\n 7.9 Dividends; No Repurchases of Capital Stock………………………………………….18
\n 7.10 Indebtedness…………………………………………………………………….19
\n 7.11 Negative Pledge………………………………………………………………….19
\n 7.12 Other Negative Covenants………………………………………………………….20
\n 7.13 Reporting Requirements……………………………………………………………21
\n 7.14 Obtain PUCT Final Order…………………………………………………………..21<\/p>\nARTICLE VIII Governance Matters……………………………………………………………….22
\n 8.1 Board Composition………………………………………………………………..22
\n 8.2 Charter and By-law Amendments……………………………………………………..22
\n 8.3 Chief Executive Officer…………………………………………………………..22<\/p>\n
ARTICLE IX Tax Covenants of REI and Regco…………………………………………………….22<\/p>\n
ARTICLE X Tax Matters……………………………………………………………………..24
\n 10.1 Election Under Section 338(h)(10)………………………………………………….24
\n 10.2 Tax Returns……………………………………………………………………..24
\n 10.3 Transfer Taxes…………………………………………………………………..25
\n 10.4 Indemnification………………………………………………………………….25
\n 10.5 Computation of Tax Liabilities…………………………………………………….26
\n 10.6 Contest Provisions……………………………………………………………….26
\n 10.7 Resource’s Claiming, Receiving or Using of Refunds and Overpayments……………………27
\n 10.8 Resolution of All Tax-Related Disputes……………………………………………..27
\n 10.9 Termination of Existing Tax Sharing Agreements………………………………………27
\n 10.10 Assistance and Cooperation………………………………………………………..28<\/p>\n
ARTICLE XI Dispute Resolution……………………………………………………………….28<\/p>\n
ARTICLE XII Miscellaneous……………………………………………………………………29
\n 12.1 Modifications to this Agreement Arising from Amendment of the Utilities Code……………29
\n 12.2 Amendments………………………………………………………………………29
\n 12.3 Successors and Assignment…………………………………………………………29
\n 12.4 Notices…………………………………………………………………………29
\n 12.5 Governing Law……………………………………………………………………29
\n 12.6 Headings………………………………………………………………………..30
\n 12.7 Severability…………………………………………………………………….30
\n 12.8 Counterparts…………………………………………………………………….30
\n 12.9 Rights of the Parties…………………………………………………………….30
\n 12.10 Reservation of Rights…………………………………………………………….30
\n 12.11 Entire Agreement…………………………………………………………………30<\/p>\n
<\/c><\/c><\/s><\/table>\n
ii
\n 4<\/p>\n
TEXAS GENCO OPTION AGREEMENT<\/p>\n
This Agreement, dated as of December 31, 2000, between Reliant Energy,
\nIncorporated, a Texas corporation (“REI”), and Reliant Resources, Inc., a
\nDelaware corporation (“Resources”);<\/p>\n
WHEREAS, Section 2.2(h) of the Master Separation Agreement (as defined
\nbelow) provides for this Agreement to be entered into prior to the sale of
\nshares of common stock of Resources to the public as provided therein;<\/p>\n
NOW THEREFORE, the parties, in consideration of the premises and for good
\nand valuable consideration agree as follow:<\/p>\n
ARTICLE I
\n Definitions<\/p>\n
1.1 Definitions. The following terms used in this Agreement have the
\nmeanings set forth below:<\/p>\n
An “Affiliate” of any Person means another Person that directly, or
\nindirectly through one or more intermediaries, controls or is controlled by, or
\nis under common control with, such Person. For purposes of the foregoing,
\n“control”, with respect to any Person, means the possession, directly or
\nindirectly, of the power to direct or cause the direction of the management and
\npolicies of such Person, whether through ownership of voting securities, or by
\ncontract or otherwise. The fact that any Person may be deemed at any time an
\nAffiliate of another Person for purposes of the Utilities Code shall not create
\nany implication that such Persons are “affiliates” for purposes of this
\nAgreement. Notwithstanding anything herein to the contrary, no member of the
\nResources Group shall be deemed an Affiliate of any member of the REI Group and
\nno member of the REI Group shall be deemed an Affiliate of any member of the
\nResources Group.<\/p>\n
“CERCLA” means the federal Comprehensive Environmental Response,
\nCompensation and Liability Act, as amended (42 U.S.C.ss.ss.9601-9675).<\/p>\n
“Choice Date” means January 1, 2002 or such other date on which retail
\nelectric customer choice begins in the traditional service territory of Reliant
\nEnergy HL&P pursuant to Section 39.102 of the Utilities Code.<\/p>\n
“Control Premium Amount” has the meaning set forth in Section 3.1.<\/p>\n
“Environmental Laws” means all applicable Federal, state and local,
\nprovincial and foreign, civil and criminal laws, regulations, rules, ordinances,
\ncodes, decrees, judgments, directives, or judicial or administrative orders
\nrelating to pollution or protection of the environment, natural resources or
\nhuman health and safety, including, without limitation, laws relating to
\nReleases or threatened Releases of Hazardous Substances (including, without
\nlimitation, Releases to ambient air, surface water, groundwater, land, surface
\nand subsurface strata) or otherwise relating to the manufacture, processing,
\ndistribution, use, treatment, storage, <\/p>\n
1
\n 5<\/p>\n
Release, transport, disposal or handling of Hazardous Substances. “Environmental
\nLaws” include, without limitation, CERCLA, the Hazardous Materials
\nTransportation Act (49 U.S.C.ss.ss. 1801 et seq.), the Resource Conservation and
\nRecovery Act (42 U.S.C.ss.ss. 6901 et seq.), the Federal Water Pollution Control
\nAct (33 U.S.C. ss.ss. 1251 et seq.), the Clean Air Act (42 U.S.C.ss.ss. 7401 et
\nseq.), the Toxic Substances Control Act (15 U.S.C. ss.ss. 2601 et seq.), the Oil
\nPollution Act (33 U.S.C.ss.ss. 2701 et seq.), the Emergency Planning and
\nCommunity Right-to-Know Act (42 U.S.C.ss.ss. 11001 et seq.), the Occupational
\nSafety and Health Act (29 U.S.C.ss.ss. 651 et seq) and all applicable state laws
\nanalogous to any of the above.<\/p>\n
“Environmental Permits” means permits, certificates, certifications,
\nlicenses, franchises and other governmental filings, notices, authorizations,
\nconsents and approvals under Environmental Laws.<\/p>\n
“Genco” means the corporation which will become the indirect owner of all
\nthe partnership interests in Genco LP as provided in Section 2.3, except that
\nwhen used in Article VII, Genco shall mean such corporation or Genco LP, as the
\ncontext may require.<\/p>\n
“Genco Assets” has the meaning assigned to that term in Section 1.15 of the
\nMaster Separation Agreement, as such assets may exist from time to time,
\nincluding all additions thereto and betterments, improvements and replacements
\nthereof.<\/p>\n
“Genco Common Stock” means the common stock, par value $.001 per share, of
\nGenco.<\/p>\n
“Genco GP LLC” means the limited liability company which will become the 1%
\ngeneral partner of Genco LP.<\/p>\n
“Genco IPO” means the sale of Genco Common Stock, either in a primary
\noffering by Genco or in a secondary offering by Regco, in an underwritten public
\noffering that results in Regco’s ownership of the outstanding Genco Common Stock
\nbeing reduced from 100% to a percentage not greater than 83% and not less than
\n80%.<\/p>\n
“Genco Liabilities” has the meaning assigned to that term in Section 1.18
\nof the Master Separation Agreement.<\/p>\n
“Genco LP” means the limited partnership to which the Genco Assets will be
\ntransferred as provided in Section 2.1.<\/p>\n
“Genco LP LLC” means the limited liability company which will become the
\n99% limited partner of Genco LP.<\/p>\n
“Genco Organization Date” means the date the Genco Assets are contributed
\nto Genco LP and the Genco Liabilities are assumed by Genco LP as provided in
\nSection 2.1.<\/p>\n
“Genco Public Ownership Date” means the date on which a Genco Public
\nOwnership Event occurs.<\/p>\n
2
\n 6<\/p>\n
“Genco Public Ownership Event” means the first to occur of (a) the closing
\nof the first sale of Genco Common Stock to the underwriters pursuant to a Genco
\nIPO or (b) the distribution date for a Genco Spin-off that is a distribution or
\nthe date shares are accepted for exchange in a Genco spin-off accomplished by
\nmeans of an exchange offer.<\/p>\n
“Genco Spin-off” means either (a) a distribution by Regco with respect to
\nits outstanding Common Stock of at least 19%, but not more than 20%, of the
\nGenco Common Stock owned by it or (b) the consummation by Regco of an exchange
\noffer to holders of its outstanding common stock in which Regco transfers at
\nleast 19%, but not more than 20%, of the Genco Common Stock owned by it to such
\nholders in exchange for Regco’s common stock held by such holders, in either
\ncase resulting in Regco’s ownership of the outstanding Genco Common Stock being
\nreduced to a percentage not greater than 81% and not less than 80%.<\/p>\n
“Good Operating Practices” mean any of the practices, methods and acts
\nengaged in or approved by a significant portion of the electric generation
\nindustry or any of the practices, methods or acts which, in the exercise of
\nreasonable judgment in light of the facts known at the time the decision was
\nmade, would have been expected to accomplish the desired result at a reasonable
\ncost consistent with reliability, safety and expedition during the relevant time
\nperiod. Good Operating Practices are not intended to be limited to the optimum
\npractices, methods or acts to the exclusion of all others, but rather to be
\nacceptable practices, methods or acts generally accepted in the industry.<\/p>\n
“Governmental Approvals” has the meaning assigned to that term in the
\nMaster Separation Agreement.<\/p>\n
“Governmental Authority” means any federal, state, local or other
\ngovernmental regulatory or administrative agency, commission, department, board,
\nor other governmental subdivision, court, tribunal, arbitrating body or other
\ngovernmental authority.<\/p>\n
“Hazardous Substances” or “hazardous substances” means (a) any
\npetrochemical or petroleum products, coal ash, oil, radioactive materials, radon
\ngas, asbestos in any form that is friable, urea formaldehyde foam insulation and
\ntransformers or other equipment that contain dielectric fluid which contains
\nlevels of polychlorinated biphenyls in excess of 50 parts per million, (b) any
\nchemicals, materials or substances defined as or included in the definition of
\n“hazardous substances,” “hazardous wastes,” “hazardous materials,” “hazardous
\nconstituents,” “restricted hazardous materials,” “extremely hazardous
\nsubstances,” “toxic substances,” “contaminants,” “pollutants,” “toxic
\npollutants” or words of similar meaning and regulatory effect under any
\napplicable Environmental Law; and (c) any other chemical, material or
\nsubstances, exposure to which is prohibited, limited or regulated by any
\napplicable Environmental Law.<\/p>\n
“Indebtedness” of any Person means, (a) all obligations of such Person for
\nborrowed money, (b) all obligations of such Person evidenced by bonds,
\ndebentures, notes or similar instruments, (c) all obligations of such Person
\nupon which interest charges are customarily paid, (d) all obligations of such
\nPerson under conditional sale or other title retention agreements relating to
\nproperty or assets purchased by such Person, (e) all obligations of such Person
\nissued or assumed as the deferred purchase price of property or services, (f)
\nall <\/p>\n
3
\n 7<\/p>\n
Indebtedness of others secured by (or for which the holder of such Indebtedness
\nhas an existing right, contingent or otherwise, to be secured by) any mortgage,
\nlien, pledge, or other encumbrance on property owned or acquired by such Person,
\nwhether or not the obligations secured thereby have been assumed, (g) all
\nguarantees by such Person of Indebtedness of others, (h) all capital lease
\nobligations of such Person, and (i) all securities or other similar instruments
\nconvertible or exchangeable into any of the foregoing, but excluding daily cash
\noverdrafts associated with routine cash operations.<\/p>\n
“Independent Director” means a director of Genco who (a) meets the
\nindependence requirements for audit committee members under the rules of the
\nprincipal national securities exchange or automated quotation system on which
\nthe Genco Common Stock is listed or reported and (b) is not otherwise a
\ndirector, officer or employee of Regco or of Resources or of any of their
\nSubsidiaries.<\/p>\n
“Investment” in any Person means any loan or advance to such Person, any
\npurchase or other acquisition of any capital stock or other ownership or profit
\ninterest, warrants, rights, options, obligations or other securities of such
\nPerson, any capital contribution to such Person or any other investment in such
\nPerson, including, without limitation, any arrangement pursuant to which the
\ninvestor incurs Indebtedness of the types referred to in clauses (f) or (g) of
\nthe definition of “Indebtedness” in respect of such Person.<\/p>\n
“Liabilities” means any and all Indebtedness, liabilities and obligations,
\nwhether accrued, fixed or contingent, mature or inchoate, known or unknown,
\nreflected on a balance sheet or otherwise, including, but not limited to, those
