\n Section 4.7. Employee Matters Agreement…………………………………………………….. 13
\n Section 4.8. Employment Liabilities………………………………………………………… 13
\n Section 4.9. Environmental Claim…………………………………………………………… 14
\n Section 4.10. HoldCo Transaction…………………………………………………………… 14
\n Section 4.11. Indemnitee………………………………………………………………….. 14
\n Section 4.12. Insurance Policies…………………………………………………………… 14
\n Section 4.13. Insurance Transition Period…………………………………………………… 14
\n Section 4.13. Insurance Transition Period…………………………………………………… 14
\n Section 4.14. Insured Southern Energy Liability……………………………………………… 14
\n Section 4.15. Intercompany Agreements………………………………………………………. 14
\n Section 4.16. IPO Registration Statement……………………………………………………. 14
\n Section 4.17. Liabilities…………………………………………………………………. 14
\n Section 4.18. Person……………………………………………………………………… 15
\n Section 4.19. Separation………………………………………………………………….. 15
\n Section 4.20. Separation Agreement…………………………………………………………. 15
\n Section 4.21. Separation Date……………………………………………………………… 15
\n Section 4.22. Southern Business……………………………………………………………. 15
\n Section 4.23. Southern Energy Business……………………………………………………… 15
\n Section 4.24. Southern Energy Covered Parties……………………………………………….. 15
\n Section 4.25. Southern Energy Group………………………………………………………… 15
\n Section 4.26. Southern Energy Indemnitees…………………………………………………… 15
\n Section 4.27. Southern Energy Liabilities…………………………………………………… 15
\n Section 4.28. Southern Group………………………………………………………………. 15
\n Section 4.29. Southern Indemnitees…………………………………………………………. 16
\n Section 4.30. Subsidiary………………………………………………………………….. 16
\n Section 4.31. Tax Indemnification Agreement…………………………………………………. 16
\n Section 4.32. Taxes………………………………………………………………………. 16
\n Section 4.33. Third Party Claim……………………………………………………………. 16
\n<\/c><\/s><\/table>\n 3
\n 4<\/p>\n
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT<\/p>\n
THIS INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT (this
\n“Agreement”) is entered into as of September 1, 2000, between The Southern
\nCompany, a Delaware corporation (“Southern”), and Southern Energy, Inc., a
\nDelaware corporation (“Southern Energy”). Capitalized terms used herein and not
\notherwise defined herein shall have the meanings ascribed to such terms in the
\nArticle IV below.<\/p>\n
RECITALS<\/p>\n
WHEREAS, the Board of Directors of Southern has determined that it is
\nin the best interest of Southern and its stockholders to separate Southern’s
\nexisting businesses into two independent businesses;<\/p>\n
WHEREAS, as part of the foregoing, Southern and Southern Energy have
\nagreed, pursuant to the Master Separation and Distribution Agreement dated as
\nof September 1, 2000 (the “Separation Agreement”), which provides, among other
\nthings, the initial public offering of Southern Energy stock, the distribution
\nof such stock and the execution and delivery of certain other agreements in
\norder to facilitate and provide for the foregoing; and<\/p>\n
WHEREAS, the parties desire to set forth certain agreements regarding
\nindemnification and insurance.<\/p>\n
NOW, THEREFORE, in consideration of the foregoing and the covenants
\nand agreements set forth below, the parties hereto agree as follows:<\/p>\n
ARTICLE I<\/p>\n
MUTUAL RELEASES; INDEMNIFICATION<\/p>\n
Section 1.1. Release of Pre-Closing Claims.<\/p>\n
(a) Southern Energy Release. Except as provided in Section
\n1.1(c), effective as of the Separation Date, Southern Energy does hereby, for
\nitself and as agent for each member of the Southern Energy Group, remise,
\nrelease and forever discharge the Southern Indemnitees from any and all
\nLiabilities whatsoever, whether at law or in equity (including any right of
\ncontribution), whether arising under any contract or agreement, by operation of
\nlaw or otherwise, existing or arising from any acts or events occurring or
\nfailing to occur or alleged to have occurred or to have failed to occur or any
\nconditions existing or alleged to have existed on or before the Separation
\nDate, including any such acts, events or conditions on or before the Separation
\nDate in connection with the transactions and all other activities to implement
\nany of the Separation, the IPO and the Distribution.<\/p>\n
5<\/p>\n
(b) Southern Release. Except as provided in Section 1.1(c),
\neffective as of the Separation Date, Southern does hereby, for itself and as
\nagent for each member of the Southern Group, remise, release and forever
\ndischarge the Southern Energy Indemnitees from any and all Liabilities
\nwhatsoever, whether at law or in equity (including any right of contribution),
\nwhether arising under any contract or agreement, by operation of law or
\notherwise, existing or arising from any acts or events occurring or failing to
\noccur or alleged to have occurred or to have failed to occur or any conditions
\nexisting or alleged to have existed on or before the Separation Date, including
\nany such acts, events or conditions on or before the Separation Date in
\nconnection with the transactions and all other activities to implement any of
\nthe Separation, the IPO and the Distribution.<\/p>\n
(c) Excluded Liabilities; No Impairment. Nothing contained in
\nSection 1.1(a) or (b) shall release any claims under, or impair any right of
\nany Person to enforce, the Separation Agreement, any Ancillary Agreement
\n(including this Agreement), or any Intercompany Agreement, in each case in
\naccordance with its terms.<\/p>\n
(d) No Actions as to Released Claims. Southern Energy agrees, for
\nitself and as agent for each member of the Southern Energy Group, not to make
\nany claim or demand, or commence any Action asserting any claim or demand,
\nincluding any claim of contribution or any indemnification, against Southern or
\nany member of the Southern Group, or any other Person released pursuant to
\nSection 1.1(a), with respect to any Liabilities released pursuant to Section
\n1.1(a). Southern agrees, for itself and as agent for each member of the
\nSouthern Group, not to make any claim or demand, or commence any Action
\nasserting any claim or demand, including any claim of contribution or any
