aggregate UNREGCO Consolidated State Tax liability for a particular
Pre-Distribution Period is increased or decreased because a Legal Entity
included in the UNREGCO Consolidated State Tax Return created a nexus in a
jurisdiction resulting in the imposition of an UNREGCO Consolidated State Tax by
such jurisdiction that would not otherwise had been imposed but for such nexus
either (A) completely to UNREGCO and the UNREGCO Affiliated Companies if such
Legal Entity is a member of the UNREGCO Group or (B) completely to REI and the
members of the REI Group (or successor REGCO Group) if the Legal Entity is not a
member of the UNREGCO Group.

           (f) Straddle Period Tax Payments.

                (i) In the case of Federal Income Taxes for any Straddle Period
of the REI Consolidated Group (or its successor REGCO Consolidated Group),
UNREGCO (on its behalf and on behalf of each UNREGCO Affiliated Company) or REI
(or its successor REGCO), as the case may be, shall pay to REI (or its successor
REGCO) or UNREGCO, as the case may be, amounts (and at times) determined in
accordance with the principles of Section 4.1(c) assuming that the relevant Tax
period for purposes of applying Section 4.1(c) is the period that begins on the
first day of the Straddle Period and ends on the Distribution Date. The actual
Federal Income Tax Liability of UNREGCO and each UNREGCO Affiliated Company
shall be determined in accordance with Section 2.4.

                                      -20-
   22

                (ii) In the case of any REI Consolidated State Taxes for the
Straddle Period, UNREGCO (on its behalf and on behalf of each UNREGCO Affiliated
Company) shall pay an amount to REI (or its successor REGCO), or REI on its
behalf and on behalf of each REI Affiliated Company (or its successor REGCO and
each REGCO Affiliated Company) shall pay an amount to UNREGCO, as the case may
be, amounts (and at times) determined in accordance with the principles of
Section 4.1(d) assuming that the relevant Tax period for purposes of applying
Section 4.1(d) is the period that begins on the first day of the Straddle Period
and ends on the Distribution Date. The actual REI Consolidated State Tax
liability attributable to UNREGCO and each UNREGCO Affiliated Company shall be
determined in accordance with Section 2.4.

                (iii) In the case of UNREGCO Consolidated State Taxes for the
Straddle Period, REI on its behalf and on behalf of each REI Affiliated Company
(or its successors REGCO and each REGCO Affiliated Company) shall pay an amount
to UNREGCO, or UNREGCO shall pay an amount to REI (or its successor REGCO), as
the case may be, amounts (and at times) determined in accordance with the
principles of Section 4.1(e) assuming that the relevant Tax period for purposes
of applying Section 4.1(e) is the period that begins on the first day of the
Straddle Period and ends on the Distribution Date. The actual UNREGCO
Consolidated State Tax liability of REI and each REI Affiliated Company (or its
successor REGCO and each REGCO Affiliated Company) shall be determined in
accordance with Section 2.4.

           4.2 Payments of Tax to Tax Authorities.

           (a) Federal Income Taxes. REI (or its successor REGCO) shall pay (or
cause to be paid) to the Service when due the Federal Income Taxes, if any, of
the REI Consolidated Group due and payable for the Pre-Distribution Periods and
Straddle Periods. REI (or its successor REGCO) shall pay (or cause to be paid)
to the Service when due all Federal Income Taxes, if any, of the REI
Consolidated Group (or the successor REGCO Consolidated Group) due and payable
for all Post-Distribution Periods. UNREGCO shall pay (or cause to be paid) to
the Service when due all Federal Income Taxes, if any, of the UNREGCO
Consolidated Group for all Post-Distribution Periods.

           (b) State Taxes. REI (or its successor, REGCO) shall pay (or cause to
be paid) to the appropriate Tax Authorities when due (i) all Separate State
Taxes, if any, that relate to REI or an REI Affiliated Company (or its
successors REGCO or a REGCO Affiliated Company) for any Pre-Distribution,
Straddle Period or Post-Distribution Period and (ii) all REI Consolidated State
Taxes, if any, for any Pre-Distribution Period, Straddle Period or
Post-Distribution Period. UNREGCO shall pay (or cause to be paid) to the
appropriate Tax Authorities when due (iii) all Separate State Taxes, if any,
that relate to UNREGCO or an UNREGCO Affiliated Company for any Pre-Distribution
Period, Straddle Period or Post-Distribution Period and (iv) all UNREGCO
Consolidated State Taxes, if any, that relate to any Pre-Distribution Period,
Straddle Period or Post-Distribution Period.

                                      -21-
   23

SECTION 5. ALLOCATION OF CERTAIN TAX ITEMS.

           5.1 Liability for Restructuring Taxes. Except as otherwise provided
by this Agreement, REI (or its successor REGCO) shall be responsible for any and
all Restructuring Taxes.

           5.2 NOLs; Carryforwards and Carrybacks.

           (a) REGCO shall notify UNREGCO after the Distribution Date of any
consolidated carryover item which may be partially or totally attributed to and
carried over by a UNREGCO Affiliated Company and will notify UNREGCO of
subsequent adjustments which may affect such carryover item.

           (b) If (i) the UNREGCO Consolidated Group generates a net operating
loss in a Post-Distribution Period that it requests in writing to REI (or its
successor REGCO) be carried back to a Pre-Distribution Period or Straddle Period
of the REI Consolidated Group (or successor REGCO Consolidated Group) and (ii)
REI (or its successor REGCO) consents to such request, which consent shall not
be unreasonably withheld, then REI (or its successor REGCO) shall amend the REI
Consolidated Group Consolidated Return for such Pre-Distribution Period or
Straddle Period seeking a refund of Tax for such net operating loss carryback
("NOL Carryback Refund"). Upon receipt of such refund, REI (or its successor
REGCO) shall pay the amount of such refund to UNREGCO within 24 hours of REI's
(or its successor REGCO's) receipt of such Tax refund. The preceding principles
shall be equally applicable to a net operating loss generated in a
Post-Distribution Period by the UNREGCO Group that can be carried back to an REI
Consolidated State Tax Return for a Pre-Distribution Period or Straddle Period.

           (c) To the extent the UNREGCO Consolidated Group generates any other
Tax Item in a Post-Distribution Period that is required by the Code or Treasury
Regulations to be carried back to a Pre-Distribution Period or Straddle Period,
then REI (or its successor REGCO) shall amend the REI Consolidated Group
Consolidated Return for such Pre-Distribution Period or Straddle Period seeking
a refund of Tax relating to such Tax Item ("Other Tax Item Refund"). Upon
receipt of such refund, REI (or its successor REGCO) shall pay the amount of
such refund to UNREGCO within 24 hours of REI's (or its successor REGCO's)
receipt of such Tax refund. The preceding principles shall be equally applicable
to the carry back of any other Tax Item generated in a Post-Distribution Period
by the UNREGCO Group to an REI Consolidated State Tax Return for a
Pre-Distribution Period or Straddle Period.

           5.3 Adjustments.

           (a) In General. Except for increases or decreases to Tax subject to
Section 5.3(b) or Section 5.3(c), if a Redetermination results in an increase or
decrease to the Tax liability reported on an REI Consolidated Group (or
successor REGCO Consolidated Group) Consolidated Return or an REI Consolidated
State Tax Return for a Pre-Distribution Period or the Straddle Period, then

                (i) the amounts required to be paid between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be recomputed for
such taxable period 


                                      -22-
   24

to take into account any such increase or decrease to the Tax that occurs as a
result of such Redetermination,

                (ii) payments previously made between REI (or its successor
REGCO) and UNREGCO pursuant to Section 4 shall not be adjusted to take into
account any such increase or decrease to the Tax that occurs as a result of such
Redetermination,

                (iii) REI (or its successor REGCO) shall be liable for and shall
pay to the appropriate Tax Authority when due any increase in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination,

                (iv) REI (or its successor REGCO) shall indemnify and hold
UNREGCO harmless from any increase in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination,

                (v) UNREGCO shall not be liable for and shall not pay any
increase in Tax for such Pre-Distribution Period or Straddle Period that occurs
as a result of such Redetermination,

                (vi) REI (or its successor REGCO) shall be entitled to, and
shall retain, all refunds related to any decrease in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination,

                (vii) UNREGCO shall not be entitled to, and shall not retain,
any refund related to any decrease in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination and

                (viii) with respect to increases or decreases in Tax related to
an Option Deduction Reallocation or to a Temporary Tax Adjustment, REI (or its
successor REGCO) and UNREGCO shall have the payment obligations to the other as
set forth in Section 5.4(h) or Section 5.6, respectively.