\narising under any law, rule, regulation, action, order, injunction or consent
\ndecree of any Governmental Authority or any judgment of any court of any kind or
\nany award of any arbitrator of any kind, and those arising under any contract,
\ncommitment or undertaking.<\/p>\n
“Master Separation Agreement” means the Master Separation Agreement dated
\nas of December 31, 2000 between REI and Resources.<\/p>\n
“Material Adverse Effect” means an effect that is or could be expected to
\nbe materially adverse to the business, assets, condition (financial or
\notherwise), prospects, properties or results of operations of Genco, or prior to
\nthe Genco Organization Date, of the Genco Assets or the business and operations
\nconducted with the Genco Assets.<\/p>\n
“Mortgage” means the Mortgage and Deed of Trust, dated November 1, 1944
\nbetween Houston Lighting & Power Company and Chase Manhattan Bank National
\nAssociation (successor to South Texas Commercial National Bank of Houston) as
\nTrustee, as amended and supplemented.<\/p>\n
“Option” means the option granted to Resources pursuant to Article III of
\nthis Agreement.<\/p>\n
“Option Closing Date” means the date on which delivery of and payment for
\nthe Shares is made pursuant to Section 3.2 or Section 3.5, as applicable.<\/p>\n
4
\n 8<\/p>\n
“Option Exercise Date” means the date on which Resources gives notice of
\nexercise of the Option pursuant to Section 3.1.<\/p>\n
“Option Expiration Date” means January 24, 2004.<\/p>\n
“Option Period” means the period beginning at 8:00 a.m. on January 10, 2004
\nand ending at 5:00 p.m., Houston time on the Option Expiration Date, or such
\nother period during which the Option may be exercised as may be established
\npursuant to Section 3.5.<\/p>\n
“Permits” means permits, certificates, certifications, licenses, franchises
\nand other filings, notices, authorizations, consents and approvals of any
\nGovernmental Authority (other than Environmental Permits).<\/p>\n
“Person” means and includes an individual, a partnership, a joint venture,
\na corporation, a limited liability company, a trust, an unincorporated
\norganization or a Governmental Authority.<\/p>\n
“Pricing Period” has the meaning specified in Section 3.1.<\/p>\n
“PUCT” means the Public Utility Commission of Texas.<\/p>\n
“Regco” means the corporation that will be organized by REI and, by means
\nof a merger of a wholly owned subsidiary of Regco with and into REI, that will
\nbecome a holding company for REI’s regulated businesses, as described in Article
\nVI of the Master Separation Agreement; provided, however, that if any provision
\nof this Agreement referring to Regco applies at a time when Regco has not become
\nsuch a holding company, references to Regco in such provision shall be deemed to
\nrefer to REI or the ultimate parent entity of REI, as the case may be.<\/p>\n
A “Regco Change in Control Event” shall be deemed to have occurred upon the
\noccurrence of any of the following events:<\/p>\n
(a) 30% OWNERSHIP CHANGE: Any Person makes an acquisition of
\n Outstanding Regco Voting Stock and is, immediately thereafter, the
\n beneficial owner of 30% or more of the then Outstanding Regco Voting Stock,
\n unless such acquisition is made directly from Regco in a transaction
\n approved by a majority of the Incumbent Directors; or any group is formed
\n that is or becomes the beneficial owner of 30% or more of the Outstanding
\n Regco Voting Stock; or<\/p>\n
(b) BOARD MAJORITY CHANGE: Individuals who are Incumbent Directors
\n cease for any reason to constitute a majority of the members of the Regco
\n Board; or<\/p>\n
(c) MAJOR MERGERS AND ACQUISITIONS: Consummation of a Regco Business
\n Combination unless, immediately following such Regco Business Combination,
\n (i) all or substantially all of the individuals and entities that were the
\n beneficial owners of the Outstanding Regco Voting Stock immediately prior
\n to such Regco Business Combination beneficially own, directly or
\n indirectly, <\/p>\n
5
\n 9<\/p>\n
more than 70% of the then outstanding shares of voting stock of the parent
\n corporation resulting from such Regco Business Combination in substantially
\n the same relative proportions as their ownership, immediately prior to such
\n Regco Business Combination, of the Outstanding Regco Voting Stock, (ii) if
\n the Regco Business Combination involves the issuance or payment by Regco of
\n consideration to another entity or its shareholders, the total fair market
\n value of such consideration plus the principal amount of the consolidated
\n long-term debt of the entity or business being acquired (in each case,
\n determined as of the date of consummation of such Regco Business
\n Combination by a majority of the Incumbent Directors) does not exceed 50%
\n of the sum of the fair market value of the Outstanding Regco Voting Stock
\n plus the principal amount of Regco’s consolidated long-term debt (in each
\n case, determined immediately prior to such consummation by a majority of
\n the Incumbent Directors), (iii) no Person (other than any corporation
\n resulting from such Regco Business Combination) beneficially owns, directly
\n or indirectly, 30% or more of the then outstanding shares of voting stock
\n of the parent corporation resulting from such Regco Business Combination
\n and (iv) a majority of the members of the board of directors of the parent
\n corporation resulting from such Regco Business Combination were Incumbent
\n Directors of Regco immediately prior to consummation of such Regco Business
\n Combination; or<\/p>\n
(d) MAJOR ASSET DISPOSITIONS: Consummation of a Major Regco Asset
\n Disposition unless, immediately following such Major Regco Asset
\n Disposition, (i) individuals and entities that were beneficial owners of
\n the Outstanding Regco Voting Stock immediately prior to such Major Regco
\n Asset Disposition beneficially own, directly or indirectly, more than 70%
\n of the then outstanding shares of voting stock of Regco (if it continues to
\n exist) and of the entity that acquires the largest portion of such assets
\n (or the entity, if any, that owns a majority of the outstanding voting
\n stock of such acquiring entity) and (ii) a majority of the members of the
\n board of directors of Regco (if it continues to exist) and of the entity
\n that acquires the largest portion of such assets (or the entity, if any,
\n that owns a majority of the outstanding voting stock of such acquiring
\n entity) were Incumbent Directors immediately prior to consummation of such
\n Major Regco Asset Disposition.<\/p>\n
For purposes of the foregoing,<\/p>\n
(1) the term “beneficial owner” is used as it is defined for purposes
\n of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
\n “Exchange Act”);<\/p>\n
(2) the term “election contest” is used as it is defined for purposes
\n of Rule 14a-11 under the Exchange Act;<\/p>\n
(3) the term “group” is used as it is defined for purposes of Section
\n 13(d)(3) of the Exchange Act;<\/p>\n
6
\n 10<\/p>\n
(4) the term “Incumbent Director” means a director of Regco (x) who
\n was a director of Regco immediately following the Restructuring Merger or
\n (y) who becomes a director subsequent to the date of the Restructuring
\n Merger and whose election, or nomination for election by Regco’s
\n stockholders, was approved by a vote of a majority of the Incumbent
\n Directors at the time of such election or nomination, except that any such
\n director shall not be deemed an Incumbent Director if his or her initial
\n assumption of office occurs as a result of an actual or threatened election
\n contest or other actual or threatened solicitation of proxies by or on
\n behalf of a Person other than the Board;<\/p>\n
(5) the term “Major Regco Asset Disposition” means the sale or other
\n disposition in one transaction or a series of related transactions of 70%
\n or more of the assets of Regco and its subsidiaries on a consolidated
\n basis;<\/p>\n
(6) the term “Outstanding Regco Voting Stock” means outstanding voting
\n securities of Regco entitled to vote generally in the election of
\n directors; and any specified percentage or portion of the Outstanding Regco
\n Voting Stock (or of other voting stock) shall be determined based on the
\n combined voting power of such securities;<\/p>\n
(7) the term “parent corporation resulting from a Business
\n Combination” means Regco if its stock is not acquired or converted in the
\n Business Combination and otherwise means the entity which as a result of
\n such Business Combination owns Regco or all or substantially all the Regco
\n either directly or through one or more subsidiaries; and<\/p>\n
(8) the term “Regco Board” means the board of directors of Regco; and<\/p>\n
(9) the term “Regco Business Combination” means (x) a merger or
\n consolidation involving Regco or its stock or (y) an acquisition by Regco,
\n directly or through one or more subsidiaries, of another entity or its
\n stock or assets;<\/p>\n
and any specified percentage or portion of the assets of Regco shall be based on
\nfair market value, as determined by a majority of the Incumbent Directors.<\/p>\n
“Regular Cash Dividends” means regular quarterly cash dividends by Genco
\nmeeting the requirements of Section 7.9.<\/p>\n
“Regulatory Conditions to Exercise” has the meaning set forth in Section
\n3.4.<\/p>\n
“Regulatory Conditions to Genco Public Ownership Event” has the meaning set
\nforth in Section 6.1.<\/p>\n
“Release” means release, spill, leak, discharge, dispose of, pump, pour,
\nemit, empty, inject, leach, dump or allow to escape into or through the
\nenvironment.<\/p>\n
7
\n 11<\/p>\n
“Restructuring Date” means the date on which the merger of a wholly owned
\nsubsidiary of Regco with and into REI as provided in Section 6.2(g) of the
\nMaster Separation Agreement becomes effective.<\/p>\n
“Restructuring Merger” means the merger referred to in the definition of
\nRestructuring Date.<\/p>\n
“SEC” shall mean the Securities and Exchange Commission.<\/p>\n
“Shares” means the shares of Genco Common Stock subject to the Option,
\nwhich shall not include the Genco Common Stock sold or distributed in the Genco
\nPublic Ownership Event.<\/p>\n
“Subsidiary” of a Person means (i) any corporation, association or other
\nbusiness entity of which 50% or more of the total voting power of shares or
\nother voting securities outstanding thereof is at the time owned or controlled,
\ndirectly or indirectly, by that Person or one or more of the other subsidiaries
\nof that Person (or a combination thereof) and (ii) any partnership or limited
\nliability company (a) the sole general partner or the managing general partner
\nor managing member of which is such Person or one or more of the other
\nSubsidiaries of such Person (or any combination thereof) or (b) the only general
\npartners or members of which are such Person or one or more of the other
\nSubsidiaries of such Person (or any combination thereof). For purposes of this
\nAgreement, however, neither Resources nor any Subsidiary of Resources, nor Genco
\nnor any Subsidiary of Genco shall be deemed to be a Subsidiary of either REI or
\nof Regco.<\/p>\n
“Tax Returns” means all returns, declarations, reports, statements and
\nother documents required to be filed in respect of Taxes, and the term “Tax
\nReturn” means any one of the foregoing Tax Returns.<\/p>\n
“Taxes” mean all federal, state, local, foreign and other net income, gross
\nincome, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
\nlicense, lease, service, service use, withholding, payroll, employment, excise,
\nseverance, stamp, occupation, premium, property, windfall profits, fuel, gas
\nimport, customs, duties or other taxes, fees, assessments or charges of any kind
\nwhatsoever imposed by any governmental entity, together with any interest and
\nany penalties, additions to tax or additional amounts with respect thereto, and
\nshall include all liability for the payment of any consolidated or combined
\nincome taxes (including, without limitation, any United States federal
\nconsolidated income tax liability) that is payable as a result of being a member
\nof, and which may be imposed upon, any affiliated group (as defined in Section
\n1504(a) of the Code or other applicable law) of which Genco is a member, and the
\nterm “Tax” means any one of the foregoing Taxes.<\/p>\n
“Utilities Code” means the Utilities Code of Texas.<\/p>\n
8
\n 12<\/p>\n
ARTICLE II
\n Organization of Genco LP and Genco<\/p>\n
2.1 Organization of Genco LP. REI agrees, prior to the Restructuring
\nMerger, and in any case no later than December 31, 2001, to cause the Genco
\nAssets to be contributed to Genco LP free and clear of the lien of the Mortgage
\nand all other liens and security interests securing any Indebtedness, and to
\ncause Genco LP to assume the Genco Liabilities, all pursuant to and in
\naccordance with Article VI and Section 8.1 of the Master Separation Agreement.