\nindemnification, against Southern Energy or any member of the Southern Energy
\nGroup, or any other Person released pursuant to Section 1.1(b), with respect to
\nany Liabilities released pursuant to Section 1.1(b).<\/p>\n
(e) Further Instruments. At any time, at the request of any other
\nparty, each party shall cause each member of its respective Group to execute
\nand deliver releases reflecting the provisions hereof.<\/p>\n
Section 1.2. Indemnification by Southern Energy. Except as
\notherwise provided in this Agreement, Southern Energy shall, for itself and as
\nagent for each member of the Southern Energy Group, indemnify, defend (or,
\nwhere applicable, pay the defense costs for) and hold harmless the Southern
\nIndemnitees from and against any and all Liabilities that any third party seeks
\nto impose upon the Southern Indemnitees, or which are imposed upon the Southern
\nIndemnitees, if and to the extent such Liabilities relate to, arise out of or
\nresult from any of the following items (without duplication):<\/p>\n
(i) any acts or omission or alleged acts or omissions by
\n or on behalf of any member of the Southern Energy Group in the conduct
\n of the Southern Energy Business or in connection with the IPO or the
\n Distribution;<\/p>\n
(ii) any breach by Southern Energy or any member of the
\n Southern Energy<\/p>\n
2
\n 6<\/p>\n
Group of the Separation Agreement or any of the Ancillary Agreements
\n (including this Agreement); and<\/p>\n
(iii) any Southern Energy Liability.<\/p>\n
In the event that any member of the Southern Energy Group makes a
\npayment to the Southern Indemnitees hereunder, and any of the Southern
\nIndemnitees subsequently diminishes the Liabilities on account of which such
\npayment was made, either directly or through a third-party recovery, Southern
\nwill promptly repay (or will procure a Southern Indemnitee to promptly repay)
\nsuch member of the Southern Energy Group the amount by which the payment made
\nby such member of the Southern Energy Group exceeds the actual cost of the
\nassociated indemnified Liability.<\/p>\n
Section 1.3. Indemnification by Southern. Except as otherwise
\nprovided in this Agreement, Southern shall, for itself and as agent for each
\nmember of the Southern Group, indemnify, defend (or, where applicable, pay the
\ndefense costs for) and hold harmless the Southern Energy Indemnitees from and
\nagainst any and all Liabilities that any third party seeks to impose upon the
\nSouthern Energy Indemnitees, or which are imposed upon the Southern Energy
\nIndemnitees, if and to the extent such Liabilities relate to, arise out of or
\nresult from any of the following items (without duplication):<\/p>\n
(i) any acts or omissions or alleged acts or omissions by
\n or on behalf of any member of the Southern Group in the conduct of the
\n Southern Business or in connection with the IPO or the Distribution;<\/p>\n
(ii) any breach by Southern or any member of the Southern
\n Group of the Separation Agreement or any of the Ancillary Agreements
\n (including this Agreement); and<\/p>\n
(iii) any Liabilities of the Southern Group other than the
\n Credit Support Arrangements.<\/p>\n
In the event that any member of the Southern Group makes a payment to
\nthe Southern Energy Indemnitees hereunder, and any of the Southern Energy
\nIndemnitees subsequently diminishes the Liabilities on account of which such
\npayment was made, either directly or through a third-party recovery, Southern
\nEnergy will promptly repay (or will procure a Southern Energy Indemnitee to
\npromptly repay) such member of the Southern Group the amount by which the
\npayment made by such member of the Southern Group exceeds the actual cost of
\nthe indemnified Liabilities.<\/p>\n
Section 1.4. Procedures for Defense, Settlement and
\nIndemnification of Third Party Claims.<\/p>\n
(a) Notice of Claims. If a Southern Indemnitee or a Southern
\nEnergy Indemnitee (as applicable) (an “Indemnitee”) shall receive notice or
\notherwise learn of the assertion by a Person (including any Governmental
\nAuthority) who is not a member of<\/p>\n
3
\n 7<\/p>\n
the Southern Group or the Southern Energy Group of any claim or of the
\ncommencement by any such Person of any Action (collectively, a “Third Party
\nClaim”) with respect to which a party (an “Indemnifying Party”) may be
\nobligated to provide indemnification to such Indemnitee pursuant to Section 1.2
\nor 1.3, or any other section of the Separation Agreement or any Ancillary
\nAgreement (including this Agreement), Southern and Southern Energy (as
\napplicable) will ensure that such Indemnitee shall give such Indemnifying Party
\nwritten notice thereof within thirty (30) days after becoming aware of such
\nThird Party Claim. Any such notice shall describe the Third Party Claim in
\nreasonable detail. Notwithstanding the foregoing, the delay or failure of any
\nIndemnitee or other Person to give notice as provided in this Section 1.4(a)
\nshall not relieve the related Indemnifying Party of its obligations under this
\nArticle I, except to the extent that such Indemnifying Party is actually and
\nsubstantially prejudiced by such delay or failure to give notice.<\/p>\n
(b) Claims Committee. Any of the parties may refer any dispute
\nregarding the provisions of this Agreement to the Claims Committee for
\nresolution. All determinations of the Claims Committee, if unanimous, shall be
\nbinding on all of the parties and their respective successors and assigns. The
\nClaims Committee shall reach a resolution that minimizes expenses for all
\nparties and seeks to avoid hiring multiple counsel. In the event a Liability
\narises from both an event, act or omission relating primarily to the Southern
\nEnergy Business and an event, act or omission relating primarily to the
\nSouthern Business, the Claims Committee shall apportion the Liability in
\naccordance with comparative fault, and it may re-apportion the Liability as it
\nlearns of additional facts bearing on that assessment. In the event that the
\nClaims Committee cannot reach a unanimous determination as to the nature,
\nstatus or handling of any such claims within thirty (30) days after such