           (b) UNREGCO Retained Tax Liability Exception. For an increase or
decrease to the Tax reported on an REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Return or an REI Consolidated State Tax Return
for a Pre-Distribution Period or a Straddle Period that occurs as a result of a
Redetermination and that relates to an UNREGCO Retained Tax Liability:

                (i) Increases to Tax. REI (or its successor REGCO) shall pay to
the appropriate Tax Authority when due all increases in Tax for such
Pre-Distribution Period or Straddle Period that occur as a result of such
Redetermination, and

                    (A) within 15 days of making any payment under Section
5.3(b)(i), REI shall provide UNREGCO notice of the amounts of payment to be made
between UNREGCO and REI (or its successor REGCO) of UNREGCO's allocable share of
the Tax under Section 4 after the amounts required to be paid pursuant to
Section 4 are recomputed, and

                                      -23-
   25

                    (B) within 15 days of receiving the notice referred to in
Section 5.3(i)(A), UNREGCO shall pay REI (or its successor REGCO) an amount
equal to the increase, if any, in UNREGCO's allocable share of Tax under Section
4 referred to in Section 5.3(b)(i)(A).

                    (C) If UNREGCO disagrees with an item of information
provided on the notice referred to in Section 5.3(b)(i)(A), UNREGCO may invoke
the resolution procedures of Section 8.3.

                (ii) Decreases to Tax. REI (or its successor REGCO) shall not be
entitled to, and shall not retain, any refund related to any decrease in tax
liability for such Pre-Distribution Period or Straddle Period that occurs as a
result of such Redetermination, and shall, within 15 days of receiving such
refund, pay such amount to UNREGCO.

           (c) UNREGCO Consolidated State Tax Exception. If a Redetermination
results in an increase or decrease to the Tax reported on a UNREGCO Consolidated
State Tax Return for a Pre-Distribution Period or a Straddle Period, then

                (i) the amounts required to be paid between REI (or its
successor REGCO) and UNREGCO pursuant to Section 4 shall not be recomputed for
such taxable period to take into account any such increase or decrease to the
Tax that occurs as a result of such Redetermination,

                (ii) payments previously made between REI (or its successor
REGCO) and UNREGCO pursuant to Section 4 shall not be adjusted to take into
account any such increase or decrease to the Tax that occurs as a result of such
Redetermination,

                (iii) UNREGCO shall be liable for and shall pay to the
appropriate Tax Authority when due any increase in Tax for such Pre-Distribution
Period or Straddle Period that occurs as a result of such Redetermination,

                (iv) UNREGCO shall indemnify and hold REI (or its successor
REGCO) harmless from any increase in Tax for such Pre-Distribution Period or
Straddle Period that occurs as a result of such Redetermination,

                (v) REI (or its successor REGCO) shall not be liable for and
shall not pay any increase in Tax for such Pre-Distribution Period or Straddle
Period that occurs as a result of such Redetermination,

                (vi) UNREGCO shall be entitled to, and shall retain, all refunds
related to any decrease in Tax for such Pre-Distribution Period or Straddle
Period that occurs as a result of such Redetermination,

                (vii) REI (or its successor REGCO) shall not be entitled to, and
shall not retain, any refund related to any decrease in Tax for such
Pre-Distribution Period or Straddle Period that occurs as a result of such
Redetermination and

                (viii) with respect to increases or decreases in Tax related to
an Option Reallocation Deduction or to a Temporary Tax Adjustment, REI (or its
successor REGCO) and 


                                      -24-
   26

UNREGCO shall have the payment obligations to the other as set forth in Section
5.4(h) or Section 5.6, respectively.

           (d) Characterization of Redetermination Payment. A payment by UNREGCO
to REI (or its successor REGCO) pursuant to this Section 5.3, Section 5.4(h) or
Section 5.6 shall be treated as a distribution under Section 301 of the Code by
UNREGCO to REI at a time when UNREGCO and REI filed a Consolidated Tax Return. A
payment by REI (or its successor REGCO) to UNREGCO pursuant to this Section 5.3
shall be treated as a nontaxable contribution by REI to the capital of UNREGCO
at a time when UNREGCO and REI filed a Consolidated Tax Return.

           5.4 Allocation of Tax Items.

           (a) General Rule. Except to the extent another provision of this
Agreement provides to the contrary, all Tax computations (1) for Tax periods
ending on the Distribution Date and (2) the immediate following Tax period of
UNREGCO or any UNREGCO Affiliated Company, shall be made pursuant to the
principles of Section 1.1502-76(b) of the Treasury Regulations or of a
corresponding provision under the laws of other jurisdictions, as determined by
REI (or its successor, REGCO), taking into account all reasonable suggestions
made by UNREGCO with respect thereto.

           (b) Earnings and Profits. Within one hundred eighty (180) days after
receipt of a written request by UNREGCO, REGCO will advise UNREGCO in writing of
the allocation of earnings and profits of REGCO pursuant to Section 312(h) of
the Code as a result of the Distribution. If UNREGCO disagrees with such
allocation, UNREGCO may invoke the resolution procedures of Section 8.3.

           (c) Overall Foreign Loss and Separate Limitation Loss. Within sixty
(60) days after the filing of the Federal Income Tax Return for the REI
Consolidated Group (or its successor REGCO Consolidated Group) for the taxable
year that includes the Distribution Date REI (or its successor REGCO) shall
advise UNREGCO in writing of the allocation, consistent with the provisions of
Treasury Regulation Section 1.1502-9, between REI (or its successor REGCO) and
UNREGCO of the overall foreign loss and separate limitation loss as of the
Distribution Date; provided, however that REI (or its successor REGCO) shall
provide UNREGCO with estimates of such amounts as reasonably requested by
UNREGCO. If UNREGCO disagrees with such allocation, UNREGCO may invoke the
resolution procedures of Section 8.3.

           (d) Alternative Minimum Tax Items. Within sixty (60) days of the
filing of the Federal Income Tax Return for the REI Consolidated Group (or its
successor REGCO Consolidated Group) for the taxable year that includes the
Distribution Date, REI (or its successor REGCO) will advise UNREGCO in writing
of the allocation, consistent with Proposed Treasury Regulation Section
1.1502-55 (and any subsequently finalized regulations) between REI (or its
successor REGCO) and UNREGCO of the consolidated positive adjusted current
earnings adjustment as of the Distribution Date; provided, however, that REI (or
its successor REGCO) shall provide UNREGCO with estimates of such amount as
reasonably requested by UNREGCO. If UNREGCO disagrees with such allocation,
UNREGCO may invoke the 


                                      -25-
   27

resolution procedures of Section 8.3. REI (or its successor REGCO) shall also
provide UNREGCO with estimates of other alternative minimum Tax items as
reasonably requested by UNREGCO.

           (e) Other Tax Item Allocations. The allocation of any other Tax Item
shall be made by REI (or its successor REGCO) either (i) in accordance with
applicable sections of the Code or Treasury Regulations, or (ii) if no section
of the Code or applicable Treasury Regulations provides for an allocation of
such Tax Item, in accordance with an equitable method mutually agreed to in good
faith by the parties. REI (or its successor REGCO) shall advise UNREGCO in
writing of any such allocation within 60 days after the filing of the Federal
Income Tax Return for the REI Consolidated Group (or its successor REGCO
Consolidated Group) for the taxable year that includes the Distribution Date. If
UNREGCO disagrees with such allocation, UNREGCO may invoke the resolution
procedures of Section 8.3.