\nAfter giving effect to such transactions, all of the outstanding partnership
\ninterests in Genco LP shall be owned initially by REI, indirectly through Genco
\nGP LLC and Genco LP LLC. On the Restructuring Date, Regco shall become the owner
\nof such partnership interests, indirectly through Genco GP LLC and Genco LP LLC.<\/p>\n
2.2 Genco Contracts. On the Genco Organization Date, REI will cause to be
\nassigned to Genco the Technical Services Agreement between REI and Resources and
\nGenco will assume the obligations of REI thereunder.<\/p>\n
2.3 Organization of Genco. Prior to the Genco Public Ownership Date, Regco
\nshall organize Genco and contribute to Genco all of Regco’s interests in Genco
\nGP LLC and Genco LP LLC. Immediately following such transactions, all
\noutstanding shares of Genco Common Stock shall be owned by Regco, unless at such
\ntime the Restructuring Merger shall not have been effected, in which case all
\noutstanding shares of Genco Common Stock shall be owned by REI. In connection
\nwith the organization of Genco, REI shall cause Genco’s certificate of
\nincorporation to contain a provision electing not to be governed by Section 203
\nof the Delaware General Corporation Law or Articles 13.01 et seq. of the Texas
\nBusiness Corporation Act, as applicable.<\/p>\n
2.4 Genco Employee Matters. Effective no later than the earlier of the
\nDistribution Date and January 1, 2002, REI shall transfer to Genco LP all
\npersonnel employed by REI who are assigned to generating plants and other
\nfacilities owned by Genco LP, together with other employees identified by REI as
\nenergy production employees who are directly supporting the functions of Genco
\nLP. Prior to such effective date, REI shall complete any necessary consultations
\nwith labor organizations. In accordance with the Employee Matters Agreement, REI
\nshall cause benefit and welfare plans to be in place for employees of Genco as
\nof the effective date of the transfer of employment.<\/p>\n
ARTICLE III
\n Grant of Option<\/p>\n
3.1 Grant of Option. Subject to the terms and conditions and in reliance on
\nthe representations and warranties herein set forth, REI hereby grants to
\nResources the option to purchase, during the Option Period, all (but not less
\nthan all) of the shares of Genco Common Stock owned by Regco at the time of
\nexercise (which shall not include the shares of Genco Common Stock sold or
\ndistributed in the Genco Public Ownership Event) for an aggregate price equal to
\nthe sum of (a) the product of (x) the average daily closing price per share of
\nthe Genco Common Stock on the principal national securities exchange on which
\nthe Genco Common Stock is traded over the 30 consecutive trading days out of the
\n120 trading days ending <\/p>\n
9
\n 13<\/p>\n
January 9, 2004 (the “Pricing Period”) which result in the highest average
\nclosing price for any such 30 trading day period and (y) the number of shares of
\nGenco Common Stock so owned by Regco, (b) any applicable Control Premium Amount
\nand (c) any adjustment (whether positive or negative) required by Section 7.9.
\nThe Option shall also be exercisable prior to the Option Period in the
\ncircumstances set forth in Section 3.5 for the price and on the terms set forth
\ntherein. The Control Premium Amount shall apply to the extent that the PUCT
\nincludes a control premium in the valuation of Genco pursuant to Section
\n39.262(h)(3) of the Utilities Code, and shall equal the amount of the control
\npremium so determined to exist, but shall in no event exceed 10% of the amount
\ndetermined under clause (a) of the first sentence of this Section 3.1. In the
\nevent of any stock dividend, stock split or combination affecting the Genco
\nCommon Stock during the Pricing Period, appropriate proportionate adjustments
\nshall be made in the computation of the average daily closing price pursuant to
\nthis Section 3.1.<\/p>\n
Notwithstanding anything to the contrary herein, the Option shall not be
\nexercisable unless the Distribution (as defined in the Master Separation
\nAgreement) has occurred. If at any time the Option is exercisable hereunder the
\nRestructuring Date has not occurred, or for any other reason the Genco Common
\nStock is held by REI or one or more other Subsidiaries of REI or Regco rather
\nthan by Regco, the Option shall be an option to purchase all of the Genco Common
\nStock held by REI or such other Subsidiary or Subsidiaries.<\/p>\n
3.2 Exercise of Option. Resources may exercise the Option by giving written
\nnotice thereof to Regco during the Option Period. Subject to compliance with
\nSection 3.3, and to satisfaction of the Regulatory Conditions to Exercise,
\ndelivery of and payment for the Shares (assuming the Option has been so
\nexercised) shall be made at 10:00 A.M., Houston time, on the later of (a) the
\nthird business day following the giving of such notice (or such other date as
\nthe parties agree) and (b) the first business day following the satisfaction of
\nthe Regulatory Conditions to Exercise (satisfaction of which shall be a
\ncondition precedent to such delivery and payment) (which date shall be the
\n“Option Closing Date”), provided that if the amount of any Control Premium
\nAmount included in the exercise price has not been determined by Final Order of
\nthe PUCT prior to the date for delivery and payment so determined, the payment
\nmade on the date so determined shall exclude any Control Premium Amount and such
\nControl Premium Amount shall be paid in immediately available funds no later
\nthan 5 business days after the PUCT issues a Final Order determining market
\nvalue under Section 39.262(h)(3) of the Utilities Code. Delivery of the Shares
\nshall be made to Resources against payment by Resources of the purchase price by
\nwire transfer payable in same-day funds to the account specified by Regco.
\nDelivery of the Shares shall be made by delivery to Resources of stock
\ncertificates representing the Shares, accompanied by appropriate stock powers or
\nother instruments in proper form to effect such transfer. If Resources
\ndetermines prior to the Option Period and within one year prior to the
\nanticipated Option Closing Date that it intends in good faith, subject to
\neconomic conditions and other reasonable assumptions identified at such time, to
\nexercise the Option, it and Regco shall make all appropriate regulatory filings,
\nincluding filings under the Hart-Scott-Rodino Antitrust Improvements Act
\n(“H-S-R”) and the Nuclear Regulatory Commission, with a view to obtaining
\nrequired approvals or expiration or termination of the applicable waiting period
\nprior to the Option Exercise Date. Regco and Resources shall use commercially
\nreasonable efforts to cause all other Regulatory Conditions to Exercise to be
\nsatisfied as promptly as practicable after the Option Exercise Date.<\/p>\n
10
\n 14<\/p>\n
If Resources exercises the Option and all other Regulatory Conditions to
\nExercise have not been satisfied by the expiration or termination of the H-S-R
\nwaiting period, Resources shall deposit the payment for the Shares in an
\ninterest bearing account with an escrow agent mutually acceptable to Resources
\nand Regco, and Genco shall execute a power sales agreement with Resources under
\nwhich Genco shall sell to Resources or its designee all of Genco’s available
\ncapacity (after deducting requirements to satisfy prior obligations and amounts
\nit is required to sell to third parties under PUCT rules) at market-based rates
\nuntil the earlier of the Option Closing Date described above and May 31, 2005.
\nAt the Option Closing Date, the escrow agent holding the payment for the shares
\nshall remit to Regco the entire amount deposited by Resources, plus all interest
\naccrued and unpaid to the Option Closing Date, net of dividends paid to Regco
\nduring the period such funds are held in escrow. During the continuation of the
\npower sales agreement, Resources shall be obligated to advance, on the same
\nterms credit is extended by Regco pursuant to Section 6.5, all amounts required
\nby Genco for capital expenditures, and shall also pay for power purchased under
\nthe power sales agreement pursuant to the terms thereof. If the Option Closing
\nDate has not occurred by May 31, 2005, the rights of the parties under this
\nAgreement shall terminate (except for the obligations of Regco to reimburse
\nResources as set forth in the next sentence), the escrow shall be terminated and
\nall funds deposited with the escrow agent, together with interest accrued
\nthereon, shall be paid to Resources. Within five business days following such
\ntermination, Regco shall cause Genco to repay, or shall otherwise reimburse
\nResources for, all unrepaid advances made to fund Genco’s capital expenditures
\nduring the continuation of the power sales agreement as provided above.<\/p>\n
3.3 Requirement to Purchase Notes and Receivables. It shall be a condition
\nto Resource’s right to exercise the Option that Resources shall purchase from
\nRegco (or any Subsidiary of Regco, as applicable) any notes and other
\nreceivables owed by Genco to Regco or any Subsidiary of Regco as of the Option
\nClosing Date (other than Indebtedness incurred pursuant to Section 6.5 which
\nestablishes specified terms for repayment, the repayment of which shall be
\ngoverned by the terms thereof), at an amount equal to the outstanding principal
\namount thereof plus any accrued and unpaid interest thereon to such date. If
\nthere are any notes or other receivables owed by Regco or any Subsidiary of
\nRegco to Genco as of the Option Closing Date, Resources shall assume the
\nobligations of the obligors on such notes and other receivables and in
\nconsideration for the making of such assumption, Regco shall pay (or cause its
\nSubsidiary obligor to pay, as applicable) to Resources an amount equal to the
\noutstanding principal amount thereof plus any accrued and unpaid interest
\nthereon to such date. Regco shall provide an estimate of such amounts owed by
\nand to Genco and reasonably available supporting detail within two business days
\nfollowing any request by Resources during the Option Period or during the ten
\nbusiness days prior thereto, and within one business day after the giving of the
\nnotice of exercise pursuant to Section 3.2. The estimated amounts notified to
\nResources following the giving of the notice of exercise shall be paid by
\nResources, or by Regco or the appropriate Subsidiary obligor, as applicable, in
\nsame-day funds at the same time payment is made for the purchase of the Shares.