\nreferral (unless the Claims Committee unanimously agrees to a longer time
\nperiod), the issue will be submitted for resolution pursuant to the procedures
\nset forth in the dispute resolution provisions contained in Section 5.7 of the
\nSeparation Agreement; provided, that the provisions of this Section 1.4(b)
\nshall supercede the requirements of the second sentence of Section 5.7(a) of
\nthe Separation Agreement.<\/p>\n
(c) Defense of Commingled Claims. With respect to any Commingled
\nClaim, the Claims Committee shall determine which party shall manage the
\ndefense of, and may seek to settle or compromise, such Commingled Claim based
\nupon the specific facts of such claim.<\/p>\n
(d) Defense By Indemnifying Party. Other than in the case of a
\nCommingled Claim, an Indemnifying Party will manage the defense of and (unless
\nthe Indemnifying Party has specified any reservations or exceptions to the
\nobligation to manage the defense or to indemnify that have been referred to,
\nbut not resolved by, the Claims Committee) may settle or compromise any Third
\nParty Claim. Within thirty (30) days after the receipt of notice from an
\nIndemnitee in accordance with Section 1.4(a) (or sooner, if the nature of such
\nThird Party Claim so requires), the Indemnifying Party shall notify the
\nIndemnitee that the Indemnifying Party will assume responsibility for managing
\nthe defense of such Third Party Claim, which notice shall specify any
\nreservations or exceptions.<\/p>\n
4
\n 8<\/p>\n
(e) Defense By Indemnitee. If an Indemnifying Party fails to
\nassume responsibility for managing the defense of a Third Party Claim, or fails
\nto notify an Indemnitee that it will assume responsibility as provided in
\nSection 1.4(d), such Indemnitee may manage the defense of such Third Party
\nClaim.<\/p>\n
(f) No Settlement By Indemnitee Without Consent. Unless the
\nIndemnifying Party has failed to manage the defense of the Third Party Claim in
\naccordance with the terms of this Agreement, no Indemnitee may settle or
\ncompromise any Third Party Claim without the consent of the Indemnifying Party.<\/p>\n
(g) No Consent to Certain Judgments or Settlements Without
\nConsent. Notwithstanding Section 1.4(d) above, no party shall consent to entry
\nof any judgment or enter into any settlement of a Third Party Claim without the
\nconsent of the other party (such consent not to be unreasonably withheld) if
\nthe effect of such judgment or settlement is to (A) permit any injunction,
\ndeclaratory judgment, other order or other nonmonetary relief to be entered,
\ndirectly or indirectly, against the other party or (B) materially affect the
\nother party due to the allocation of Liabilities and related indemnities set
\nforth in the Separation Agreement, this Agreement or any other Ancillary
\nAgreement.<\/p>\n
Section 1.5. Additional Matters.<\/p>\n
(a) Cooperation in Defense and Settlement. With respect to any
\nThird Party Claim that implicates both Southern Energy and Southern in a
\nmaterial fashion due to the allocation of Liabilities, responsibilities for
\nmanagement of defense and related indemnities set forth in the Separation
\nAgreement, this Agreement or any of the Ancillary Agreements, the parties agree
\nto cooperate fully and maintain a joint defense (in a manner that will preserve
\nthe attorney-client privilege with respect thereto) so as to minimize such
\nLiabilities and defense costs associated therewith. The party that is not
\nresponsible for managing the defense of such Third Party Claims shall, upon
\nreasonable request, be consulted with respect to significant matters relating
\nthereto and may, if necessary or helpful, associate counsel to assist in the
\ndefense of such claims.<\/p>\n
(b) Substitution. In the event of an Action in which the
\nIndemnifying Party is not a named defendant, if either the Indemnitee or the
\nIndemnifying Party shall so request, the parties shall endeavor to substitute
\nthe Indemnifying Party for the named defendant. If such substitution or
\naddition cannot be achieved for any reason or is not requested, the rights and
\nobligations of the parties regarding indemnification and the management of the
\ndefense of claims as set forth in this Article I shall not be altered.<\/p>\n
(c) Subrogation. In the event of payment by or on behalf of any
\nIndemnifying Party to or on behalf of any Indemnitee in connection with any
\nThird Party Claim, such Indemnifying Party shall be subrogated to and shall
\nstand in the place of such Indemnitee, in whole or in part based upon whether
\nthe Indemnifying Party has paid all or only part of the Indemnitee’s Liability,
\nas to any events or circumstances in respect of which such Indemnitee may have
\nany right, defense or claim relating to such Third Party Claim against any
\nclaimant or plaintiff asserting such Third Party Claim or against any other<\/p>\n
5
\n 9<\/p>\n
person. Such Indemnitee shall cooperate with such Indemnifying Party in a
\nreasonable manner, and at the cost and expense of such Indemnifying Party, in
\nprosecuting any subrogated right, defense or claim.<\/p>\n
(d) Not Applicable to Taxes or Employment Liabilities. This
\nAgreement shall not apply to Taxes (which are covered by the Tax
\nIndemnification Agreement) or Employment Liabilities (which are covered by the
\nEmployee Matters Agreement).<\/p>\n
Section 1.6. Survival of Indemnities. Subject to Section 3.7, the
\nrights and obligations of the members of the Southern Group and the Southern
\nEnergy Group under this Article I shall survive the sale or other transfer by
\nany party of any assets or businesses or the assignment by it of any
\nLiabilities or the sale by any member of the Southern Group or the Southern
\nEnergy Group of the capital stock or other equity interests of any Subsidiary
\nto any Person.<\/p>\n
ARTICLE II<\/p>\n
INSURANCE MATTERS<\/p>\n
Section 2.1. Southern Energy Insurance Coverage During the Transition
\nPeriod.<\/p>\n
(a) Maintain Comparable Insurance. Throughout the period beginning
\non the Separation Date and ending on the Insurance Transition End Date (the