           (f) DITs. REI (or its successor REGCO) shall apply the Consolidated
Return Regulations and the Consolidated Returns filed by the REI Consolidated
Group (or successor REGCO Consolidated Group) pursuant to this Agreement or the
Tax Sharing Agreement, respectively, to determine the timing of the recognition
of Tax Items with respect to DITs and to determine which Consolidated Group (and
which member thereof) shall bear the Tax benefit or burden of such Tax Items,
and each Consolidated Group shall be responsible for the Tax Items recognized by
its respective members with respect to any DITs. REI (or its successor REGCO)
shall advise UNREGCO in writing of any such determination within 60 days after
the filing of the Federal Income Tax Return for the REI Consolidated Group (or
its successor REGCO Consolidated Group) for the taxable year that includes the
Distribution Date. If UNREGCO disagrees with such determinations, UNREGCO may
invoke the resolution procedures of Section 8.3.

           (g) Subpart F. Notwithstanding any provision of this Agreement to the
contrary, to the extent the UNREGCO Consolidated Group must pay Tax attributable
to a Subpart F inclusion ("Subpart F Tax") under the Code that is taken into
account as a result of a Tax arising in the UNREGCO Consolidated Group
Consolidated Tax Return for the taxable year that begins on the day after the
Distribution Date (or in a later taxable year if there is a deficit in earnings
and profits that defers such Subpart F Tax to a taxable year after the taxable
year that begins on the day after the Distribution Date), REI (or its successor
REGCO) shall pay to UNREGCO a percentage of the Subpart F Tax equal to the
percentage of days of the 12-month Tax period to which such Subpart F Tax
relates based on the number of days in such 12-month Tax period before the
Distribution Date bears to the total days in such 12-month Tax period that
includes the Distribution Date, but only to the extent that the Subpart F Tax
issue relates to an income inclusion that is attributable to an item that
accrued ratably (utilizing principles similar to those of the ratable allocation
election of Treasury Regulation Section 1.1502-76(b)(2)(ii)(D), adjusting for
extraordinary items similar to those set forth in Treasury Regulation Section
1.1502-76(b)(2)(ii)(C)) over the 12-month Tax period. Within 15 days after the
filing of the Tax Return for the taxable year that begins on the day after the
Distribution Date (or such later taxable year if there is a deficit in earnings
and profits that defers such Subpart F Tax to a taxable year after the taxable
year that begins on the day after the Distribution Date), UNREGCO shall notify
REI (or its successor REGCO) in writing as to the amount of payment, if any, REI
(or its successor REGCO) owes to UNREGCO under the preceding sentence. REI (or
its successor 


                                      -26-
   28

REGCO) shall pay UNREGCO such amount within 15 days of receiving such notice. If
REI (or its successor REGCO) disagrees with such amount, REI (or its successor
REGCO) may invoke the resolution procedures of Section 8.3.

           (h) Stock Awards. Any deduction attributable to (i) the vesting or
exercise after the Distribution Date of an UNREGCO Stock Award or REI Stock
Award under Section 83(h) of the Code or Treasury Regulation Section 1.83-6 or
(ii) a disqualifying disposition with respect to either an UNREGCO Stock Award
or REI Stock Award under Section 421(b) of the Code shall be claimed on the
Consolidated Return of the REI Consolidated Group (or successor REGCO
Consolidated Group) in the case of an REI Stock Award and on the Consolidated
Return of the UNREGCO Consolidated Group in the case of an UNREGCO Stock Award.
In any case in which as a result of a Redetermination the allocation described
in the preceding sentence of this Section 5.4(h) is not sustained and the REI
Consolidated Group (or successor REGCO Consolidated Group) or the UNREGCO
Consolidated Group, as the case may be, is allocated a deduction as a result of
a Redetermination contrary to the provisions of this Section 5.4(h) ("Option
Deduction Reallocation"), then UNREGCO on behalf of the UNREGCO Consolidated
Group or REI (or successor REGCO) on behalf of the REI Consolidated Group (or
successor REGCO Consolidated Group), as the case may be, shall pay to the other
a sum, in cash, equal to the sum of (i) the amount of the deduction allocated
contrary to the first sentence of this Section 5.4(h) multiplied by the sum of
(A) the highest marginal Tax rate as provided under Section 11 of the Code and
(B) 2.925% and (ii) interest and/or penalties, if any, that are included as part
of the Redetermination. If the REI Consolidated Group (or successor REGCO
Consolidated Group) or the UNREGCO Consolidated Group, as the case may be,
receives a deduction as a result of an Option Deduction Reallocation, then REI
(or its successor REGCO) or UNREGCO, as the case may be, shall inform UNREGCO or
REI (or its successor REGCO), as the case may be, within 15 days of receiving
such deduction the amount of such payment that REI (or its successor REGCO) or
UNREGCO, as the case may be, is obligated to pay to UNREGCO or REI or its
successor REGCO), as the case may be, pursuant to the preceding sentence. REI
(or its successor REGCO) or UNREGCO, as the case may be, shall pay such amount
to UNREGCO or REI (or its successor REGCO), as the case may be, within 15 days
after it provides notice of such amount. If UNREGCO or REI (or its successor
REGCO), as the case may be, does not agree with such amount, UNREGCO or REI (or
its successor REGCO), as the case may be, may invoke the resolution procedures
of Section 8.3. REI (or its successor REGCO) and the REI Affiliated Companies
(or the successor REGCO Affiliated Companies) shall indemnify and hold harmless
UNREGCO and the UNREGCO Affiliated Companies, and UNREGCO and the UNREGCO
Affiliated Companies shall indemnify and hold harmless REI (or its successor
REGCO) and the REI Affiliated Companies (or the successor REGCO Affiliated
Companies), from and against any Taxes, penalties or interest required to be
paid as a result of the breach by REI (or its successor REGCO) and the REI
Affiliated Companies (or the successor REGCO Affiliated Companies) or UNREGCO
and the UNREGCO Affiliated Companies, as the case may be, of any obligation
under this Section 5.4(h). Further, if, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other governing
body having jurisdiction subsequent to the date of this Agreement, performance
of this Section 5.4(h) shall become impracticable or impossible, the parties
hereto shall use their best efforts to find an alternative means to achieve the
same or substantially the same result as that contemplated by this Section
5.4(h).

                                      -27-
   29

           5.5 Foreign Taxes. Notwithstanding any provision of this Agreement to
the contrary, this Agreement shall not apply to Taxes that are imposed by a
Foreign Country on a Foreign Legal Entity.

           5.6 Temporary Tax Adjustments.

           (a) Tax Adjustment. Upon a Redetermination of an REI Consolidated
Group (or successor REGCO Consolidated Group) Consolidated Return Tax for a
Pre-Distribution Period or the Straddle Period and subject to Section 5.6(h), a
"Tax Adjustment" is caused if such Redetermination results in any increase or
decrease to the amount of an item of income or of deduction, gain, or loss as
compared to the amount of such item reported on the REI Consolidated Group (or
successor REGCO Consolidated Group) Consolidated Tax Return.

           (b) Temporary Tax Adjustment. Subject to Section 5.6(h), a Tax
Adjustment is a "Temporary Tax Adjustment" if such Tax Adjustment

                (i) constitutes a temporary difference or a tax carryforward
under paragraphs 3(c), 8(b), or 13 of Statement of Financial Accounting Standard
109 ("SFAS 109");

                (ii) is expected, at the time of such Redetermination, to result
in a corresponding and offsetting decrease or increase to the amount of an item
of income or of deduction, gain or loss as compared to the amount of such item
that would otherwise have been expected (but for the Redetermination) to have
been recognized by the UNREGCO Consolidated Group during a Post-Distribution
Period;

                (iii) does not relate to the income tax basis of a
nondepreciable, nonamortizable or nondepletable asset or to the basis of stock
of any company (whether domestic or foreign) in which UNREGCO holds an equity
interest irrespective of the application of paragraph 34 of SFAS 109; and

                (iv) does not relate to a Pre-1997 Tax Liability or an Option
Deduction Reallocation.