\nAny variation in the actual amounts outstanding as of the Option Closing Date
\nfrom the estimated amounts on the basis of which payment was made on the Option
\nClosing Date shall be determined as soon as practicable and payments made from
\nResources to Regco, or from Regco to Resources, as applicable, so that the
\namounts paid on the Option Closing Date, as adjusted to reflect such additional
\npayments, are equal to the amounts payable on the basis of the actual amounts
\noutstanding.<\/p>\n
11
\n 15<\/p>\n
3.4 Regulatory Conditions to Exercise. (a) The purchase and sale of the
\nShares pursuant to the exercise of the Option shall be subject to the
\nsatisfaction of following conditions precedent (collectively, the “Regulatory
\nConditions to Exercise”):<\/p>\n
(i) any applicable waiting period under the Hart-Scott-Rodino
\n Antitrust Improvements Act shall have expired or been terminated; and<\/p>\n
(ii) any approval by the SEC, the Nuclear Regulatory Commission or any
\n other regulatory agency then having jurisdiction over the transfer of the
\n Shares upon exercise of the Option or the ownership by Resources of the
\n Shares that is required by law to be obtained prior to the transfer of the
\n Shares or in order for Resources to exercise full rights of ownership with
\n respect thereto shall have been obtained and shall be in full force and
\n effect.<\/p>\n
(b) Regco shall use its best efforts to expedite all regulatory
\napprovals, including initiation of share transfer approval proceedings before
\nthe Nuclear Regulatory Commission prior to the Option Exercise Date as soon as
\nreasonably practical after receiving a non-binding notice from Resources prior
\nto the commencement of the Option Period stating that the current intention of
\nResources is to exercise the Option.<\/p>\n
3.5 Regco Change in Control. If a Regco Change in Control Event occurs, and
\nthe Pricing Period specified in Section 3.1 has not been completed, then the
\nOption shall become exercisable on the terms specified in this Section 3.5,
\nincluding the modifications set forth in this Section 3.5 to the determination
\nof the exercise price therefor and the time and manner of payment of the
\nexercise price. In such event, Resources may exercise the option by giving
\nwritten notice thereof to Regco at any time after the occurrence of the Regco
\nChange in Control Event (provided the Genco Public Ownership Date has occurred
\nand at least 30 trading days have occurred thereafter) and prior to the Option
\nExpiration Date. If the Pricing Period has not been completed at the time the
\nnotice of exercise is given, the option price payable on the Option Closing Date
\nshall be determined on the same basis as set forth in Section 3.1 except that
\nthe Pricing Period shall be the 30 consecutive trading days out of the 120
\ntrading days (or if there have not been 120 trading days, out of such shorter
\nperiod during which trading has occurred) ending on the date the notice of
\nexercise is given. At such time as the Option Period would have commenced absent
\nthe occurrence of a Regco Change in Control Event a computation of the exercise
\nprice shall be made in accordance with Section 3.1, including the determination
\nof any Control Premium Amount, and if that computation results in an exercise
\nprice lower than has been paid by Resources on the Option Closing Date, the
\ndifference shall be repaid by Regco to Resources as an adjustment to the
\nexercise price. There shall be no such adjustment if such computation results in
\nan exercise price higher than that paid on the Option Closing Date. Except as
\nmodified by this Section 3.5, the provisions of Article III shall apply to any
\nexercise of the Option pursuant to this Section 3.5.<\/p>\n
3.6 Prohibitions on Market Activity. Prior to the Option Exercise Date or,
\nif the option is not exercised, the Option Expiration Date, neither REI,
\nResources nor Genco shall, directly or indirectly through any Subsidiary or
\nother Person, purchase, sell, contract to purchase or sell, or otherwise acquire
\nor dispose of, any shares of Genco Common Stock or any options, <\/p>\n
12
\n 16<\/p>\n
warrants, rights, convertible securities or other securities convertible into or
\nexercisable or exchangeable for Genco Common Stock.<\/p>\n
3.7 Distributions, etc. Pending the Option Closing Date. On and after the
\ncommencement of the Pricing Period through and including the Option Closing
\nDate, Genco shall not declare any dividend or other distribution with respect to
\nthe Genco Common Stock except for Regular Quarterly Dividends consistent with
\npast practices.<\/p>\n
3.8 Commitments Pending the Option Closing Date. On and after the Option
\nExercise Date through and including the Option Closing Date, Genco shall not
\nenter into any long term contract or commitment for the purchase of fuel or for
\nthe purchase or sale of power (including any such contract or commitment
\nreasonably expected to require performance or payment after the Option Closing
\nDate) without prior consultation with, and the consent of, Resources, such
\nconsent not to be unreasonably withheld.<\/p>\n
3.9 Regulatory Proceedings. To the extent permitted by court or agency
\nrules, Resources shall be entitled to participate jointly with Regco in all
\nRegulatory Proceedings (as defined in the Master Separation Agreement)
\npertaining in any way to the value of Genco or to the Option.<\/p>\n
ARTICLE IV
\n Representations and Warranties of REI<\/p>\n
REI hereby represents and warrants to Resources as follows:<\/p>\n
4.1 Organization; Authorization, etc.. REI is a corporation duly organized,
\nvalidly existing and in good standing under the laws of the State of Texas. All
\nnecessary corporate action on the part of REI to authorize the entering into and
\nperformance of this Agreement has been duly and validly taken. This Agreement is
\na valid and binding obligation of REI.<\/p>\n
4.2 No Breach or Default. None of the execution, delivery or performance of
\nthis Agreement by REI or the assumption or performance by Regco of the
\nobligations hereunder required to be performed by it will constitute a breach of
\nor a default under any provision of the articles of incorporation or bylaws of
\nREI or similar constituent documents of Regco or of any note, mortgage,
\nindenture, loan or credit agreement, contract or other agreement to which either
\nREI or Regco is a party or by which either of them is bound or to which any
\nmaterial assets or property of either of them is subject.<\/p>\n
4.3 Matters Relating to Genco. On and following the Genco Organization
\nDate, Genco will be duly organized, validly existing and in good standing under
\nthe laws of its state of incorporation. All the outstanding shares of Genco
\nCommon Stock issued prior to the purchase by Resources of the Shares pursuant to
\nthe exercise of the Option will be duly authorized and validly issued, fully
\npaid and nonassessable and free of any preemptive or similar rights. All the
\npartnership interests of Genco LP will be validly issued, and following the
\ntransactions described in Section 2.3, Genco will be the sole beneficial owner
\nthereof (indirectly through Genco GP LLC and Genco LP LLC). At all times during
\nthe Option Period and prior to <\/p>\n
13
\n 17<\/p>\n
the Option Closing Date Regco will be the record and beneficial owner of the
\nShares free and clear of all liens, encumbrances, equities and claims, and
\nassuming that Resources acquires the Shares upon payment therefor as provided in
\nSection 3.2 without notice of any adverse claim (within the meaning of Section
\n8.105 of the Texas Business and Commerce Code (the “UCC”)), no action based on
\nan adverse claim (within the meaning of Section 8.105 of the UCC) may be
\nasserted against Resources with respect to the Shares.<\/p>\n
ARTICLE V
\n Representations and Warranties of Resources<\/p>\n
Resources hereby represents and warrants to REI as follows:<\/p>\n
5.1 Organization, Authorization, etc.. Resources is a corporation duly
\norganized, validly existing and in good standing under the laws of the State of
\nDelaware. All necessary corporate action on the part of Resources to authorize
\nthe entering into and performance of this Agreement has been duly and validly
\ntaken. This Agreement is a valid and binding obligation of Resources.<\/p>\n
5.2 No Breach or Default. None of the execution, delivery or performance of
\nthis Agreement by Resources will constitute a breach of or a default under any
\nprovision of the certificate of incorporation or bylaws of Resources or of any
\nnote, mortgage, indenture, loan or credit agreement, contract or other agreement
\nto which Resources is a party or by which it is bound or to which any of its
\nmaterial assets or property is subject.<\/p>\n
ARTICLE VI
\n Covenants of REI and Regco<\/p>\n
REI covenants and agrees, for itself and on behalf of Regco, to comply with
\nthe covenants set forth in this Article VI until the Option Closing Date or, if
\nthe Option is not exercised, the Option Expiration Date. In connection with the
\ntransactions occurring on the Restructuring Date, REI covenants and agrees to
\ncause Regco to expressly assume the obligations under this Agreement required to
\nbe performed by REI and by Regco.<\/p>\n
6.1 Genco IPO or Genco Spin-off. Regco will use its best efforts to satisfy
\nall Regulatory Conditions to Genco Public Ownership Event on or prior to June
\n30, 2002. Subject only to the satisfaction of such conditions, Regco will cause
\na Genco Public Ownership Event to occur on or prior to June 30, 2002. The
\n“Regulatory Conditions to Genco Public Ownership Event” are that:<\/p>\n
(a) Any material Governmental Approvals necessary under applicable law
\n to effect the Genco Public Ownership Event shall have been obtained and be
\n in full force and effect; and<\/p>\n
(b) No order, injunction or decree issued by any court or agency of
\n competent jurisdiction preventing the consummation of the Genco Public
\n Ownership Event shall be in effect.<\/p>\n
14
\n 18<\/p>\n
6.2 Ownership; Encumbrances. From the Genco Organization Date through and
\nincluding the Option Closing Date or, if the Option is not exercised, the Option
\nExpiration Date, Regco will not (a) sell, contract to sell, grant or enter into
\nany option providing for the sale of, or otherwise transfer or dispose of,
\ndirectly or indirectly, any partnership interests in Genco LP or any Subsidiary
\nof Genco LP or Genco (other than transfers thereof pursuant to the restructuring
\ntransactions expressly contemplated herein) or any Genco Common Stock or any
\noptions, warrants, rights, convertible securities or other securities
\nconvertible into or exercisable or exchangeable for such partnership interests
\nor Genco Common Stock, other than pursuant to (i) the Genco IPO or the Genco
\nSpin-off (ii) the sale of the Shares pursuant to the Option or (iii) in the
\nevent the Genco Public Ownership Event is a Genco IPO which does not result in
\nRegco’s ownership of the outstanding Genco Common Stock being reduced to 81% or
\nless, the sale prior to the commencement of the Pricing Period of Shares in an
\namount sufficient to result in a reduction of Regco’s ownership of the
\noutstanding Genco Common Stock to such level, but not below 80%, so that Regco
\nmay use the partial stock valuation method specified in Section 39.262(h)(3) of
\nthe Utilities Code or (b) mortgage, pledge, assign or encumber any partnership
\ninterests in Genco LP or Genco (or any Subsidiary of Genco LP or Genco), or any
\nGenco Common Stock.<\/p>\n
6.3 Operation, etc. of Genco Assets prior to Genco Organization Date. Prior
\nto the Genco Organization Date, REI will:<\/p>\n
6.3.1 Operate the Genco Assets and the business conducted therewith in the
\nordinary course of business consistent with past practices and Good Operating
\nPractices;<\/p>\n
6.3.2 Comply with all applicable laws and regulations applicable to the
\nGenco Assets, including without limitation all Environmental Laws, except where
\nfailure to do so would not result in a Material Adverse Effect;<\/p>\n
6.3.3 With respect to the Genco Assets, comply with Sections 7.5, 7.6, 7.7,
\n7.8, 7.9 and 7.12 as though named therein as Genco.<\/p>\n
6.3.4 Not pledge, mortgage, hypothecate or grant a security interest in, or
\npermit any mortgage, pledge, security interest or other lien upon any Genco