\n“Insurance Transition Period”), Southern shall, subject to insurance market
\nconditions and other factors beyond its control, maintain policies of
\ninsurance, including for the benefit of Southern Energy or any of its
\nSubsidiaries, directors, officers, employees or other covered parties
\n(collectively, the “Southern Energy Covered Parties”) which are comparable to
\nthose maintained generally by Southern; provided, however, if Southern
\ndetermines that (i) the amount or scope of such coverage will be reduced during
\nthe Insurance Transition Period to a level materially inferior to the level of
\ncoverage in existence immediately prior to the Insurance Transition Period, or
\n(ii) the retention or deductible level applicable to such coverage, if any,
\nwill be increased during the Insurance Transition Period to a level materially
\ngreater than the levels in existence immediately prior to the Insurance
\nTransition Period, Southern shall give Southern Energy notice of such
\ndetermination as promptly as practicable. Upon notice of such determination,
\nSouthern Energy shall be entitled to no less than sixty (60) days to evaluate
\nits options regarding continuance of coverage hereunder and may cancel its
\ninterest in all or any portion of such coverage as of any day within such sixty
\n(60) day period. Except as provided below, during the Insurance Transition
\nPeriod, such policies of insurance shall cover Southern Energy Covered Parties
\nfor liabilities and losses insured prior to the Insurance Transition End Date.<\/p>\n
(b) Directors & Officers (“D&O”) Insurance Coverage. With effect
\nfrom August 1, 2000, Southern shall obtain, subject to market availability and
\nfavorable pricing, $200 million in D&O insurance coverage limits (in addition
\nto Southern’s current D&O insurance coverage), with an option for a six-year
\nextended reporting period (the<\/p>\n
6
\n 10<\/p>\n
“Additional D&O Insurance;” and, together with Southern’s current D&O insurance
\ncoverage, the “D&O Insurance”). The D&O Insurance shall cover Southern and
\nSouthern Energy individually and collectively. The Additional D&O Insurance
\nshall be maintained in force for a one-year period, unless the parties shall
\nmutually agree to renew it for a further period. Upon policy expiration,
\nSouthern will exercise the option for the six-year extended reporting period.
\nAt the end of the extended reporting period, either party may request a further
\nextension of the reporting period in respect of both parties. Upon such
\nrequest, Southern shall effect such extension, subject to market availability.
\nThe cost of the Additional D&O Insurance, including any extended reporting
\nperiod option, shall be shared equally between Southern and Southern Energy.<\/p>\n
(c) Reimbursement for Premiums. Southern Energy shall promptly pay
\nor reimburse Southern, as the case may be, for premium expenses, and Southern
\nEnergy Covered Parties shall promptly pay or reimburse Southern for any costs
\nand expenses which Southern may incur in connection with the insurance
\ncoverages maintained pursuant to this Section 2.1, including but not limited to
\nany subsequent premium adjustments. All payments and reimbursements by Southern
\nEnergy and Southern Energy Covered Parties to Southern shall be made within
\nfifteen (15) days after Southern Energy’s receipt of an invoice from Southern.<\/p>\n
Section 2.2. Cooperation and Agreement Not to Release Carriers. Each
\nof Southern and Southern Energy will share such information as is reasonably
\nnecessary in order to permit the other to manage and conduct its insurance
\nmatters in an orderly fashion. Each of Southern and Southern Energy, at the
\nrequest of the other, shall cooperate with and use commercially reasonable
\nefforts to assist the other in recoveries for claims made under any insurance
\npolicy for the benefit of any insured party, and neither Southern nor Southern
\nEnergy, nor any of their Subsidiaries, shall take any action which would
\nintentionally jeopardize or otherwise interfere with either party’s ability to
\ncollect any proceeds payable pursuant to any insurance policy. Except as
\notherwise contemplated by the Separation Agreement, this Agreement or any
\nAncillary Agreement, after the Separation Date, neither Southern nor Southern
\nEnergy shall (and shall ensure that no member of their respective Groups
\nshall), without the consent of the other, provide any insurance carrier with a
\nrelease, or amend, modify or waive any rights under any such policy or
\nagreement, if such release, amendment, modification or waiver would adversely
\naffect any rights or potential rights of any member of the other Group
\nthereunder. However, nothing in this Section 2.2 shall (A) preclude any member
\nof any Group from presenting any claim or from exhausting any policy limit, (B)
\nrequire any member of any Group to pay any premium or other amount or to incur
\nany Liability, (C) require any member of any Group to renew, extend or continue
\nany policy in force or (D) except as otherwise provided in Section 2.12, apply
\nto Southern in connection with rights to coverage for Environmental Actions
\nunder Insurance Policies in effect prior to the Separation Date.<\/p>\n
Section 2.3. Southern Energy Insurance Coverage After the Insurance
\nTransition Period.<\/p>\n
7
\n 11<\/p>\n
(a) Except as otherwise set forth herein, from and after the
\nInsurance Transition End Date, Southern Energy, and Southern Energy alone,
\nshall be responsible for obtaining and maintaining insurance programs for its
\nrisk of loss and such insurance arrangements shall be separate and apart from
\nSouthern’s insurance programs. Notwithstanding the foregoing, Southern, upon
\nthe request of Southern Energy, shall use all commercially reasonable efforts
\nto assist Southern Energy in the transition to its own separate insurance
\nprograms from and after the Insurance Transition Period, and shall provide
\nSouthern Energy with any information that is in the possession of Southern and
\nis reasonably available and necessary to either obtain insurance coverages for
\nSouthern Energy or to assist Southern Energy in preventing unintended