           (c) Value of Tax Adjustment and of Temporary Tax Adjustment. The
value of a Tax Adjustment equals the product of

                (i) the amount of the increase or decrease to the item of
income, deduction, gain or loss as compared to the amount of such item reported
on the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Tax Return and

                (ii) (A) if such Tax Adjustment is not an RES Temporary Tax
Adjustment, the highest marginal Federal Income Tax rate applicable to
corporations in effect during the Pre-Distribution Period or Straddle Period to
which the Redetermination that produced such Tax Adjustment relates

                     (B) if such Tax Adjustment is an RES Temporary Tax
Adjustment, the sum of

                                      -28-
   30

                          (I)  2% and

                          (II) the highest marginal Federal Income Tax rate 
applicable to corporations in effect during the Pre-Distribution Period or
Straddle Period to which the Redetermination that produced such Tax Adjustment
relates.

A Tax Adjustment that constitutes an (i) increase to an item of expense or loss
as compared to the amount of such item reported on the REI Consolidated Group
(or successor REGCO Consolidated Group) Consolidated Tax Return or a (ii)
decrease to an item of income or gain as compared to the amount of such item
reported on the REI Consolidated Group (or successor REGCO Consolidated Group)
Consolidated Tax Return shall constitute a negative amount. A Tax Adjustment
that constitutes a (i) decrease to an item of expense or loss as compared to the
amount of such item reported on the REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Tax Return or an (ii) increase to an item of
income or gain as compared to the amount of such item reported on the REI
Consolidated Group (or successor REGCO Consolidated Group) Consolidated Tax
Return shall constitute a positive amount. The value of a Temporary Tax
Adjustment equals its value as a Tax Adjustment.

           (d) Temporary Tax Adjustment Balance.

                (i) At any given time, the "Temporary Tax Adjustment Balance"
equals the sum of the values of the Temporary Tax Adjustments that have been
caused by Redeterminations of the REI Consolidated Group (or successor REGCO
Consolidated Group) Consolidated Return for a Pre-Distribution Period or
Straddle Period.

                (ii) For purposes of computing the Temporary Tax Adjustment
Balance pursuant to this Section 5.6(d),

                    (A) positive values and negative values shall offset one
another and

                    (B) the Temporary Tax Adjustment Balance may be a negative
amount.

           (e) Notice. Within 15 days after each Redetermination of an REI
Consolidated Group (or successor REGCO Consolidated Group) Consolidated Return
relating to a Pre-Distribution Period or Straddle Period, REI (or its successor
REGCO) shall provide written notice to UNREGCO setting forth

                (i) a brief description of each Tax Adjustment caused by such
Redetermination,

                (ii) whether each enumerated Tax Adjustment is a Temporary Tax
Adjustment,

                (iii) the value of each Temporary Tax Adjustment and the
identification of the taxable year to which the Temporary Tax Adjustment
relates,

                                      -29-
   31

                (iv) the value of the Temporary Tax Adjustment Balance at the
time such notice is prepared, including the effect of the Temporary Tax
Adjustment related to the Redetermination with respect to such notice,

                (v) the value of the Temporary Tax Adjustment Payment Balance at
the time such notice is prepared, including the effect of the Temporary Tax
Adjustment related to the Redetermination with respect to such notice,

                (vi) the amount of additional Federal Income Tax (excluding
interest and penalties) that the REI Consolidated Group (or successor REGCO
Consolidated Group) must pay, or the amount of Federal Income Tax (excluding
interest and penalties) that is refunded to the REI Consolidated Group (or
successor REGCO Consolidated Group), for each taxable year (collectively,
"Redetermination Tax") that applies to such Redetermination,

                (vii) the amount of interest that the REI Consolidated Group (or
successor REGCO Consolidated Group) must pay (represented as a positive amount),
or the amount of interest that is refunded to the REI Consolidated Group (or
successor REGCO Consolidated Group) (represented as a negative amount), for each
taxable year (collectively, "Redetermination Interest") that applies to such
Redetermination,

                (viii) the portion of Redetermination Interest for each taxable
year that applies to such Redetermination that constitutes UNREGCO Basket
Interest and UNREGCO Non-Basket Interest, and

                (ix) the amount of any payment that one party is obligated to
pay the other pursuant to Section 5.6(g) or 5.6(h) after applying Section
5.6(e)(iii)-(viii).

If UNREGCO disagrees with any item on such notice, UNREGCO may invoke the
resolution procedures of Section 8.3.

           (f) Temporary Tax Adjustment Payment Balance.

                (i) At any given time, the "Temporary Tax Adjustment Payment
Balance" equals the sum of the values of the payments that have been made
pursuant to Section 5.6(g).

                (ii) The value of a payment that is made pursuant to Section
5.6(g) equals the amount of the payment.

                (iii) A payment from UNREGCO to REI (or its successor REGCO)
pursuant to Section 5.6(g) shall be treated as a positive amount, and a payment
from REI (or its successor REGCO) to UNREGCO pursuant to Section 5.6(g) shall be
treated as a negative amount.

                (iv) For purposes of computing the Temporary Tax Adjustment
Payment Balance pursuant to this Section 5.6(g),

                                      -30-
   32

                    (A) positive values and negative values shall offset one
another and

                    (B) the Temporary Tax Adjustment Payment Balance may be a
negative amount.

           (g) Temporary Tax Adjustment Payment. Within 15 days after REI (or
its successor REGCO) provides a notice pursuant to Section 5.6(e), REI (or its
successor REGCO) shall make a payment to UNREGCO, or UNREGCO shall make a
payment (the "Temporary Tax Adjustment Payment") to REI (or its successor
REGCO), as the case may be, in an amount such that after the value of such
Temporary Tax Adjustment Payment is added to the existing Temporary Tax
Adjustment Payment Balance, the following is true:

                (i) if the Temporary Tax Adjustment Balance is less than
negative one million ($-1,000,000), then the Temporary Tax Adjustment Payment
Balance equals the amount, represented by a negative value, by which the
Temporary Tax Adjustment Balance is less than negative one million
($-1,000,000),

                (ii) if the Temporary Tax Adjustment Balance equals an amount
greater than or equal to negative one million ($-1,000,000) and less than or
equal to positive fifteen million ($15,000,000), then the Temporary Tax
Adjustment Payment Balance equals zero and

                (iii) if the Temporary Tax Adjustment Balance equals an amount
that is greater than positive fifteen million ($15,000,000), then the Temporary
Tax Adjustment Payment Balance equals the amount by which the Temporary Tax
Adjustment Balance is greater than positive fifteen million ($15,000,000).

Exhibit 1 illustrates examples of calculations under Section 5.6.

           (h) Interest Payments.

                (i) UNREGCO Interest. For each taxable year that applies to a
Redetermination relating to a Pre-Distribution Period or Straddle Period of the
REI Consolidated Group (or successor REGCO Consolidated Group), the portion of
Redetermination Interest that constitutes UNREGCO Interest shall be determined
as follows:

                    (A) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are negative and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are positive, then

                        (I) if the Redetermination Interest is a positive 
amount, no amount of such Redetermination Interest constitutes UNREGCO Interest,
and

                        (II) if the Redetermination Interest is a negative 
amount, all of such Redetermination Interest constitutes UNREGCO Interest.

                                      -31-
   33

                    (B) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are positive and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are negative, then

                        (I) if the Redetermination Interest is a positive 
amount, all of such Redetermination Interest constitutes UNREGCO Interest, and

                        (II) if the Redetermination Interest is a negative 
amount, none of such Redetermination Interest constitutes UNREGCO Interest.

                    (C) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are positive and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are positive, then

                        (I) if the Redetermination Interest is a positive 
amount, then UNREGCO Interest equals the product of (1) the value of the
Redetermination Interest and (2) the absolute value of the quotient of the sum
of the values of Temporary Tax Adjustments for such taxable year divided by the
Redetermination Tax for such taxable year, and

                        (II) if the Redetermination Interest is a negative 
amount, then none of such Redetermination Interest constitutes UNREGCO Interest.