\nAssets to secure any Indebtedness except pursuant to the Mortgage.<\/p>\n
6.4 Pre-Genco Public Ownership Date Capital Contributions. Following the
\nGenco Organization Date and prior to the Genco Public Ownership Date, Regco will
\nlend to, or contribute to the capital of, Genco LP (and after its organization
\nGenco, which Regco shall cause to make corresponding loans or capital
\ncontributions to Genco LP) from time to time such funds as may be necessary,
\ntogether with other funds of Genco LP (and Genco, as applicable), to enable
\nGenco LP (and Genco, as applicable) to operate its business in the ordinary
\ncourse consistent with past practices and Good Operating Practices, to satisfy
\nits debts and other obligations and to fulfill its covenants set forth in
\nArticle VII of this Agreement. On or prior to the Genco Public Ownership Date,
\nRegco shall take such commercially reasonable action as may be appropriate
\n(which actions may include without limitation contributions to the capital of
\nGenco, causing Genco to declare and pay dividends, lending funds to Genco or
\narranging for <\/p>\n
15
\n 19<\/p>\n
Genco to borrow from others, or causing Genco to repay loans theretofore made)
\nto cause Genco to have a capital structure appropriate, in the judgment of
\nRegco’s board of directors, for the satisfactory marketing of Genco Common Stock
\nin a Genco IPO or to establish a satisfactory trading market for the Genco
\nCommon Stock following a Genco Spin-off, as applicable. Except as provided in
\nthis Section 6.4, Regco shall have no obligation to contribute to the capital of
\nGenco or otherwise provide equity to Genco.<\/p>\n
6.5 Credit Arrangements. On or prior to the Genco Public Ownership Date,
\nRegco shall establish commercially reasonable terms and conditions (which shall
\nbe determined by Regco on the basis of its judgment as to the terms Genco could
\nobtain from an unaffiliated lender) under which it will lend funds to Genco from
\ntime to time upon the request of Genco on or prior to the earlier of the Option
\nClosing Date and the Option Expiration Date.<\/p>\n
6.6 Governance. From and after the Genco Public Ownership Date until the
\nOption Closing Date or, if the Option is not exercised, the Option Expiration
\nDate, Regco shall comply with the provisions applicable to it contained in
\nArticle VIII and shall exercise its rights as a stockholder of Genco and
\notherwise use its best efforts to enable and cause Genco to comply with the
\nprovisions applicable to it contained in Article VIII.<\/p>\n
ARTICLE VII
\n Covenants of Genco<\/p>\n
REI shall cause Genco, in connection with the organization of Genco
\npursuant to Article II, to execute and deliver an undertaking in favor of
\nResources to observe and comply with the covenants set forth in this Article VII
\nexpressed as obligations of Genco. Prior to the Genco Public Ownership Date,
\nRegco shall cause Genco LP to observe and comply with such covenants. All
\ncovenants contained in this Agreement that do not by their terms terminate or
\ncease to apply at an earlier date shall terminate upon the Option Closing Date
\nor, if the option is not exercised, on the Option Expiration Date.<\/p>\n
7.1 Ordinary Course of Business. On and after the Genco Organization Date,
\nGenco will conduct, and cause each of its Subsidiaries to conduct, its business
\nin the ordinary course, consistent with its past practices and those of REI and
\nwith Good Operating Practices.<\/p>\n
7.2 Compliance with Laws. On and after the Genco Organization Date, Genco
\nwill comply, and will cause each of its Subsidiaries to comply, with all
\napplicable laws and regulations applicable to Genco or the Genco Assets,
\nincluding without limitation all Environmental Laws, except where failure to do
\nso would not result in a Material Adverse Effect and is consistent in all
\nmaterial respects with Good Operating Practices.<\/p>\n
7.3 Payment of Taxes. On and after the Genco Organization Date, Genco will
\npay or discharge or cause to be paid or discharged, before the same shall become
\ndelinquent, (1) all material taxes, assessments and governmental charges levied
\nor imposed upon Genco or any of its Subsidiaries or upon the income, profits or
\nproperty of Genco or any of its Subsidiaries, and (2) all material lawful claims
\nfor labor, materials and supplies which, if unpaid, might by law become a lien
\nupon the property of Genco or any of its Subsidiaries; provided, however, that
\nGenco shall not be required to pay or discharge or cause to be paid, or
\ndischarged any such tax, <\/p>\n
16
\n 20<\/p>\n
assessment, charge or claim whose amount, applicability or validity is being
\ncontested in good faith by appropriate proceedings.<\/p>\n
7.4 Existence. On and after the Genco Organization Date, Genco and Genco LP
\nwill each do or cause to be done all things necessary to preserve and keep in
\nfull force and effect its corporate existence or partnership existence, as the
\ncase may be.<\/p>\n
7.5 Maintenance of Insurance. Genco shall maintain insurance coverage for
\nGenco and its Subsidiaries with responsible and reputable insurance companies or
\nassociations in such amounts and covering such risks as is customarily carried
\nby companies engaged in the electric generation industry and owning similar
\nassets in the same general areas in which Genco operates.<\/p>\n
7.6 Operation and Maintenance and Capital Expenditures. (a) Genco shall
\noperate and maintain the Genco Assets in the ordinary course of business in a
\nmanner consistent with past practices (including the past practices of REI) and
\nin that connection shall, subject to Section 7.6(b), make expenditures for
\noperation, maintenance and repair of the Genco Assets and for additions to and
\nreplacements, betterments and improvements of property, plant and equipment
\nincluded therein, such as are necessary to maintain and keep them in good
\ncondition, repair and working order, supplied with all necessary equipment, and
\ncapable of operation in compliance in all material respects with all applicable
\nlaws (including Environmental Laws), all in a manner consistent with good
\nelectric generation industry business practices, reliability, safety and
\nexpedition. Genco shall not abandon or permanently retire any of its generation
\nunits, but may mothball units if and to the extent its Board of Directors
\ndetermines in good faith that it is economically warranted to do so.<\/p>\n
(b) Capital expenditures for environmental compliance projects
\nreflected in the estimated expenditures set forth on Schedule 7.6(b), shall be
\nmade unless and to the extent (i) such expenditures are determined by final
\norder of the PUCT no longer subject to rehearing by the PUCT not to be
\nrecoverable as stranded costs under the Utilities Code, in which case Genco may
\ncease making such expenditures as are determined not to be recoverable and shall
\npromptly give notice to Resources of any determination to cease making such
\nexpenditures and the basis therefor or (ii) such expenditures relate to
\ngeneration units Genco has determined, in accordance with Good Operating
\nPractices, to mothball, provided that prior to ceasing such expenditures Genco
\nshall have provided Resources with its written analysis in reasonable detail
\nsupporting the decision to mothball the unit. It is understood that the amounts
\nset forth on Schedule 7.6(b) are current estimates and that actual required
\nexpenditures for the projects may be greater or less than such amounts.<\/p>\n
7.7 Compliance with Contracts. Genco will observe and comply in all
\nmaterial respects with its covenants and obligations contained in the agreements
\nspecified in Section 2.2. Genco will, except to the extent failure to do so
\nwould be consistent with Good Operating Practices and would not have a Material
\nAdverse Effect, comply, and cause each of its Subsidiaries to comply, in all
\nmaterial respects with all other material contracts for fuel supply and the
\npurchase or sale of power.<\/p>\n
17
\n 21<\/p>\n
7.8 No Issuances or Sales of Equity Securities, etc. Neither Genco LP,
\nGenco nor any of their respective Subsidiaries will issue, sell, pledge, dispose
\nof or encumber, or authorize or propose the issuance, sale, pledge, disposition
\nor encumbrance of, directly or indirectly, any of Genco LP’s partnership
\ninterests or any shares of Genco’s capital stock of any class or any options,
\nwarrants, rights or convertible securities or other securities convertible into
\nor exercisable or exchangeable for any such partnership interests or shares of
\nGenco’s capital stock, other than (a) the issuance of partnership interests
\nissued upon Genco’s organization as described in Article II and related
\ntransfers thereof in connection with such organization, (b) Genco Common Stock
\ninitially issued to Regco as provided in Section 2.3 and thereafter issued to
\nthe holders of Genco Common Stock in respect thereof in connection with any
\nreclassification, stock dividend or stock split, (c) Genco Common Stock sold by
\nGenco in the IPO, (d) the sale of Shares pursuant to the Option, or (e) in the
\nevent the Genco Public Ownership Event is a Genco IPO which does not result in
\nRegco’s ownership of the outstanding Genco Common Stock being reduced to 81% or
\nless, the sale prior to the commencement of the Pricing Period of Shares, in an
\namount sufficient to result in a Reduction of Regco’s ownership of the
\noutstanding Genco Common Stock to such level, but not below 80%, so that Regco
\nmay use the partial stock valuation method specified in Section 39.262(h)(3) of
\nthe Utilities Code.<\/p>\n
7.9 Dividends; No Repurchases of Capital Stock. For the period beginning on
\nthe Genco Public Ownership Date and extending through the end of the Pricing
\nPeriod, Genco shall establish a dividend policy under which it will distribute
\nto its shareholders through regular quarterly cash dividends complying with this
\nSection 7.9 (“Regular Cash Dividends”) all its annual earnings which it may
\nlawfully distribute to shareholders under corporate law or applicable regulatory
\nrestrictions. The goal of such policy shall be to pay out through dividends all
\nearnings and at the same time maintain consistent levels of dividend payments
\nduring the year without requiring unusual or large payments. To implement such
\npayment policy, the initial Genco dividend set at the Genco Public Ownership
\nDate shall be based on estimated earnings for the remainder of the calendar year
\nin which the Genco Public Ownership Date occurs. To the extent that dividends
\npaid for that year are greater or less than actual earnings for that year, the
\nRegular Cash Dividend for the ensuing calendar year shall be increased or
\ndecreased as appropriate to reflect that overage or underage in earnings paid
\nout.<\/p>\n
If Resources exercises the Option, the purchase price for the Shares shall
\nbe adjusted for the difference between:<\/p>\n
(a) the actual earnings per share of Genco through the earlier of (x)
\n the Option Closing Date or (y) if the Option Closing Date is delayed as
\n contemplated in Section 3.2, the date Resources deposits payment for the
\n Shares with an escrow agent pursuant to such Section multiplied by the
\n shares owned by Regco, and<\/p>\n
(b) the dividends paid by Genco to Regco to that date.<\/p>\n
To the extent dividends paid for each Share have been less than the per
\nshare earnings of Genco, the Option Price shall be adjusted upward for the
\ndifference, and to the extent dividends paid exceed actual earnings to that
\ndate, the option price shall be credited with that difference.<\/p>\n
18
\n 22<\/p>\n
From and after the Genco Public Ownership Date, Genco will not declare, set
\naside or pay any dividend payable in cash, stock or property, except for (a)
\nRegular Cash Dividends, or (b) dividends payable solely in Genco Common Stock
\nfor which, if occurring during the Pricing Period, an adjustment is made
\npursuant to Section 3.1. Genco will not, and will not permit any of its
\nSubsidiaries to, purchase or otherwise acquire for value any shares of Genco
\nCommon Stock.<\/p>\n
7.10 Indebtedness. Following the Genco Public Ownership Date, Genco will
\nnot, and will not permit any of its Subsidiaries to, incur, assume or otherwise
\nbecome liable in respect of any Indebtedness except to satisfy requirements for