\nself-insurance, in whatever form.<\/p>\n
(b) D&O Insurance Coverage. After the Insurance Transition End
\nDate, Southern will endeavor to maintain, subject to market availability, a
\nminimum of $200 million D&O coverage insuring both Southern and Southern Energy
\nunder Southern’s policy for all activities prior to the Insurance Transition
\nEnd Date. With respect to Southern Energy, such coverage shall apply solely to
\nSouthern Energy’s wrongful act(s) or alleged wrongful act(s) occurring prior to
\nthe Insurance Transition End Date.<\/p>\n
Section 2.4 Maintenance of D&O Insurance Limits. It is the intent of
\nSouthern and Southern Energy that the D&O Insurance shall be maintained in an
\namount sufficient to provide at least $100 million of coverage (the “Minimum
\nD&O Coverage”) to each of the parties for claims arising during the policy
\nperiod which are unrelated to the IPO, the Distribution, the Separation or any
\nother actions contemplated by the Separation Agreement and this Agreement
\n(“Unrelated Claims”). In the event that either party should experience claims
\nwhich, in the aggregate, are likely to erode D&O Insurance coverage limits
\navailable to the other party to below $100 million, then Southern shall arrange
\nwith its insurers, subject to market availability, for a reinstatement of
\ncoverage limits sufficient to maintain $100 million of D&O Insurance coverage
\nfor such other party’s Unrelated Claims. Unless the parties shall mutually
\nagree otherwise, determination of the eroded coverage amount to be reinstated
\nshall be based on claims paid and reserves established by the insurers
\nunderwriting the applicable D&O Insurance. The cost to reinstate policy limits
\nshall be borne by the party incurring the Unrelated Claims which have eroded
\nthe other party’s Minimum D&O Coverage.<\/p>\n
Section 2.5. Responsibilities for Self-insured Obligations. Southern
\nEnergy will reimburse Southern for all amounts necessary to exhaust or
\notherwise satisfy all applicable self-insured retentions, amounts for fronted
\npolicies, deductibles and retrospective premium adjustments and similar amounts
\nnot covered by Insurance Policies in connection with Southern Energy
\nLiabilities and Insured Southern Energy Liabilities.<\/p>\n
Section 2.6. Procedures With Respect to Insured Southern Energy
\nLiabilities.<\/p>\n
(a) Reimbursement. Southern Energy will reimburse Southern for all
\namounts incurred to pursue insurance recoveries from Insurance Policies for
\nInsured Southern<\/p>\n
8
\n 12<\/p>\n
Energy Liabilities.<\/p>\n
(b) Management of Claims. The defense of claims, suits or actions
\ngiving rise to potential or actual Insured Southern Energy Liabilities will be
\nmanaged (in conjunction with Southern’s insurers, as appropriate) by the party
\nthat would have had responsibility for managing such claims, suits or actions
\nhad such Insured Southern Energy Liabilities been Southern Energy Liabilities.<\/p>\n
Section 2.7. Insufficient Limits of Liability for Southern Liabilities
\nand Southern Energy Liabilities. In the event that there are insufficient
\nlimits of liability available under Southern’s Insurance Policies provided in
\nSections 2.1(b), 2.3(b), 2.4 or other applicable polices in effect prior to the
\nInsurance Transition End Date to cover the Liabilities of Southern and\/or
\nSouthern Energy that would otherwise be covered by such Insurance Policies,
\nthen to the extent that other insurance is not available to Southern and\/or
\nSouthern Energy for such Liabilities an adjustment will be made in accordance
\nwith the following procedures:<\/p>\n
(i) Each party will be allocated an amount equal to their
\n proportional share of any Liabilities (which Liabilities would
\n otherwise be covered under Southern’s Insurance Policies) in excess of
\n the Coverage Amount. Each party’s proportional share of such excess
\n Liabilities shall be calculated by multiplying (A) the aggregate
\n amount of all Liabilities (net of any deductible) of both parties
\n which are eligible for coverage under a Southern Insurance Policy in
\n the coverage period applicable to such policy, less the Coverage
\n Amount applicable to such policy, by (B) a fraction, the numerator of
\n which is the amount of such Liabilities attributable to such party,
\n and the denominator of which is the aggregate amount of all such
\n Liabilities of both parties. Any dispute between the parties in
\n determining the proper allocation of liabilities pursuant to this
\n section shall be resolved pursuant to the procedures set forth in
\n Section 1.4(b) hereof.<\/p>\n
(ii) A party who receives more than its share of the
\n Coverage Amount (the “Overallocated Party”) agrees to reimburse the
\n other party (the “Underallocated Party”) to the extent that the
\n Liabilities of the Underallocated Party that would have been covered
\n under such Insurance Policies (subject to the limitations of Section
\n 2.12) is less than the Underallocated Party’s share of the Coverage
\n Amount.<\/p>\n
(iii) In addition to and without limiting the foregoing,
\n Southern and Southern Energy shall cooperate and use their reasonable
\n best efforts to maintain such general liability or other applicable
\n shared coverage levels for both parties as are in existence on the
\n Separation Date. To that effect, in the event that the coverage under
\n any general liability or other applicable shared policy is eroded to
\n less than 50% of the applicable level of coverage as of the Separation
\n Date, the parties shall cooperate in equitably determining the
\n appropriate allocation of the costs of and responsibility for the
\n reinstatement, subject to market availability, of coverage under such
\n policies to its original level. Additionally, Southern shall maintain
\n Southern Energy’s coverage for claims relating to Liabilities arising
\n prior to the<\/p>\n
9
\n 13<\/p>\n
Separation Date until such time as Southern Energy shall have arranged
\n for “prior acts” coverage for such Liabilities; provided, that
\n Southern Energy shall use commercially reasonable efforts to obtain