                    (D) if the sum of the values of the Temporary Tax
Adjustments for a taxable year are negative and if the sum of the values of the
Tax Adjustments (ignoring the value of the Temporary Tax Adjustments) for such
taxable year are negative, then

                        (I) if the Redetermination Interest is a positive 
amount, then none of such Redetermination Interest constitutes UNREGCO Interest,
and

                        (II) if the Redetermination Interest is a negative 
amount, then UNREGCO Interest equals the product of (1) the value of the
Redetermination Interest and (2) the absolute value of the quotient of the sum
of the values of Temporary Tax Adjustments for such taxable year divided by the
Redetermination Tax for such taxable year.

                (ii) UNREGCO Basket Interest. UNREGCO Basket Interest shall
constitute a Temporary Tax Adjustment, regardless of whether the conditions of
Section 5.6(a) or (b) are met. The value of UNREGCO Basket Interest equals the
amount of such UNREGCO Basket Interest. UNREGCO Basket Interest that represents
a portion of the Redetermination Interest that the REI Consolidated Group (or
successor REGCO Consolidated Group) paid shall be treated as a positive amount,
and UNREGCO Basket Interest that represents a portion of the Redetermination
Interest that the REI Consolidated Group (or successor REGCO Consolidated Group)
received as a refund shall be treated as a negative amount.

                (iii) UNREGCO Non-Basket Interest.

                    (A) UNREGCO Non-Basket Interest shall not constitute a
Temporary Tax Adjustment. The value of UNREGCO Non-Basket Interest equals the
amount of such UNREGCO Non-Basket Interest. UNREGCO Non-Basket Interest that
represents a portion 



                                      -32-
   34

of the Redetermination Interest that the REI Consolidated Group (or successor
REGCO Consolidated Group) paid shall be treated as a positive amount, and
UNREGCO Non-Basket Interest that represents a portion of the Redetermination
Interest that the REI Consolidated Group (or successor REGCO Consolidated Group)
received as a refund shall be treated as a negative amount.

                    (B) Within 15 days after REI (or its successor REGCO)
provides a notice pursuant to Section 5.6(e), then

                        (I) if the value of the UNREGCO Non-Basket Interest for 
a taxable year that applies to the Redetermination is positive, UNREGCO shall
make a payment to REI (or its successor REGCO) equal to the value of the UNREGCO
Non-Basket Interest for such taxable year, and

                        (II) if the value of the UNREGCO Non-Basket Interest 
for a taxable year that applies to the Redetermination is negative, REI (or its
successor REGCO) shall make a payment to REI (or its successor REGCO) equal to
the absolute value of the UNREGCO Non-Basket Interest for such taxable year.

           5.7 Continuing Covenants. REI (for itself and each REI Affiliated
Company), REGCO (for itself and each REGCO Affiliated Company) and UNREGCO (for
itself and each UNREGCO Affiliated Company) agree (1) not to take any action
reasonably expected to result in a new or changed Tax Item that is detrimental,
and (2) to take any action reasonably requested by the other party that would
reasonably be expected to result in a new or changed Tax Item that produces a
benefit or avoids a detriment, provided that such action does not result in any
additional cost not fully compensated for by the requesting party. The parties
hereby acknowledge that the preceding sentence is not intended to limit, and
therefore shall not apply to, the rights of the parties with respect to matters
otherwise covered by this Agreement.

SECTION 6. INDEMNIFICATION PROVISIONS.

           6.1 General Indemnification. UNREGCO and each UNREGCO Affiliated
Company shall jointly and severally indemnify REI, each REI Affiliated Company,
REGCO, each REGCO Affiliated Company and their respective directors, officers
and employees, and hold them harmless from and against any and all Taxes for
which UNREGCO or any UNREGCO Affiliated Company is liable under this Agreement
and any loss, cost, damage or expense, including reasonable attorneys' fees and
costs, that is attributable to, or results from, the failure of UNREGCO, any
UNREGCO Affiliated Company or any of their respective directors, officers, or
employees to make any payment required to be made under this Agreement. REI,
each REI Affiliated Company, REGCO and each REGCO Affiliated Company shall
jointly and severally indemnify UNREGCO, each UNREGCO Affiliated Company and
their respective directors, officers and employees, and hold them harmless from
and against any and all Taxes for which REGCO or any REGCO Affiliated Company is
liable under this Agreement and any loss, cost, damage or expense, including
reasonable attorneys' fees and costs, that is attributable to, or results from
the failure of REI, any REI Affiliated Company, REGCO any REGCO Affiliated
Company or any of their directors, officers or employees to make any payment
required to be made under this Agreement.

                                      -33-
   35

           6.2 Spinoff Indemnification.

           (a) In General. Notwithstanding anything herein or in the Tax Sharing
Agreement to the contrary, the provisions of this Section 6 shall govern all
matters among the parties hereto related to an Indemnified Liability (as defined
in Section 6.3 below) and an Indemnity Amount (as defined in Section 6.5 below).

           (b) Continued Conduct of Business. During the Restricted Period, each
of REI, each REI Affiliated Entity, REGCO, each REGCO Affiliated Entity, UNREGCO
and each UNREGCO Affiliated Entity agree that it (i) will not cause or permit to
be caused a change in its Control (ii) nor cease the active conduct of its trade
or business within the meaning of Section 355(b) of the Code to the extent the
existence of such trade or business was necessary to a conclusion reached by the
Service in the Initial Private Letter Ruling, unless expressly required or
permitted pursuant to the Master Separation Agreement or unless, for actions
after the Distribution Date, REI (or its successor REGCO) or UNREGCO first
obtains, and permits the other party (UNREGCO or REI (or its successor REGCO),
as the case may be) to review, a supplemental ruling from the Service, that such
action or non-action referred to in this Section 6.2(b), will not affect the
qualification of the First Spinoff and the Spinoff under Section 355 of the
Code.

           (c) Ruling Requirement for Major Transactions Undertaken during the
Restricted Period. During the Restricted Period, REI, REGCO, and UNREGCO will
not enter into any of the following transactions, or enter into any other
transaction ("Prohibited Transaction") which, by itself or in the aggregate, may
cause the First Distribution or Distribution to be treated as part of a plan
pursuant to which one or more persons acquire directly or indirectly stock
representing Control of REI, REGCO or UNREGCO, as the case may be, within the
meaning of Code Section 355(e):

                (i) merge or consolidate with or into any other corporation;

                (ii) liquidate or partially liquidate (within the meaning of
such terms as defined in Section 346 and Section 302, respectively, of the
Code);

                (iii) sell or transfer all or substantially all its assets
(within the meaning of Rev. Proc. 77-37, 1977-2 C.B. 568) in a single
transaction or series of related transactions;

                (iv) redeem or otherwise repurchase any of REGCO or UNREGCO's
capital stock; or

                (v) make any change in its equity structure (including stock
issuances, pursuant to the exercise of options or otherwise, option grants, the
adoption of, or authorization of shares under a stock option plan, capital
contributions or acquisition but not including the Distribution),

(actions (i), (ii), (iii), (iv) and (v) and the Prohibited Transactions are
collectively referred to as the "Prohibited Acts"), unless expressly required or
permitted pursuant to the Master Separation Agreement or unless for actions
after the Distribution Date, REI (or its successor REGCO) or UNREGCO first
obtains, and permits the other party (UNREGCO or REGCO, as the case may 



                                      -34-
   36

be) to review, a supplemental ruling from the Service, that such transaction,
and any transaction related thereto, will not affect the qualification of the
First Spinoff and the Spinoff under Section 355 of the Code.

           (d) Indemnification Obligation. If REI, REGCO or UNREGCO breaches any
representations set forth in Section 3 of this Agreement or takes any action or
enters into any agreement to take any action, including, without limitation, any
breach of Sections 6.2(b) and (c), and the First Spinoff or Spinoff shall fail
to qualify under Section 355 of the Code as a result of such action or actions,
then such party (the "Indemnifying Party") shall indemnify and hold harmless the
other party against any and all federal, state and local taxes, interest,
penalties and additions to Tax imposed upon or incurred by REI, the REI
Consolidated Group, REGCO, the REGCO Consolidated Group, UNREGCO or the UNREGCO
Consolidated Group, as the case may be, (each such party an "Indemnitee") as a
result of the failure of the First Spinoff or the Spinoff to so qualify to the
extent provided herein.