\noperating and maintenance expenditures and capital expenditures in accordance
\nwith the terms of this Agreement, to meet working capital needs and to refund or
\nrefinance Indebtedness incurred for any of the foregoing purposes. Genco will
\nnot, and will not permit and of its Subsidiaries to, incur, assume or otherwise
\nbecome liable in respect of any Indebtedness incurred for the purpose of making
\nany expenditure in violation of Section 7.12.<\/p>\n
7.11 Negative Pledge. Genco will not pledge, mortgage, hypothecate or grant
\na security interest in, or permit any mortgage, pledge, security interest or
\nother lien upon, any Genco Assets to secure any Indebtedness, provided, however,
\nthat this restriction shall not apply to or prevent the creation or existence
\nof:<\/p>\n
(a) any mortgage, pledge, security interest, lien or encumbrance upon
\n any property or assets created at the time of the acquisition of such
\n property or assets by Genco or within one year after such time to secure
\n all or a portion of the purchase price for such property or assets;<\/p>\n
(b) any mortgage, pledge, security interest, lien or encumbrance upon
\n any property or assets existing thereon at the time of the acquisition
\n thereof by Genco (whether or not the obligations secured thereby are
\n assumed by Genco or any Subsidiary);<\/p>\n
(c) any extension, renewal or refunding of any mortgage, pledge,
\n security interest, lien or encumbrance permitted by subsection (a) or (b)
\n above on substantially the same property or assets theretofore subject
\n thereto;<\/p>\n
(d) any mortgage, pledge, security interest, lien or encumbrance in
\n favor of Genco; or<\/p>\n
(e) any mortgage, pledge, security interest, lien or encumbrance
\n created or assumed by Genco in connection with the issuance of debt
\n securities the interest on which is excludable from gross income of the
\n holder of such security pursuant to the Internal Revenue Code of 1986, as
\n amended, for the purpose of financing, in whole or in part, the acquisition
\n or construction of property or assets to be used by Genco.<\/p>\n
For the purpose of this Section 7.11, “security interest” shall include the
\ninterest of the lessor under a lease with a term of three years or more that
\nshould be, in accordance with generally accepted accounting principles, recorded
\nas a capital lease, and any such lease of <\/p>\n
19
\n 23<\/p>\n
property or assets not acquired from Genco in contemplation of such lease shall
\nbe treated as though the lessee had purchased such property or assets from the
\nlessor.<\/p>\n
7.12 Other Negative Covenants. Genco will not, except as (x) contemplated
\nby this Agreement, (y) described in Schedule 7.12, or (z) required under
\napplicable law or by any Governmental Authority:<\/p>\n
7.12.1 Make any material change in the levels of inventories
\n customarily maintained by Genco or, prior to the Genco Organization Date,
\n REI with respect to the Genco Assets, other than changes which are
\n consistent with Good Operating Practices.<\/p>\n
7.12.2 Sell, lease (as lessor), encumber, pledge, transfer or
\n otherwise dispose of, any material Genco Assets individually or in the
\n aggregate (except for Genco Assets used, consumed or replaced in the
\n ordinary course of business consistent with past practices of Genco or,
\n prior to the Genco Organization Date, REI and Good Operating Practices)
\n other than encumbrances not securing any Indebtedness that arise in the
\n ordinary course of business and do not detract from or interfere with in
\n any material respect the value or use of such assets and pledges,
\n mortgages, security interests or other liens securing Indebtedness of Genco
\n or a Subsidiary of Genco permitted under Section 7.11.<\/p>\n
7.12.3 Modify, amend or voluntarily terminate prior to the applicable
\n expiration date any agreements or real property leases of Genco (or, prior
\n to the Genco Organization Date, applicable to the Genco Assets) or any of
\n the Permits or Environmental Permits associated with the Genco Assets in
\n any material respect, other than (a) in the ordinary course of business, to
\n the extent consistent with the past practices of Genco or REI and with Good
\n Operating Practices, or (b) with cause, to the extent consistent with past
\n practices of Genco or REI or with Good Operating Practices.<\/p>\n
7.12.4 Merge or consolidate with or into, or convey, transfer, lease
\n or otherwise dispose of (whether in one transaction or a series of related
\n transactions) all or any substantial portion of its properties or assets
\n (whether now owned or hereafter acquired) to, any Person.<\/p>\n
7.12.5 Make any material change in the nature of its business as
\n carried on at the date hereof.<\/p>\n
7.12.6 Not make any loan or advance to, or engage in any transaction
\n with, an Affiliate of Genco except (a) on terms no less favorable to Genco
\n than could be obtained in a comparable arm’s-length transaction with a
\n Person not an Affiliate of Genco, (b) transactions permitted by agreements
\n specifically identified herein or in the Master Separation Agreement, (c)
\n the payment of reasonable compensation to the directors and officers of
\n Genco and (d) loans, advances, or equity contributions to Subsidiaries of
\n Genco all of the capital stock <\/p>\n
20
\n 24<\/p>\n
of which is owned, directly or indirectly through another Subsidiary or
\n Subsidiaries, by Genco.<\/p>\n
7.12.7 Construct or acquire new generation plants or capacity.<\/p>\n
7.12.8 Become a general partner in any general or limited partnership
\n or joint venture.<\/p>\n
7.12.9 Engage in hedging transactions or other transactions in
\n contracts or financial instruments under which Genco is exposed to market
\n risk related to commodity prices, interest rates or currency exchange rates
\n except in compliance with Regco’s policies regarding such transactions.<\/p>\n
7.12.10 Except as otherwise provided herein, enter into any written or
\n oral contract, agreement, commitment or arrangement with respect to any of
\n the proscribed transactions set forth in the foregoing Section 7.12.1
\n through 7.12.9.<\/p>\n
7.13 Reporting Requirements. Genco (or, prior to the Genco Organization
\nDate, REI) will furnish to Resources:<\/p>\n
7.13.1 Beginning on the Genco Organization Date, as soon as available
\n and in any event within 15 days after the end of each quarter, a balance
\n sheet of Genco LP as of the end of such quarter and statements of income
\n and cash flows of Genco LP for the period beginning at the end of the last
\n fiscal year and ending with the end of such quarter, duly certified by its
\n principal accounting officer as having been prepared in accordance with
\n generally accepted accounting principles, provided that following the date
\n on which Genco becomes the indirect beneficial owner of all interests in
\n Genco LP, such statements shall be those of Genco rather than Genco LP;<\/p>\n
7.13.2 Beginning on the Genco Organization Date, as soon as available
\n and in any event within 90 days after the end of each fiscal year of Genco
\n LP, a balance sheet of Genco LP as of the end of such year and statements
\n of income and cash flows of Genco LP for the year then ended, accompanied
\n by a report of Genco LP’s independent public accountants; provided that
\n following the date on which Genco becomes the indirect beneficial owner of
\n all the interests in Genco LP, such statements shall be those of Genco
\n rather than Genco LP; and<\/p>\n
7.13.3 Beginning on the Genco Public Ownership Date, promptly after
\n the sending or filing thereof, copies of all reports that Genco sends to
\n any of its security holders, and copies of all reports, registration
\n statements or other statements that Genco files with the Securities and
\n Exchange Commission.<\/p>\n
7.14 Obtain PUCT Final Order. Genco will use its best efforts to obtain
\nprior to the beginning of the Option Period any and all Final Orders (as such
\nterm is defined in the Master Separation Agreement) from the PUCT and any other
\nnecessary Governmental Authority necessary for (i) the facilities (as such term
\nis used in Section 32 of the Public Utility Holding Company Act of 1935, as
\namended) of Genco to become eligible facilities (as such term is <\/p>\n
21
\n 25<\/p>\n
defined in such Act) and (ii) Genco to become an “exempt wholesale generator”
\nunder such Act, which Final Orders shall include, without limitation, the
\ndeterminations required by Section 32(c) of such Act.<\/p>\n
ARTICLE VIII
\n Governance Matters<\/p>\n
8.1 Board Composition. At least three persons who qualify as Independent
\nDirectors shall be appointed to the Board of Directors of Genco no later than
\nthree months following the Genco Public Ownership Date, provided that to the
\nextent permitted by applicable stock exchange and other requirements two
\nIndependent Directors may be so designated no later than such time and the
\nappointment of the third Independent Director may be delayed until a date no
\nlater than twelve months following the Genco Public Ownership Date. Thereafter,
\nRegco shall use reasonable efforts (including voting its shares of Genco Common
\nStock) to ensure that the Board of Directors of Genco includes at least three
\nIndependent Directors at all times prior to the Option Closing Date or, if the
\nOption is not exercised, the Option Expiration Date.<\/p>\n
8.2 Charter and By-law Amendments. The certificate or articles of
\nincorporation and by-laws of Genco shall not authorize any class of stock other
\nthan the Genco Common Stock, or provide for a board of directors divided into
\nclasses or contain any provisions requiring a higher vote of the Genco Common
\nStock on any matter than is required by applicable law or any provisions which
\nwould impose restrictions or have any other effects set forth in Section 5.3 of
\nthe Master Separation Agreement with respect to Resources as a stockholder of
\nGenco or a Person who may become a stockholder of Genco. Prior to the Option
\nClosing Date or, if the Option is not exercised, the Option Expiration Date,
\nGenco shall not amend its certificate or articles of incorporation or bylaws or
\nadopt any shareholder rights plan, except for (a) amendments to conform to
\nrequirements of any national securities exchange or transactions reporting
\nsystem on which the Genco Common Stock is listed or quoted or (b) amendments
\nwhich (i) are not adverse to Regco in any material respect, (ii) would not
\nresult in disparate treatment of Resources as a stockholder or as a Person who
\nmay become a stockholder following exercise of the Option and (iii) would not
\nhave any of the other effects set forth in Section 5.3 of the Master Separation
\nAgreement.<\/p>\n
8.3 Chief Executive Officer. From and after the Genco Public Ownership Date
\nand prior to the Option Closing Date or, if the Option is not exercised, the
\nOption Expiration Date, the Chief Executive Officer of Genco shall at all times
\nbe a full time employee of Genco.<\/p>\n
ARTICLE IX
\n Tax Covenants of REI and Regco<\/p>\n
REI covenants and agrees, for itself and on behalf of Regco, to comply with
\nthe covenants set forth in this Article IX until the Option Closing Date or, if
\nthe Option is not exercised, the Option Expiration Date. In connection with the
\ntransactions occurring on the Restructuring Date, REI covenants and agrees to
\ncause Regco to expressly assume the obligations under this Agreement required to
\nbe performed by REI and by Regco.<\/p>\n
22
\n 26<\/p>\n
9.1 Except as set forth on Schedule 9.1, on the Option Closing Date, there
\nwill be no liens for Taxes (other than for current Taxes not yet due and
\npayable) on any of the assets of REI, Regco or any Subsidiary of REI or Regco.<\/p>\n
9.2 On the Option Closing Date, except as set forth on Schedule 9.2, no
\nproperty owned by REI, Regco or any subsidiary of REI or Regco (i) will be
\nproperty required to be treated as being owned by another person pursuant to the
\nprovisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
\nand in effect immediately prior to the enactment of the Tax Reform Act of 1986,
\n(ii) will constitute “tax-exempt use property” within the meaning of Section
\n168(h)(1) of the Internal Revenue Code of 1986 (the “Code”) or (iii) will be
\n“tax-exempt bond financed property” within the meaning of Section 168(g) of the
\nCode.<\/p>\n