\n such coverage as soon as practicable upon the reasonable request of
\n Southern, and Southern shall, subject to market availability, use
\n commercially reasonable efforts to assist Southern Energy in obtaining
\n such coverage.<\/p>\n
Section 2.8. Cooperation. Southern and Southern Energy will
\ncooperate with each other in all respects, and they shall execute any
\nadditional documents which are reasonably necessary, to effectuate the
\nprovisions of this Article II.<\/p>\n
Section 2.9. No Assignment or Waiver. This Agreement shall not be
\nconsidered as an attempted assignment of any policy of insurance or as a
\ncontract of insurance and shall not be construed to waive any right or remedy
\nof any member of the Southern Group in respect of any Insurance Policy or any
\nother contract or policy of insurance.<\/p>\n
Section 2.10. No Liability. Southern Energy does hereby, for itself
\nand as agent for each other member of the Southern Energy Group, agree that no
\nmember of the Southern Group or any Southern Indemnitee shall have any
\nLiability whatsoever as a result of the insurance policies and practices of
\nSouthern and its Subsidiaries as in effect at any time prior to the Insurance
\nTransition End Date, including as a result of the level or scope of any such
\ninsurance, the creditworthiness of any insurance carrier, the terms and
\nconditions of any policy, the adequacy or timeliness of any notice to any
\ninsurance carrier with respect to any claim or potential claim or otherwise.<\/p>\n
Section 2.11. No Restrictions. Nothing in this Agreement shall be
\ndeemed to restrict any member of the Southern Energy Group from acquiring at
\nits own expense any other insurance policy in respect of any Liabilities or
\ncovering any period.<\/p>\n
Section 2.12. Further Agreements. The Parties acknowledge that they
\nintend to allocate financial obligations without violating any laws regarding
\ninsurance, self-insurance or other financial responsibility. If it is
\ndetermined that any action undertaken pursuant to the Separation Agreement,
\nthis Agreement or any Ancillary Agreement is violative of any insurance,
\nself-insurance or related financial responsibility law or regulation, the
\nparties agree to work together to do whatever is necessary to comply with such
\nlaw or regulation while trying to accomplish, as much as possible, the
\nallocation of financial obligations as intended in the Separation Agreement,
\nthis Agreement and any Ancillary Agreement.<\/p>\n
Section 2.13. Matters Governed by Employee Matters Agreement. This
\nArticle II shall not apply to any insurance policies that are the subject of
\nthe Employee Matters Agreement.<\/p>\n
10
\n 14<\/p>\n
ARTICLE III<\/p>\n
MISCELLANEOUS<\/p>\n
Section 3.1. Entire Agreement. This Agreement, the Master
\nSeparation Agreement, the other Ancillary Agreements and the Exhibits and
\nSchedules attached hereto and thereto, constitutes the entire agreement between
\nthe parties with respect to the subject matter hereof and shall supersede all
\nprior written and oral and all contemporaneous oral agreements and
\nunderstandings with respect to the subject matter hereof.<\/p>\n
Section 3.2. Governing Law. This Agreement shall be governed by
\nand construed in accordance with the laws of the State of Georgia as to all
\nmatters regardless of the laws that might otherwise govern under principles of
\nconflicts of laws applicable thereto.<\/p>\n
Section 3.3. Notices. Any notice, demand, offer, request or other
\ncommunication required or permitted to be given by either party pursuant to the
\nterms of this Agreement shall be in writing and shall be deemed effectively
\ngiven the earlier of (i) when received, (ii) when delivered personally, (iii)
\none (1) business day after being delivered by facsimile (with receipt of
\nappropriate confirmation), (iv) one (1) business day after being deposited with
\nan overnight courier service or (v) four (4) days after being deposited in the
\nU.S. mail, First Class with postage prepaid, and addressed to the attention of
\nthe party’s General Counsel at the address of its principal executive office or
\nsuch other address as a party may request by notifying the other in writing.<\/p>\n
Section 3.4. Parties in Interest. This Agreement, including the
\nSchedules and Exhibits hereto, and the other documents referred to herein,
\nshall be binding upon Southern, Southern’s Subsidiaries, Southern Energy and
\nSouthern Energy’s Subsidiaries and inure solely to the benefit of the Southern
\nEnergy Indemnitees and the Southern Indemnitees and their respective permitted
\nassigns, and nothing in this Agreement, express or implied, is intended to
\nconfer upon any other Person any rights or remedies of any nature whatsoever
\nunder or by reason of this Agreement.<\/p>\n
Section 3.5. Other Agreements Evidencing Indemnification
\nObligations. Southern hereby agrees to execute, for the benefit of any Southern
\nEnergy Indemnitee, such documents as may be reasonably requested by such
\nSouthern Energy Indemnitee, evidencing Southern’s agreement that the
\nindemnification obligations of Southern set forth in this Agreement inure to
\nthe benefit of and are enforceable by such Southern Energy Indemnitee. Southern
\nEnergy hereby agrees to execute, for the benefit of any Southern Indemnitee,
\nsuch documents as may be reasonably requested by such Southern Indemnitee,
\nevidencing Southern Energy’s agreement that the indemnification obligations of
\nSouthern Energy set forth in this Agreement inure to the benefit of and are
\nenforceable by such Southern Indemnitee.<\/p>\n
Section 3.6. Counterparts. This Agreement, including the Schedules
\nand Exhibits hereto, and the other documents referred to herein, may be
\nexecuted in counterparts, each of which shall be deemed to be an original but
\nall of which shall constitute one and the same agreement.<\/p>\n
Section 3.7. Assignment. The rights and obligations in this
\nAgreement may not be<\/p>\n
11
\n 15<\/p>\n
assigned or delegated by any party hereto, in whole or in part, without the
\nexpress prior written consent of the other party hereto.<\/p>\n