           6.3 Indemnified Liability - First Spinoff and Spinoff. For purposes
of this Agreement, the term "Indemnified Liability" means any liability imposed
upon or incurred by (1) REI, any member of the REI Group, REGCO or any member of
the REGCO Group for which REI, REGCO or any other member of the REI Group or
REGCO Group is indemnified and held harmless under Section 6.2, or (2) UNREGCO
or any member of the UNREGCO Group, for which UNREGCO or any other member of the
UNREGCO Group is indemnified and held harmless under Section 6.2, but in either
case (1) or (2) shall not refer to the amount of such liability.

           6.4 Amount of Indemnified Liability for Income Taxes - First Spinoff
and Spinoff. The amount of an Indemnified Liability for a federal or state Tax
incurred by an Indemnitee based on or determined with reference to income shall
be deemed to be the amount of Tax computed by multiplying (i) the taxing
jurisdiction's highest effective Tax rate applicable to Indemnitee for the
character of the Tax Item subject to Tax as a result of the failure of the First
Spinoff and/or Spinoff to qualify under Section 355 of the Code for the taxable
period in which the First Spinoff and/or Spinoff occurs, times (ii) the gain or
income of Indemnitee which is subject to Tax in the taxing jurisdiction as a
result of the failure of the First Spinoff and/or Spinoff to qualify under
Section 355 of the Code, and (iii) in the case of a state, times the percentage
representing the extent to which such gain or income is apportioned or allocated
to such state; provided, however, that in the case of a state Tax determined as
a percentage of Federal Income Tax liability, the amount of Indemnified
Liability shall be deemed to be the amount of Tax computed by multiplying (x)
that state's highest effective rate applicable to Indemnitee for the character
of the Tax Item subject to Tax as a result of the failure of the First Spinoff
and/or Spinoff to qualify under Section 355 of the Code for the taxable period
in which the First Spinoff and/or Spinoff occurs, times (y) the amount of deemed
Federal Income Tax (whether or not incurred) imposed upon Indemnitee from the
failure of the First Spinoff and/or Spinoff to qualify under Section 355 of the
Code computed in accordance with this Section 6.4, times (z) the percentage
representing the extent to which the gain or income required to be recognized on
the First Spinoff and/or Spinoff is apportioned to such state.

           6.5 Indemnity Amount - First Spinoff and Spinoff. With respect to any
Spinoff Indemnified Liability, the amount which the Indemnifying Party shall pay
to Indemnitee


                                      -35-
   37

as indemnification (the "Indemnity Amount") shall be the sum of (i) the amount
of the Indemnified Liability, as determined under Section 6.4, (ii) any
penalties and interest imposed with respect to the Indemnified Liability and
(iii) an amount such that when the sum of the amounts set forth in clauses (i),
(ii) and this clause (iii) of this Section 6.5 are reduced by all Taxes imposed
as a result of the receipt of such sum, (taking into account any related current
credits or deductions payable by the Indemnitee or any of its Affiliated
Companies under any law or governmental authority) the reduced amount is equal
to the sum of the amounts set forth in clauses (i) and (ii) of this Section 6.5.

           6.6 Indemnity Alternate Remedy - First Spinoff and Spinoff. Each of
REI (or its successor REGCO) and UNREGCO, recognizes that any failure by it or
any REI Affiliated Company (or REGCO Affiliated Company) or UNREGCO Affiliated
Company to comply with its obligations under this Section 6 may result in
additional Taxes which could cause irreparable harm to REI (or its successor
REGCO) and its shareholders, the REI Affiliated Companies (or REGCO Affiliated
Companies), and/or UNREGCO and the UNREGCO Affiliated Companies, and that such
entities may be inadequately compensated by monetary damages for such failure.
Accordingly, if (A) (i) a party shall fail to comply with any obligation under
this Section 6 which would be reasonably foreseeable to result in any additional
Taxes, and (ii) such party shall fail to provide the other party with a written
legal opinion of a Tax Expert that the failure to comply with such obligation
will not result in any increase in Taxes of REGCO and its shareholders, any REI
Affiliated Company (or REGCO Affiliated Company), UNREGCO or any UNREGCO
Affiliated Company, as the case may be, and such opinion is provided to such
party for its review and approval, which approval will not be unreasonably
withheld, or if (B) it is probable in the written legal opinion of a Tax Expert
that the failure by such party to comply with any such obligation under this
Section 6 will result in an Indemnified Liability under this Agreement and the
Indemnifying Party fails to provide Adequate Assurances to the Indemnitee of its
ability to pay the Indemnity Amount under this Agreement, then REI (or its
successor REGCO) or UNREGCO, as the case may be, shall be entitled to injunctive
relief in addition to all other remedies.

           6.7 Indemnity Payments.

           (a) In General. Except as otherwise provided under this Agreement, to
the extent that the Indemnifying Party has an indemnification or payment
obligation to the Indemnitee pursuant to this Agreement, the Indemnitee shall
provide the Indemnifying Party with its calculation of the amount of such
indemnification payment. Such calculation shall provide sufficient detail to
permit the Indemnifying Party to reasonably understand the calculations. All
indemnification payments shall be made to the Indemnitee or to the appropriate
Tax Authority as specified by the Indemnitee within the time prescribed for
payment in this Agreement, or if no period is prescribed, within thirty (30)
days after delivery by the Indemnitee to the Indemnifying Party of written
notice of a payment, or if such liability is contested pursuant to Section 7.3
of this Agreement, within thirty (30) days of the incurrence of such an amount
based on a Final Determination, together with a computation of the amounts due.
Any disputes with respect to indemnification payments shall be resolved in
accordance with Section 8.11 below.

                                      -36-
   38

           (b) Electronic Payments. Any payment required under this Agreement in
an amount in excess of one million dollars ($1,000,000.00) shall be made by
electronic funds transfer of immediately available funds.

           6.8 Prompt Performance. All actions required to be taken by any party
under this Agreement shall be performed within the time prescribed for
performance in this Agreement, or if no period is prescribed, such actions shall
be performed promptly.

           6.9 Interest. Payments pursuant to this Agreement that are not made
within the period prescribed in Section 6.7(a) shall bear interest for the
period from and including the date immediately following the last date of the
period through and including the date of payment at a per annum rate equal to
the prime rate as published in The Wall Street Journal on the date of
determination, plus two percent (2%). Such interest will be payable at the same
time as the payment to which it relates and shall be calculated on the basis of
a year of 365 days and the actual number of days for which due.

           6.10 Tax Records. The parties to this Agreement hereby agree to
retain and provide on proper demand by any Taxing Authority (subject to any
applicable privileges) the books, records, documentation and other information
relating to any Tax Return until the later of (a) the expiration of the
applicable statute of limitations (giving effect to any extension, waiver or
mitigation thereof), (b) the date specified in an applicable records retention
agreement entered into with the Service and (c) in the event any claim is made
under this Agreement for which such information is relevant, until a Final
Determination with respect to such claim. Notwithstanding the prior sentence, no
party may destroy any such records without the approval of all other parties to
this Agreement.

SECTION 7. AUDITS AND CONTEST RIGHTS.

           7.1 In General

           (a) Upon the termination of UNREGCO and the UNREGCO Affiliated
Companies as members of the REI Consolidated Group, the Tax Sharing Agreement
and this Agreement shall apply with respect to any period (or portion thereof)
in which the income of the terminating member is included in an REI Consolidated
Return. Subject to Section 2.2(c) of this Agreement, the terminating member
shall cooperate and provide reasonable access to books, records and other
information needed in connection with Audits, administrative proceedings,
litigation and other similar matters related to periods in which the member was
a member of the REI Consolidated Group.

           (b) Except as otherwise provided in this Agreement, the respective
Filing Party shall have the right to control, contest, and represent the
interests of REI, any REI Affiliated Company, REGCO, any REGCO Affiliated
Company, UNREGCO or any UNREGCO Affiliated Company in any Audit relating to any
Tax Return that the Filing Party is responsible for filing under Section 2.1 of
this Agreement and to resolve, settle or agree to any deficiency, claim or
adjustment proposed, asserted or assessed in connection with or as a result of
any such Audit. Except as otherwise provided in this Agreement, the Filing
Party's rights shall extend to any 


                                      -37-
   39

matter pertaining to the management and control of an Audit, including execution
of waivers, choice of forum, scheduling of conferences and the resolution of any
Tax Item.