9.3 On the Option Closing Date, Genco will not be a foreign person within
\nthe meaning of Section 1445 of the Code.<\/p>\n
9.4 On the Option Closing Date, Genco will be a member of a “selling
\nconsolidated group” as such term is defined in Treasury Regulation Section
\n1.338(h)(10)-1(c).<\/p>\n
9.5 Except as set forth on Schedule 9.5, on the Option Closing Date, none
\nof REI, Regco or any Subsidiary of REI or Regco will be a party to, be bound by
\nor have any obligations under any Tax sharing agreement, any Tax indemnification
\nagreement or similar contract or arrangement.<\/p>\n
9.6 Except as set forth on Schedule 9.6, on the Option Closing Date, no tax
\naudits or other administrative proceedings or court proceedings will be
\npresently pending with regard to any Taxes for which Genco or any Subsidiary of
\nGenco will be liable except for audits or proceedings which would not have a
\nMaterial Adverse Effect.<\/p>\n
9.7 Except as would not have, individually or in the aggregate, a Material
\nAdverse Effect, on the Option Closing Date, none of REI, Regco or any Subsidiary
\nof REI or Regco will have executed or entered into (or prior to the close of
\nbusiness on the Option Closing Date will execute or enter into) with any taxing
\nauthority (i) any agreement, waiver or other document extending or having the
\neffect of extending or waiving the period for assessments or collection of any
\nTaxes for which Genco or any Subsidiary of Genco would or could be liable or
\n(ii) any closing agreement pursuant to Section 7121 of the Code, or any
\npredecessor provision thereof or any similar provision of state, local or
\nforeign Tax law that relates to the assets or operations of Genco or any
\nSubsidiary of Genco.<\/p>\n
9.8 Except as would not have, individually or in the aggregate, a Material
\nAdverse Effect, on the Option Closing Date, none of Genco or any Subsidiary of
\nGenco will have made any payments, will be obligated to make any payments, or
\nwill be a party to any agreement or other arrangement that could obligate it to
\nmake any payments that would not be deductible under Section 280G of the Code.<\/p>\n
9.9 Except as would not have, individually or in the aggregate, a Material
\nAdverse Effect, on the Option Closing Date, each of Genco and any Subsidiary of
\nGenco will have collected and withheld all Taxes that it will have been required
\nto collect or withhold and will have timely submitted all such collected and
\nwithheld Taxes to the appropriate authorities. <\/p>\n
23
\n 27<\/p>\n
Each of Genco or any Subsidiary of Genco will have complied and will be in
\ncompliance with all applicable laws, rules and regulations relating to the
\npayment, withholding and information reporting requirements relating to any
\nTaxes required to be collected or withheld.<\/p>\n
9.10 On the Option Closing Date, none of Genco or any Subsidiary of Genco
\nwill have made an election or filed a consent under Section 341(f) of the Code
\nor agreed to have Section 341(f)(2) of the Code apply to any disposition of a
\nsubsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
\nowned by such entity.<\/p>\n
9.11 On the Option Closing Date, no claim will ever have been made by an
\nauthority in a jurisdiction where any of Genco or any Subsidiary of Genco did
\nnot or will not have filed Tax returns that such Company or such Subsidiary of
\nany Company will be or may be subject to taxation by that jurisdiction.<\/p>\n
9.12 REI will take all necessary actions to ensure that each of Sections
\n9.1 to 9.11 are true on the Option Closing Date.<\/p>\n
ARTICLE X
\n Tax Matters<\/p>\n
10.1 Election Under Section 338(h)(10).<\/p>\n
(a) REI, for itself and on behalf of Regco (“Seller”), and Resources
\n shall make a joint election for Genco under Section 338(h)(10) of the Code
\n and under any comparable provisions of state or local law (an “Election”)
\n with respect to the purchase of the Genco Common Stock. Seller and
\n Resources shall mutually execute and complete copies of IRS Form 8023 and
\n any similar state or local forms no later than 60 days prior to the due
\n date (including extensions) for filing such forms or the Tax Returns to
\n which such forms must be attached. If any changes are required in these
\n forms as a result of information that is first available after such forms
\n are prepared, the parties will promptly agree on such changes.<\/p>\n
(b) Resources shall prepare and submit to Seller a proposed allocation
\n of the Modified Adjusted Deemed Sales Price (as defined in Treasury
\n Regulation Section 1.338(h)(10)-1(f)) for Genco among the assets of Genco
\n as soon as practicable after the Option Closing Date. Seller shall approve
\n and agree to the proposed allocation unless Seller reasonably determines
\n that the proposed allocation is improper. Neither Resources nor Seller
\n shall take any action inconsistent with, or fail to take any action
\n necessary for, the validity of the Election, and, if an allocation schedule
\n is agreed to by Resources and Seller, Resources and Seller shall adopt and
\n utilize the asset values as determined on the allocation schedule for the
\n purpose of all Tax Returns filed by them unless otherwise required by
\n applicable law.<\/p>\n
10.2 Tax Returns. Seller shall cause Genco and its Subsidiaries to prepare
\nand file at the Seller’s expense (i) all Tax Returns of Genco and its
\nSubsidiaries which are required to <\/p>\n
24
\n 28<\/p>\n
be filed (taking into account extensions of time to file) on or before the
\nOption Closing Date and (ii) all federal and state income and franchise Tax
\nReturns of Genco and its Subsidiaries for all periods ending on or prior to the
\nOption Closing Date. Resources shall prepare and file (or cause to be prepared
\nand filed) at its own expense all other Tax Returns of Genco and its
\nSubsidiaries. If either Resources, on the one hand, or Seller, on the other
\nhand, may be liable for any material portion of the Tax payable in connection
\nwith any Tax Return to be filed by the other, the party responsible under this
\nSection 10.2 for filing such return (the “Preparer”) shall prepare and deliver
\nto the other party (the “Payor”) a copy of such return and any schedules, work
\npapers and other documentation then available that are relevant to the
\npreparation of the portion of such return for which the Payor is or may be
\nliable hereunder not later than 30 days before the Due Date (as defined in
\nSection 10.12 of this Agreement). The Preparer shall not file such return until
\nthe earlier of either the receipt of written notice from the Payor indicating
\nthe Payor’s consent thereto, or the Due Date. The Payor shall have the option of
\nproviding to the Preparer, at any time at least 15 days prior to the Due Date,
\nwritten instructions as to how the Payor wants any, or all, of the items for
\nwhich it may be liable reflected on such Tax Return. The Preparer shall, in
\npreparing such return, cause the items for which the Payor is liable hereunder
\nto be reflected in accordance with the Payor’s instructions (unless, in the
\nopinion of nationally recognized tax counsel to the Preparer, complying with the
\nPayor’s instructions would likely subject the Preparer to any criminal penalty
\nor to civil penalties) and, in the absence of having received such instructions,
\nin accordance with past practice.<\/p>\n
If the Preparer fails to satisfy its obligations pursuant to this Section
\n10.2, the Payor shall have no obligation to indemnify the Preparer for any Taxes
\nwhich are reflected on any such Tax Return if and to the extent the Payor was
\nactually prejudiced by such failure, and shall retain any and all remedies it
\nmay otherwise have which arise out of such failure.<\/p>\n
10.3 Transfer Taxes. All excise, transfer, stamp, documentary, filing,
\nrecordation and other similar taxes, together with any interest, additions or
\npenalties with respect thereto and any interest in respect of such additions or
\npenalties, resulting directly from the sale and transfer by Seller to Resources
\nof the Genco Common Stock (the “Transfer Taxes”), shall be borne 50% by
\nResources and 50% by Seller. Notwithstanding Section 10.2 of this Agreement,
\nwhich shall not apply to Tax Returns relating to Transfer Taxes, any Tax Returns
\nthat must be filed in connection with Transfer Taxes shall be prepared and filed
\nwhen due by Resources, and Resources will use its reasonable efforts to provide
\nsuch Tax Returns to Seller at least 10 days prior to the Due Date for such Tax
\nReturns.<\/p>\n
10.4 Indemnification.<\/p>\n
(a) Seller’s Indemnification of Resources. Seller shall indemnify
\n Resources from, against and in respect of (A) any Taxes imposed on Genco or
\n any Subsidiary of Genco with respect to any taxable period, or portion
\n thereof, ending on or before the Option Closing Date; and (B) any Transfer
\n Taxes for which Seller is liable pursuant to Section 10.3 hereof.<\/p>\n
25
\n 29<\/p>\n
(b) Resource’s Indemnification of Seller. Resources shall indemnify
\n Seller from, against and in respect of any liability of Seller or its
\n Subsidiaries for (A) any Taxes imposed on Genco or any Subsidiary of Genco
\n with respect to any taxable period, or portion thereof, beginning on or
\n after the Option Closing Date; and (B) any Transfer Taxes for which
\n Resources is liable pursuant to Section 10.3 hereof.<\/p>\n
10.5 Computation of Tax Liabilities.<\/p>\n
(a) Proration of Taxes and Earnings and Profits. To the extent
\n permitted by law or administrative practice, the taxable years of Genco and
\n its Subsidiaries shall end on and include the Option Closing Date. Whenever
\n it is necessary to determine the liability for Taxes, or the earnings and
\n profits, of Genco or any Subsidiary of Genco for a portion of a taxable
\n year or period that begins before and ends after the Option Closing Date,
\n the determination of the Taxes or the earnings and profits for the portion
\n of the year or period ending on, and the portion of the year or period
\n beginning after, the Option Closing Date shall be determined by assuming
\n that the taxable year or period ended on and included the Option Closing
\n Date, except that exemptions, allowances or deductions that are calculated
\n on an annual basis and annual property taxes shall be prorated on the basis
\n of the number of days in the annual period elapsed through the Option
\n Closing Date as compared to the number of days in the annual period
\n elapsing after the Option Closing Date.<\/p>\n
(b) Standalone Basis. Whenever it is necessary to determine the
\n liability of Genco or any Subsidiary of Genco for Taxes, such liability
\n shall be computed as if Genco or such Subsidiary of Genco was not a member
\n of Seller’s consolidated, affiliated, combined or unitary group for Tax
\n purposes.<\/p>\n
10.6 Contest Provisions.<\/p>\n
(a) Notification of Contests. Each of Resources, on the one hand, and
\n Seller, on the other hand (the “Recipient”), shall notify the Vice
\n President – Taxes or chief tax officer of the other party in writing within
\n 45 days of receipt by the Recipient of written notice of any pending or
\n threatened audits, adjustments or assessments (a “Tax Audit”) which are
\n likely to affect the liability for Taxes of such other party. If the
\n Recipient fails to give such prompt notice to the other party, it shall not
\n be entitled to indemnification for any Taxes arising in connection with
\n such Tax Audit if and to the extent that such other party is actually
\n prejudiced by such failure to give notice.<\/p>\n
(b) Which Party Controls.<\/p>\n
(1) Seller’s Items. If such Tax Audit relates to any taxable period,
\n or portion thereof, ending on or before the Option Closing Date or for any
\n Taxes for which Seller is liable in full hereunder, Seller shall at its
\n expense control the defense and settlement of such Tax Audit.<\/p>\n
26
\n 30<\/p>\n
(2) Resource’s Items. If such Tax Audit relates to any taxable period,
\n or portion thereof, beginning on or after the Option Closing Date or for
\n any Taxes for which Resources is liable in full hereunder, Resources shall
\n at its expense control the defense and settlement of such Tax Audit.<\/p>\n
(3) Combined and Mixed Items. If such Tax Audit relates to Taxes for
\n which both Seller and Resources are liable hereunder, to the extent
\n practicable such Tax Items (as defined in Section 10.12 of this Agreement)