Section 3.8. Severability. If any term or other provision of this
\nAgreement or the Schedules or Exhibits attached hereto is determined by a
\nnonappealable decision by a court, administrative agency or arbitrator to be
\ninvalid, illegal or incapable of being enforced by any rule of law or public
\npolicy, all other conditions and provisions of this Agreement shall
\nnevertheless remain in full force and effect so long as the economic or legal
\nsubstance of the transactions contemplated hereby is not affected in any manner
\nmaterially adverse to any party.<\/p>\n
Upon such determination that any term or other provision is invalid,
\nillegal or incapable of being enforced, the parties hereto shall negotiate in
\ngood faith to modify this Agreement so as to effect the original intent of the
\nparties as closely as possible in an acceptable manner to the end that
\ntransactions contemplated hereby are fulfilled to the fullest extent possible.<\/p>\n
Section 3.9. Failure or Indulgence Not Waiver. No failure or delay
\non the part of either party hereto in the exercise of any right hereunder shall
\nimpair such right or be construed to be a waiver of, or acquiescence in, any
\nbreach of any representation, warranty or agreement herein, nor shall any
\nsingle or partial exercise of any such right preclude other or further exercise
\nthereof or of any other right.<\/p>\n
Section 3.10. Amendment. No change or amendment will be made to
\nthis Agreement except by an instrument in writing signed on behalf of each of
\nthe parties to this Agreement.<\/p>\n
Section 3.11. Authority. Each of the parties hereto represents to
\nthe other that (a) it has the corporate or other requisite power and authority
\nto execute, deliver and perform this Agreement, (b) the execution, delivery and
\nperformance of this Agreement by it have been duly authorized by all necessary
\ncorporate or other action, (c) it has duly and validly executed and delivered
\nthis Agreement, and (d) this Agreement is a legal, valid and binding
\nobligation, enforceable against it in accordance with its terms subject to
\napplicable bankruptcy, insolvency, reorganization, moratorium or other similar
\nlaws affecting creditors’ rights generally and general equity principles.<\/p>\n
Section 3.12. Interpretation. The headings contained in this
\nAgreement, in any Exhibit or Schedule hereto and in the table or contents to
\nthis Agreement are for reference purposes only and shall not affect in any way
\nthe meaning or interpretation of this Agreement. Any capitalized term used in
\nany Schedule or Exhibit but not otherwise defined therein, shall have the
\nmeaning assigned to such term in this Agreement. When a reference is made in
\nthis Agreement to an Article or a Section, Exhibit or Schedule, such reference
\nshall be to an Article or Section of, or an Exhibit or Schedule to, this
\nAgreement unless otherwise indicated.<\/p>\n
Section 3.13. Governmental Approvals. The parties acknowledge that
\ncertain of the<\/p>\n
12
\n 16<\/p>\n
provisions of this Agreement may be subject to certain conditions established
\nby applicable government regulations, orders, and approvals (“Existing
\nAuthority”). The parties intend to implement this Agreement consistent with and
\nto the extent permitted by Existing Authority and to cooperate toward obtaining
\nand maintaining in effect such governmental agency consents, orders or
\napprovals as may be required in order to implement this Agreement as fully as
\npossible in accordance with its terms.<\/p>\n
ARTICLE IV<\/p>\n
DEFINITIONS<\/p>\n
Section 4.1. Action. “Action” means any demand, action, suit,
\ncountersuit, arbitration, inquiry, proceeding or investigation by or before any
\nfederal, state, local, foreign or international governmental authority or any
\narbitration or mediation tribunal.<\/p>\n
Section 4.2. Affiliated Company. “Affiliated Company” has the
\nmeaning set forth in the Separation Agreement.<\/p>\n
Section 4.3. Claims Committee. “Claims Committee” means a
\ncommittee composed of (i) either the General Counsel or an Associate General
\nCounsel of Southern and (ii) either the General Counsel or an Associate General
\nCounsel of Southern Energy.<\/p>\n
Section 4.4. Commingled Claims. “Commingled Claims” means,
\ncollectively, any Third Party Claims (i) which involve an employee, consultant
\nor contractor that was employed by both the Southern Energy Business and the
\nSouthern Business, (ii) in which both Southern and Southern Energy are named,
\nor (iii) involving both the Southern Energy Business and the Southern Business.<\/p>\n
Section 4.5. Coverage Amount. “Coverage Amount” means the lesser
\nof (A) the available limits of liability under Southern’s Insurance Policies in
\neffect prior to the Insurance Transition End Date, net of uncollectible amounts
\nattributable to insurer insolvencies, and (B) the proceeds received from
\nSouthern’s Insurance Policies if any Liabilities are the subject of disputed
\ncoverage claims and, following consultation with each other, Southern and\/or
\nSouthern Energy agree to accept less than full policy limits from Southern’s
\nand Southern Energy’s insurers.<\/p>\n
Section 4.6. Credit Support Arrangements. “Credit Support
\nArrangements” has the meaning set forth in Section 5.13 of the Separation
\nAgreement.<\/p>\n
Section 4.7. Employee Matters Agreement. “Employee Matters
\nAgreement” means the Employee Matters Agreement attached as an exhibit to the
\nSeparation Agreement.<\/p>\n
Section 4.8. Employment Liabilities. “Employment Liabilities” has
\nthe meaning set forth in Schedule 2.01 to the Employee Matters Agreement.<\/p>\n
13
\n 17<\/p>\n
Section 4.9. Environmental Claim. “Environmental Claim” means any
\nand all administrative or judicial actions, suits, orders, claims, liens,
\nnotices of violation, investigations, complaints, requests for information,
\nproceedings or other written communication, whether criminal or civil, by any
\nPerson based upon, alleging, asserting, or claiming any (a) violation of, or
\nliability under any environmental law, (b) violation of any permit, or (c)