           7.2 Notice. If, after the date of this Agreement, REI (or any REI
Affiliated Company), REGCO (or any REGCO Affiliated Company) or UNREGCO (or any
UNREGCO Affiliated Company) receives written notice of, or relating to, an Audit
from a Tax Authority that asserts, proposes or recommends a deficiency, claim or
adjustment that, if sustained, could result in a Redetermination of Taxes for
which the other party is responsible under this Agreement, then the party
receiving such notice shall provide a copy of such notice to such other party
within ten (10) days of receipt thereof.

           7.3 Contests.

           (a) If any Tax Authority asserts, proposes or recommends a
deficiency, claim or adjustment that, if sustained, could lead to a
Redetermination that (i) could result in Taxes for which the Non-Filing Party is
responsible under this Agreement, (ii) could result in an increased Tax
liability for the Non-Filing Party for future Tax periods or (iii) could result
in a payment obligation for the Non-Filing Party under this Agreement
(collectively, "Non-Filing Party Responsible Taxes"), then upon request by the
Non-Filing Party, the Filing Party shall contest, or continue to contest, any
deficiency, claim or adjustment and the Filing Party shall keep the Non-Filing
Party informed in a timely manner reasonably in advance of all actions taken or
proposed to be taken by the Filing Party in connection with such deficiency,
claim or adjustment.

           (b) In the case of an Audit with respect to any Tax Item for which a
Redetermination could result in Non-Filing Party Responsible Taxes, the Filing
Party shall:

                (1) in the case of any material correspondence or filing
           submitted to the Tax Authority or any judicial authority that relates
           to the merits of such deficiency, claim or adjustment (i) reasonably
           in advance of such submission, but subject to applicable time
           constraints imposed by such Tax Authority or judicial authority,
           provide the Non-Filing Party with a draft copy of the portion of such
           correspondence or filing that relates to such deficiency, claim or
           adjustment, (ii) incorporate, subject to applicable time constraints
           imposed by such Tax Authority or judicial authority and the review
           and approval by the Filing Party, the Non-Filing Party's comments and
           changes on such draft copy of such correspondence or filing, and
           (iii) provide the Non-Filing Party with a final copy of the portion
           of such correspondence or filing that relates to such deficiency,
           claim or adjustment;

                (2) provide the Non-Filing Party with notice reasonably in
           advance of, and the Non-Filing Party shall have the right to attend,
           any meetings with the Tax Authority (including meetings with
           examiners) or hearings or proceedings before any judicial authority
           to the extent they relate to such deficiency, claim or adjustment;
           and

                (3) at the Filing Party's reasonable request (or upon the Filing
           Party's consent to a request by the Non-Filing Party, which consent
           shall not be 


                                      -38-
   40

           unreasonably withheld), the Non-Filing Party shall assume
           responsibility for (i) contesting and presenting the merits with
           respect to any deficiency, claim or adjustment that, if sustained,
           would result in Non-Filing Party Responsible Taxes, or (ii)
           resolving, settling or agreeing to any such deficiency, claim or
           adjustment. Any such request (or consent) by the Filing Party shall
           be subject to the Non-Filing Party's continued compliance with the
           conditions of Section 7.4 of this Agreement and to such other
           conditions as the Filing Party and Non-Filing Party reasonably agree.

           7.4 Limitations.

           (a) In General. Except with respect to a deficiency, claim or
adjustment that relates to a Redetermination that could result in Non-Filing
Party Responsible Taxes, the Filing Party shall have no obligation to contest,
or to continue to contest, any deficiency, claim or adjustment in accordance
with Section 7.3, and the Non-Filing Party shall have no right to control or
participate under Section 7.3 of this Agreement unless:

                        (I) the Non-Filing Party shall have agreed to be bound 
by a Final Determination of such deficiency, claim or adjustment;

                        (II) the Non-Filing Party shall have agreed to pay, and
shall be currently paying, all reasonable out of pocket costs and expenses
incurred by the Filing Party to contest such deficiency, claim or assessment
including reasonable outside attorneys', accountants' and investigatory fees and
disbursements;

                        (III) the Non-Filing Party shall have advanced to the 
Filing Party, on an interest-free basis (and with no additional net after-Tax
cost to the Filing Party), the amount of Tax in controversy (but not in excess
of the lesser of (A) the amount of Tax for which the Non-Filing Party could be
liable under this Agreement or (B) the amounts actually expended by the Filing
Party for this item) to the extent necessary for the contest to proceed in the
forum selected by the Non-Filing Party;

                        (IV) the Non-Filing Party shall have provided to the 
Filing Party all documents and information, and shall have made available
employees and officers of the Non-Filing Party, as may be necessary, useful or
reasonably required by the Filing Party in contesting such deficiency, claim or
adjustment; and

                        (V) the contest of such deficiency, claim or adjustment
shall involve no material danger of the sale, forfeiture or loss of, or the
creation of any lien on, any asset of the Filing Party (except if the Non-Filing
Party shall have adequately bonded such lien or otherwise made provision to
protect the interests of the Filing Party in a manner reasonably satisfactory to
the Filing Party).

           (b) Settlement. Notwithstanding Section 7.4(a), the Filing Party,
with respect to Tax Returns that it is responsible for filing under Section 2.1,
may resolve, settle or agree to any deficiency, claim or adjustment proposed,
asserted or assessed in connection with any Audit of such Tax Returns, if, with
respect to any Non-Filing Party Responsible Taxes, the Filing Party has provided
the Non-Filing Party with a reasonable opportunity to review a copy of that
portion 


                                      -39-
   41

of the settlement or compromise proposal which relates to the claim for which
the Filing Party is seeking indemnification hereunder; provided, that if (a) the
Filing Party fails to provide the Non-Filing Party such a reasonable opportunity
to review such portion of such proposal, or (b) after such reasonable
opportunity to review such proposal the Non-Filing Party in writing reasonably
withholds its consent to all or part of such settlement or compromise proposal,
then, the Non-Filing Party shall not be obligated to indemnify the Filing Party
hereunder to the extent of the amount attributable to the loss to which such
settlement or compromise relates as to which the Non-Filing Party has reasonably
withheld its consent, or with respect to any other loss for which a successful
contest is foreclosed because of such settlement or compromise as to which the
Non-Filing Party has reasonably withheld its consent. If the Filing Party
effects a settlement or compromise of such contest, notwithstanding that the
Non-Filing Party has reasonably withheld its consent thereto, the Filing Party
shall repay to the Non-Filing Party such amounts that the Non-Filing Party
advanced pursuant to Section 7.4(a)(3) hereof as relate to such claim, to the
extent that the Non-Filing Party has reasonably withheld its consent to the
settlement or compromise thereof (together with interest at the prime rate as
published in the Wall Street Journal on any such amount paid by the Non-Filing
Party from the date paid by Lessee to the date repaid by the Filing Party).

           (c) Waiver. Notwithstanding any other provision of this Section 7.4,
the Filing Party may resolve, settle, or agree to any deficiency, claim or
adjustment for any taxable period if the Filing Party waives it right to
indemnity, if any, with respect to such Tax Item. In such event, the Filing
Party shall promptly reimburse the Non-Filing Party for all amounts previously
advanced by the Non-Filing Party to the Filing Party in connection with such
deficiency, claim or adjustment under Section 7.4(a)(3) of this Agreement. In
addition, the Filing Party shall reimburse the Non-Filing Party for any Tax
Detriment that directly results from the settlement of such deficiency, claim or
adjustment. No waiver by the Filing Party under this Section 7.4(c) with respect
to any deficiency, claim or adjustment relating to any single Tax Item,
position, issue or transaction or relating to any single Tax for any one taxable
period shall operate as a waiver with respect to any other deficiency, claim or
adjustment.