\n will be distinguished and each party will control the defense and
\n settlement of those Taxes for which it is so liable. If such Tax Audit
\n relates to a taxable period, or portion thereof, beginning before and
\n ending after the Option Closing Date and any Tax Item cannot be identified
\n as being a liability of only one party or cannot be separated from a Tax
\n Item for which the other party is liable, the party which has the greater
\n potential liability for those Tax Items that cannot be so attributed or
\n separated (or both) shall control the defense of the Tax Audit, provided
\n that such party defends the items as reported on the relevant Tax Return
\n and provided further that no such matter shall be settled without the
\n written consent of both parties, not to be unreasonably withheld.<\/p>\n
(4) Participation Rights. Any party whose liability for Taxes may be
\n affected by a Tax Audit shall be entitled to participate at its expense in
\n such defense and to employ counsel of its choice at its expense.<\/p>\n
10.7 Resource’s Claiming, Receiving or Using of Refunds and Overpayments.
\nIf after the Closing, Resources, Genco, or any Subsidiary of Genco (A) receives
\nany refund or (B) utilizes the benefit of any overpayment of Taxes which, in
\neach case (A) and (B), (x) relates to Taxes paid by Seller or Genco, or any
\nSubsidiary of Genco with respect to a taxable period, or portion thereof, ending
\non or before the Option Closing Date, or (y) is the subject of indemnification
\nby Seller pursuant to this Agreement, Resources shall promptly transfer, or
\ncause to be transferred, to Seller the entire amount of the refund or
\noverpayment (including interest) resolved or utilized by Resources, Genco, or
\nany Subsidiary of Genco. Resources agrees to notify Seller within 15 days
\nfollowing the discovery of a right to claim any such refund or overpayment and
\nthe receipt of any such refund or utilization of any such overpayment. Resources
\nagrees to claim any such refund or to utilize any such overpayment as soon as
\npossible and to furnish to Seller all information, records and assistance
\nnecessary to verify the amount of the refund or overpayment.<\/p>\n
10.8 Resolution of All Tax-Related Disputes. In the event that Seller and
\nResources cannot agree on the calculation of any amount relating to Taxes or the
\ninterpretation or application of any provision of this Agreement relating to
\nTaxes, such dispute shall be resolved by a nationally recognized accounting firm
\nmutually acceptable to Seller and Resources, whose decision shall be final and
\nbinding upon all Persons involved and whose expenses shall be shared equally by
\nSeller, on the one hand, and Resources on the other hand.<\/p>\n
10.9 Termination of Existing Tax Sharing Agreements. Any and all existing
\nTax sharing agreements or arrangements, written or unwritten, binding Genco or
\nany Subsidiary of Genco, shall be terminated as of the Option Closing Date.<\/p>\n
27
\n 31<\/p>\n
10.10 Assistance and Cooperation. The parties agree that, after the Option
\nClosing Date:<\/p>\n
(a) Resources, on the one hand, and Seller, on the other hand, shall
\n each assist the other (and cause its respective Affiliates to assist) the
\n other party in preparing any Tax Returns which such other party is
\n responsible for preparing and filing;<\/p>\n
(b) Resources, on the one hand, and Seller, on the other hand, shall
\n cooperate fully in preparing for any Tax audits, or disputes with taxing
\n authorities, relating to any Tax Returns or Taxes of Genco or any
\n Subsidiary of Genco.<\/p>\n
(c) Resources, on the one hand, and Seller, on the other hand, shall
\n make available to each other upon written request and to any taxing
\n authority as reasonably requested in writing all relevant books and records
\n relating to Tax Returns or Taxes of Genco or a Subsidiary of Genco. Any
\n such information shall be kept strictly confidential;<\/p>\n
(d) Resources, on the one hand, and Seller, on the other hand, shall
\n promptly furnish the other party with copies of all relevant correspondence
\n received from any taxing authority in connection with any Tax Audit or
\n information request relating to Taxes for which such other party may have
\n an indemnification obligation under this Agreement; and<\/p>\n
(e) Except as otherwise provided herein, the party requesting
\n assistance or cooperation shall bear the other party’s out-of-pocket
\n expenses in complying with such request to the extent that those expenses
\n are attributable to fees and other costs of unaffiliated third-party
\n service providers.<\/p>\n
10.11 This Article X alone shall govern the procedure for all Tax
\nindemnification claims, notwithstanding any provision of Article XI or of
\nArticle IX of the Master Separation Agreement.<\/p>\n
10.12 For purposes of this Agreement, “Due Date” shall mean, with respect
\nto any Tax Return, the date such return is due to be filed (taking into account
\nany valid extensions); and “Tax Item” shall mean, with respect to Taxes, any
\nitem of income, gain deduction, loss or credit or other tax attribute.<\/p>\n
ARTICLE XI
\n Dispute Resolution<\/p>\n
11.1 If a dispute, claim or controversy arises out of or in connection with
\nthis Agreement, the parties agree to use the procedures set forth in Article IX
\nof the Master Separation Agreement, in lieu of either party pursuing other
\navailable remedies, to resolve the same.<\/p>\n
28
\n 32<\/p>\n
11.2 Notwithstanding Section 11.1 or any other provision hereof, it is
\nunderstood and agreed that Resources would suffer irreparable harm by reason of
\nany failure of Regco to perform its obligations under Article III or Section
\n6.1, and that Resources shall therefore be entitled, in addition to and not in
\nlimitation of all other remedies, to the remedy of specific performance with
\nrespect to any breach or default by Regco of its obligations under Article III
\nor Section 6.1. This provision shall take precedence over any other dispute
\nresolution, remedial or other provision of the Master Separation Agreement, this
\nAgreement, or any other agreement or contract between the parties.<\/p>\n
ARTICLE XII
\n Miscellaneous<\/p>\n
12.1 Modifications to this Agreement Arising from Amendment of the
\nUtilities Code. To the extent any change effective after the date of this
\nAgreement to any provision of the Utilities Code (including without limitation
\nSection 39.262(c) or Section 39.262(h)(3)) accelerates or allows the
\nacceleration of the filing required by Section 39.262(c) or shortens or
\notherwise modifies the 30-trading day period or the 120-trading day period for
\nthe partial stock valuation method in Section 39.262(h)(3) or such other section
\nthat may be used to perform the market valuation of Texas Genco, the dates and
\nperiods set forth in this Agreement shall be adjusted by agreement of the
\nparties in order to preserve the essential regulatory and other objectives of
\nthe transaction intended by the parties.<\/p>\n
12.2 Amendments. This Agreement shall not be supplemented, amended or
\nmodified in any manner whatsoever (including by course of dealing or of
\nperformance or usage of trade) except in writing signed by the parties.<\/p>\n
12.3 Successors and Assignment. This Agreement shall be binding upon and
\ninure to the benefit of the parties and their respective successors and
\npermitted assigns. No party shall assign this Agreement or any rights herein
\nwithout the prior written consent of the other party, which may be withheld for
\nany or no reason.<\/p>\n
12.4 Notices. Unless expressly provided herein, all notices, claims,
\ncertificates, requests, demands and other communications hereunder shall be in
\nwriting and shall be deemed to be duly given (i) when personally delivered or
\n(ii) if mailed registered or certified mail, postage prepaid, return receipt
\nrequested, on the date the return receipt is executed or the letter refused by
\nthe addressee or its agent or (iii) if sent by overnight courier which delivers
\nonly upon the signed receipt of the addressee, on the date the receipt
\nacknowledgment is executed or refused by the addressee or its agent or (iv) if
\nsent by facsimile or other generally accepted means of electronic transmission,
\non the date confirmation of transmission is received (provided that a copy of
\nany notice delivered pursuant to this clause (iv) shall also be sent pursuant to
\nclause (ii) or (iii)), addressed to the attention of the addressee’s General
\nCounsel at the address of its principal executive office or to such other
\naddress or facsimile number for a party as it shall have specified by like
\nnotice.<\/p>\n
12.5 Governing Law. This Agreement shall be governed by and construed in
\naccordance with the laws of the State of Texas.<\/p>\n
29
\n 33<\/p>\n
12.6 Headings. The various headings used in this Agreement are for
\nconvenience only and are not to be used in interpreting the text of the Articles
\nor Sections in which they appear or to which they relate.<\/p>\n
12.7 Severability. Wherever possible, each provision of this Agreement
\nshall be interpreted in such a manner as to be effective and valid under
\napplicable law. If any portion of this Agreement is declared invalid for any
\nreason, such declaration shall have no effect upon the remaining portions of
\nthis Agreement, which shall continue in full force and effect as if this
\nAgreement had been executed with the invalid portions thereof deleted.<\/p>\n
12.8 Counterparts. This Agreement may be executed in two or more
\ncounterparts, each of which shall be deemed an original, and all of which shall
\nconstitute one and the same instrument. 12.9 Rights of the Parties. Nothing
\nexpressed or implied in this Agreement is intended or will be construed to
\nconfer upon or give any person or entity, other than the Parties and their
\nrespective Subsidiaries and Affiliates, as the case may be, any rights or
\nremedies under or by reason of this Agreement or any transaction contemplated
\nthereby.<\/p>\n
12.10 Reservation of Rights. The waiver by either party of any of its
\nrights or remedies afforded hereunder or at law is without prejudice and shall
\nnot operate to waive any other rights or remedies which that party shall have
\navailable to it, nor shall such waiver operate to waive the party’s rights to
\nany remedies due to a future breach, whether of a similar or different nature.
\nThe failure or delay of a party in exercising any rights granted to it hereunder
\nshall not constitute a waiver of any such right and that party may exercise that
\nright at any time. Any single or partial exercise of any particular right by a
\nparty shall exhaust the same or constitute a waiver of any other right.<\/p>\n
12.11 Entire Agreement. All understandings, representations, warranties and
\nagreements, if any, heretofore existing between the parties regarding the
\nsubject matter hereof are merged into this Agreement, which fully and completely
\nexpress the agreement of the parties with respect to the subject matter hereof.<\/p>\n
30
\n 34<\/p>\n
IN WITNESS WHEREOF, the undersigned, by their officers thereunto duly
\nauthorized, have executed this Agreement as of the day and year first above
\nwritten.<\/p>\n
RELIANT ENERGY, INCORPORATED<\/p>\n
By \/s\/ David M. McClanahan
\n ————————————————-
\n David M. McClanahan
\n Vice Chairman<\/p>\n
RELIANT RESOURCES, INC.<\/p>\n
By \/s\/ R. S. Letbetter
\n ————————————————-
\n R. S. Letbetter
\n Chairman, President and
\n Chief Executive Officer<\/p>\n
31<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_contracts_companies":[8672,8673],"corporate_contracts_industries":[9534],"corporate_contracts_types":[9622,9628],"class_list":["post-43767","corporate_contracts","type-corporate_contracts","status-publish","hentry","corporate_contracts_companies-reliant-energy-inc","corporate_contracts_companies-reliant-resources-inc","corporate_contracts_industries-utilities__electric","corporate_contracts_types-planning","corporate_contracts_types-planning__separation"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts\/43767","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate_contracts"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=43767"}],"wp:term":[{"taxonomy":"corporate_contracts_companies","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_companies?post=43767"},{"taxonomy":"corporate_contracts_industries","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_industries?post=43767"},{"taxonomy":"corporate_contracts_types","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_contracts_types?post=43767"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}