\nliability for investigatory costs, cleanup costs, removal costs, remedial
\ncosts, response costs, natural resource damages, property damage, personal
\ninjury, fines, or penalties arising out of, based upon, resulting from or
\nrelated to, the presence, release, or threatened release into the environment
\nof any hazardous materials or any other environmental condition.<\/p>\n
Section 4.10. HoldCo Transaction. “HoldCo Transaction” has the
\nmeaning set forth in the Separation Agreement.<\/p>\n
Section 4.11. Indemnitee. “Indemnitee” has the meaning set forth in
\nSection 1.4(a) hereof.<\/p>\n
Section 4.12. Insurance Policies. “Insurance Policies” means
\ninsurance policies pursuant to which a Person makes a true risk transfer to an
\ninsurer.<\/p>\n
Section 4.13. Insurance Transition End Date. “Insurance Transition
\nEnd Date” means the earlier of (i) the Distribution Date, or (ii) the first
\ndate on which Southern owns less than 50% of the common stock of Southern
\nEnergy then outstanding.<\/p>\n
Section 4.14. Insurance Transition Period. “Insurance Transition
\nPeriod” has the meaning set forth in Section 2.1 of this Agreement.<\/p>\n
Section 4.15. Insured Southern Energy Liability. “Insured Southern
\nEnergy Liability” means any Southern Energy Liability to the extent that (i) it
\nis covered under the terms of Southern’s Insurance Policies in effect prior to
\nthe Insurance Transition End Date and (ii) Southern Energy is not a named
\ninsured under, or otherwise entitled to the benefits of, such Insurance
\nPolicies.<\/p>\n
Section 4.16. Intercompany Agreements. “Intercompany Agreements”
\nmeans any written agreement between Southern or any of its Subsidiaries or
\nAffiliated Companies and Southern Energy or any of its Subsidiaries or
\nAffiliated Companies which is in effect prior to the Separation Date.<\/p>\n
Section 4.17. IPO Registration Statement. “IPO Registration
\nStatement” means the registration statement on Form S-1 pursuant to the
\nSecurities Act to be filed with the SEC registering the shares of common stock
\nof Southern Energy to be issued in the IPO, together with all amendments
\nthereto.<\/p>\n
Section 4.18. Liabilities. “Liabilities” means all debts,
\nliabilities, guarantees, assurances, commitments and obligations, whether
\nfixed, contingent or absolute, asserted or unasserted, matured or unmatured,
\nliquidated or unliquidated, accrued or not accrued,<\/p>\n
14
\n 18<\/p>\n
known or unknown, due or to become due, whenever or however arising (including,
\nwithout limitation, whether arising out of any contract or tort based on
\nnegligence or strict liability) and whether or not the same would be required
\nby generally accepted principles and accounting policies to be reflected in
\nfinancial statements or disclosed in the notes thereto. For purposes of any
\nindemnification hereunder, “Liabilities” shall be deemed also to include any
\nand all damages, claims, suits, judgments, fines, penalties, costs and expenses
\nof any kind or character, including attorney’s fees.<\/p>\n
Section 4.19. Person. “Person” means an individual, a partnership,
\na corporation, a limited liability company, an association, a joint stock
\ncompany, a trust, a joint venture, an unincorporated organization and a
\ngovernmental entity or any department, agency or political subdivision thereof.<\/p>\n
Section 4.20. Separation. “Separation” has the meaning set forth in
\nthe Separation Agreement.<\/p>\n
Section 4.21. Separation Agreement. “Separation Agreement” means
\nthe Master Separation and Distribution Agreement dated as of September 1, 2000,
\nof which this is an exhibit thereto.<\/p>\n
Section 4.22. Separation Date. “Separation Date” means as of 12:01
\na.m., Eastern Standard Time, September 1, 2000, or such date as may be fixed by
\nthe Board of Directors of Southern.<\/p>\n
Section 4.23. Southern Business. “Southern Business” has the
\nmeaning set forth in the Separation Agreement.<\/p>\n
Section 4.24. Southern Energy Business. “Southern Energy Business”
\nhas the meaning set forth in the Separation Agreement.<\/p>\n
Section 4.25. Southern Energy Covered Parties. “Southern Energy
\nCovered Parties” shall have the meaning set forth in Section 2.1(a) of this
\nAgreement.<\/p>\n
Section 4.26. Southern Energy Group. “Southern Energy Group” has
\nthe meaning set forth in the Separation Agreement.<\/p>\n
Section 4.27. Southern Energy Indemnitees. “Southern Energy
\nIndemnitees” means Southern Energy, each member of the Southern Energy Group
\nand each of their respective directors, officers and employees.<\/p>\n
Section 4.28. Southern Energy Liabilities. “Southern Energy
\nLiabilities” means (i) all Liabilities of the Southern Energy Group, and (ii)
\nthe Credit Support Arrangements.<\/p>\n
Section 4.29. Southern Group. “Southern Group” has the meaning set
\nforth in the Separation Agreement.<\/p>\n
15
\n 19<\/p>\n
Section 4.30. Southern Indemnitees. “Southern Indemnitees” means
\nSouthern, each member of the Southern Group and each of their respective
\ndirectors, officers and employees.<\/p>\n
Section 4.31. Subsidiary. “Subsidiary” has the meaning set forth in
\nthe Separation Agreement.<\/p>\n
Section 4.32. Tax Indemnification Agreement. “Tax Indemnification
\nAgreement” means the Tax Indemnification Agreement attached as an exhibit to
\nthe Separation Agreement.<\/p>\n
Section 4.33. Taxes. “Taxes” has the meaning set forth in the Tax
\nIndemnification Agreement.<\/p>\n
Section 4.34. Third Party Claim. “Third Party Claim” has the
\nmeaning set forth in Section 1.4(a) of this Agreement.<\/p>\n
[SIGNATURES ON FOLLOWING PAGE]<\/p>\n
16
\n 20<\/p>\n
IN WITNESS WHEREOF, each of the parties has caused this Indemnification
\nand Insurance Matters Agreement to be executed on its behalf by its officers
\nthereunto duly authorized on the day and year first above written.<\/p>\n
THE SOUTHERN COMPANY<\/p>\n
By:
\n ——————————————
\n Name: H. Allen Franklin
\n Title: President and Chief Operating Officer<\/p>\n
SOUTHERN ENERGY, INC.<\/p>\n
By:
\n ——————————————
\n Name: S. Marce Fuller
\n Title: President and Chief Executive Officer<\/p>\n
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