           7.5 Failure to Notify, Etc. The failure of the Filing Party promptly
to notify the Non-Filing Party of any matter relating to a particular Tax for a
taxable period or to take any action specified in Section 7.3 of this Agreement
shall not relieve the Non-Filing Party of any liability and/or obligation which
it may have to the Filing Party under this Agreement with respect to such Tax
for such taxable period except to the extent that the Non-Filing Party's rights
hereunder are materially prejudiced by such failure and in no event shall such
failure relieve the Non-Filing Party of any other liability and/or obligation
which it may have to the Filing Party.

           7.6 Remedies. Except as otherwise provided in this Agreement, the
parties hereby agree that the sole and exclusive remedy for a breach by the
Filing Party of the Filing Party's obligations to the Non-Filing Party with
respect to a deficiency, claim or adjustment relating to the redetermination of
a Tax Item of the Non-Filing Party for a taxable period shall first be a
reduction in the amount that would otherwise be payable by the Non-Filing Party
for such taxable period and then an increase in amount that would otherwise be
payable by the Filing Party for such taxable period, in either case because of
the breach. The parties further agree that no claim against the Filing Party and
no defense to the Non-Filing Party's liabilities to the Filing Party under this
Agreement shall arise from the resolution by the Filing Party of any deficiency,



                                      -40-
   42

claim or adjustment relating to the Redetermination of any Tax Item of the
Filing Party for which the Non-Filing Party is not liable under this Agreement.

SECTION 8. MISCELLANEOUS.

           8.1 Effectiveness. This Agreement shall become effective as of
January 1, 2001.

           8.2 Renegotiation for Delayed Distribution. If the Distribution does
not occur on or before December 31, 2001, REI (or its successor REGCO) and
UNREGCO shall negotiate any changes to this Agreement that may be necessary in
light of the fact that the Distribution did not occur in 2001.

           8.3 Resolution Procedures.

           (a) If another section of this Agreement grants to REI (or its
successor REGCO) or to UNREGCO the right to invoke the resolution procedures of
this Section 8.3 to disagree with an amount, allocation, characterization or
other item of information provided to it by the other party and if within 15
days of receiving notice of such amount, allocation, characterization or other
item of information, REI (or its successor REGCO) or UNREGCO, as the case may
be, invokes the resolution procedures of this Section 8.3 by sending written
notice to the other party, then

                (i) the parties shall jointly select a Tax Expert to determine
the correct amount, allocation or other information that is in dispute,

                (ii) the parties shall share the costs of such Tax Expert
equally,

                (iii) the parties agree to be bound by the decision reached by
the Tax Expert,

                (iv) the due date of a payment based on or equal to an amount,
allocation or other information that is being determined by the Tax Expert
pursuant to this Section 8.3(a) shall be extended to the date that is 5 days
after the Tax Expert renders a decision as to the correct amount, allocation,
characterization or other item of information and

                (v) if the otherwise applicable due date of payment is extended
pursuant to Section 8.3(a)(iv), then the party making such payment shall add to
the amount of such payment (as determined in accordance with the determination
by the Tax Expert under this Section 8.3(a)) interest for the period of such
extension. The amount of interest that accrues during such extension period
shall be computed in accordance with the procedures set forth in Section 6.9.

           (b) If another section of this Agreement grants to REI (or its
successor REGCO) or to UNREGCO, as the case may be, the right to invoke the
resolution procedures of this Section 8.3 to disagree with an amount,
allocation, characterization or other item of information provided to it by the
other party and REI (or its successor REGCO) or UNREGCO, as the case may be,
does not invoke the resolution procedures of this Section 8.3 within 15 days of
receiving 


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notice of such amount, allocation, characterization or other item of
information, then the amount, allocation, characterization or other item of
information provided to REI (or its successor REGCO) or to UNREGCO by the other
party shall be deemed conclusive and correct as between REI (or its successor
REGCO) and UNREGCO.

           8.4 Notices. Unless expressly provided herein, all notices, claims,
certificates, requests, demands and other communications hereunder shall be in
writing and shall be deemed to be duly given (i) when personally delivered or
(ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv) if
sent by facsimile or other generally accepted means of electronic transmission,
on the date confirmation of transmission is received (provided that a copy of
any notice delivered pursuant to this clause (iv) shall also be sent pursuant to
clause (ii) or (iii)), addressed to the attention of the addressee's General
Counsel at the address of its principal executive office or to such other
address or facsimile number for a party as it shall have specified by like
notice.

           8.5 Changes in Law.

           (a) Any reference to a provision of the Code or a law of another
jurisdiction shall include a reference to any applicable successor provision or
law.

           (b) If, due to any change in applicable law or regulations or their
interpretation by any court of law or other governing body having jurisdiction
subsequent to the date of this Agreement, performance of any provision of this
Agreement or any transaction contemplated thereby shall become impracticable or
impossible, the parties hereto shall use their commercially reasonable efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such provision.

           8.6 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
not be assigned by any party hereto.

           8.7 Affiliated Companies. REI (or as successors, REGCO and any REGCO
Affiliated Company) shall cause to be performed, and hereby guarantees the
performance of, all actions, agreements and obligations set forth herein to be
performed by any REI or REGCO Affiliated Company, and UNREGCO shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any UNREGCO Affiliated Company.

           8.8 Authorization, Etc. Each of the parties hereto hereby represents
and warrants that it has the power and authority to execute, deliver and perform
this Agreement, that this Agreement has been duly authorized by all necessary
corporate action on the part of such party, that this Agreement constitutes a
legal, valid and binding obligation of each such party and 


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   44

that the execution, delivery and performance of this Agreement by such party
does not contravene or conflict with any provision of law or of its charter or
bylaws or any agreement, instrument or order binding on such party.

           8.9 Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter hereof.

           8.10 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Texas as
to all matters regardless of the law that might otherwise govern under the
principles of conflicts of law applicable thereto.

           8.11 Dispute Resolution. Except for disputes, controversies or claims
within the scope of Section 8.3, the resolution of any and all disputes arising
from or in connection with this Agreement shall be governed by and settled in
accordance with the provisions of Article IX of the Master Separation Agreement.

           8.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.

           8.13 Severability. If any term, provision, covenant, or restriction
of this Agreement is held by a court of competent jurisdiction (or an arbitrator
or arbitration panel) to be invalid, void, or unenforceable, the remainder of
the terms, provisions, covenants, and restrictions set forth herein shall remain
in full force and effect, and shall in no way be affected, impaired, or
invalidated. It is hereby stipulated and declared to be the intention of the
parties that they would have executed the remaining terms, provisions,
covenants, and restrictions without including any of such which may be hereafter
declared invalid, void, or unenforceable. In the event that any such term,
provision, covenant or restriction is held to be invalid, void or unenforceable,
the parties hereto shall use their best efforts to find and employ an alternate
means to achieve the same or substantially the same result as that contemplated
by such terms, provisions, covenant, or restriction.

           8.14 No Third Party Beneficiaries. This Agreement is solely for the
benefit of REI, REI Affiliated Companies, REGCO, the REGCO Affiliated Companies,
UNREGCO and the UNREGCO Affiliated Companies. This Agreement should not be
deemed to confer upon third parties any remedy, claim, liability, reimbursement,
cause of action or other rights in excess of those existing without this
Agreement.

           8.15 Waivers, Etc. No failure or delay on the part of the parties in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure by the parties therefrom shall in any event be effective unless
the same shall be in writing.

                                      -43-
   45

           8.16 Setoff. All payments to be made by any party under this
Agreement may be netted against payments due to such party under this Agreement,
but otherwise shall be made without setoff, counterclaim or withholding, all of
which are hereby expressly waived.



                                      -44-
   46


           IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by a duly authorized officer as of the date first above
written.


                               RELIANT ENERGY, INCORPORATED
                               On behalf of Itself and Its Affiliated Companies


                               By:    /s/ David M. McClanahan   
                                      -----------------------------------------
                                          David M. McClanahan
                                          Vice Chairman



                               RELIANT RESOURCES, INC.
                               On behalf of Itself and Its Affiliated Companies


                               By:    /s/ R. S. Letbetter         
                                      -----------------------------------------
                                          R. S. Letbetter
                                          Chairman, President and
                                          Chief Executive Officer

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