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EXHIBIT 10.4
TEXAS GENCO OPTION AGREEMENT
between
RELIANT ENERGY CORPORATION
and
RELIANT RESOURCES, INC.
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ARTICLE I Definitions............................................................1
1.1 Definitions...............................................................1
ARTICLE II Organization of ▇▇▇▇▇ ▇▇ and ▇▇▇▇▇.....................................9
2.1 Organization of ▇▇▇▇▇ ▇▇..................................................9
2.2 Genco Contracts...........................................................9
2.3 Organization of Genco.....................................................9
2.4 Genco Employee Matters....................................................9
ARTICLE III Grant of Option.......................................................9
3.1 Grant of Option...........................................................9
3.2 Exercise of Option.......................................................10
3.3 Requirement to Purchase Notes and Receivables............................11
3.4 Regulatory Conditions to Exercise........................................12
3.5 Regco Change in Control..................................................12
3.6 Prohibitions on Market Activity..........................................12
3.7 Distributions, etc. Pending the Option Closing Date......................13
3.8 Commitments Pending the Option Closing Date..............................13
3.9 Regulatory Proceedings...................................................13
ARTICLE IV Representations and Warranties of REI.................................13
4.1 Organization; Authorization, etc.........................................13
4.2 No Breach or Default.....................................................13
4.3 Matters Relating to Genco................................................13
ARTICLE V Representations and Warranties of Resources............................14
5.1 Organization, Authorization, etc.........................................14
5.2 No Breach or Default.....................................................14
ARTICLE VI Covenants of REI and Regco............................................14
6.1 Genco IPO or Genco Spin-off..............................................14
6.2 Ownership; Encumbrances..................................................15
6.3 Operation, etc. of Genco Assets prior to Genco Organization Date.........15
6.4 Pre-Genco Public Ownership Date Capital Contributions....................15
6.5 Credit Arrangements......................................................16
6.6 Governance...............................................................16
ARTICLE VII Covenants of Genco...................................................16
7.1 Ordinary Course of Business..............................................16
7.2 Compliance with Laws.....................................................16
7.3 Payment of Taxes.........................................................16
7.4 Existence ............................................................17
7.5 Maintenance of Insurance.................................................17
7.6 Operation and Maintenance and Capital Expenditures.......................17
7.7 Compliance with Contracts................................................17
7.8 No Issuances or Sales of Equity Securities, etc..........................18
7.9 Dividends; No Repurchases of Capital Stock...............................18
7.10 Indebtedness..........................................................19
7.11 Negative Pledge.......................................................19
7.12 Other Negative Covenants..............................................20
7.13 Reporting Requirements................................................21
ARTICLE VIII Governance Matters..................................................22
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8.1 Board Composition........................................................22
8.2 Charter and By-law Amendments............................................22
8.3 Chief Executive Officer..................................................22
ARTICLE IX Tax Covenants of REI and Regco........................................22
ARTICLE X Tax Matters...........................................................24
10.1 Election Under Section 338(h)(10).....................................24
10.2 Tax Returns...........................................................24
10.3 Transfer Taxes........................................................25
10.4 Indemnification.......................................................25
10.5 Computation of Tax Liabilities........................................26
10.6 Contest Provisions....................................................26
10.7 Resource's Claiming, Receiving or Using of Refunds and Overpayments...27
10.8 Resolution of All Tax-Related Disputes................................27
10.9 Termination of Existing Tax Sharing Agreements........................27
10.10 Assistance and Cooperation............................................27
ARTICLE XI Dispute Resolution....................................................28
ARTICLE XII Miscellaneous........................................................29
12.1 Amendments............................................................29
12.2 Successors and Assignment.............................................29
12.3 Notices...............................................................29
12.4 Governing Law.........................................................29
12.5 Headings..............................................................29
12.6 Severability..........................................................29
12.7 Counterparts..........................................................29
12.8 Rights of the Parties.................................................30
12.9 Reservation of Rights.................................................30
12.10 Entire Agreement......................................................30
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TEXAS GENCO OPTION AGREEMENT
This Agreement, dated as of December 31, 2000, between Reliant Energy,
Incorporated, a Texas corporation ("REI"), and Reliant Resources, Inc., a
Delaware corporation ("Resources");
WHEREAS, Section 2.2(h) of the Master Separation Agreement (as defined
below) provides for this Agreement to be entered into prior to the sale of
shares of common stock of Resources to the public as provided therein;
NOW THEREFORE, the parties, in consideration of the premises and for
good and valuable consideration agree as follow:
ARTICLE I
Definitions
1.1 Definitions. The following terms used in this Agreement have the
meanings set forth below:
An "Affiliate" of any Person means another Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person. For purposes of the foregoing,
"control", with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through ownership of voting securities, or by
contract or otherwise. The fact that any Person may be deemed at any time an
Affiliate of another Person for purposes of the Utilities Code shall not create
any implication that such Persons are "affiliates" for purposes of this
Agreement. Notwithstanding anything herein to the contrary, no member of the
Resources Group shall be deemed an Affiliate of any member of the REI Group and
no member of the REI Group shall be deemed an Affiliate of any member of the
Resources Group.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C.ss.ss.9601-9675).
"Choice Date" means January 1, 2002 or such other date on which retail
electric customer choice begins in the traditional service territory of Reliant
Energy HL&P pursuant to Section 39.102 of the Utilities Code.
"Control Premium Amount" has the meaning set forth in Section 3.1.
"Environmental Laws" means all applicable Federal, state and local,
provincial and foreign, civil and criminal laws, regulations, rules, ordinances,
codes, decrees, judgments, directives, or judicial or administrative orders
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances (including, without
limitation, Releases to ambient air, surface water, groundwater, land, surface
and subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage,
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Release, transport, disposal or handling of Hazardous Substances. "Environmental
Laws" include, without limitation, CERCLA, the Hazardous Materials
Transportation Act (49 ▇.▇.▇.▇▇.▇▇. 1801 et seq.), the Resource Conservation and
Recovery Act (42 ▇.▇.▇.▇▇.▇▇. 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. ▇▇.▇▇. 1251 et seq.), the Clean Air Act (42 ▇.▇.▇.▇▇.▇▇. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. ▇▇.▇▇. 2601 et seq.), the Oil
Pollution Act (33 ▇.▇.▇.▇▇.▇▇. 2701 et seq.), the Emergency Planning and
Community Right-to-Know Act (42 ▇.▇.▇.▇▇.▇▇. 11001 et seq.), the Occupational
Safety and Health Act (29 ▇.▇.▇.▇▇.▇▇. 651 et seq) and all applicable state laws
analogous to any of the above.
"Environmental Permits" means permits, certificates, certifications,
licenses, franchises and other governmental filings, notices, authorizations,
consents and approvals under Environmental Laws.
"Genco" means the corporation which will become the indirect owner of
all the partnership interests in ▇▇▇▇▇ ▇▇ as provided in Section 2.3, except
that when used in Article VII, Genco shall mean such corporation or ▇▇▇▇▇ ▇▇, as
the context may require.
"Genco Assets" has the meaning assigned to that term in Section 1.15 of
the Master Separation Agreement, as such assets may exist from time to time,
including all additions thereto and betterments, improvements and replacements
thereof.
"Genco Common Stock" means the common stock, par value $.001 per share,
of Genco.
"▇▇▇▇▇ ▇▇ LLC" means the limited liability company which will become
the 1% general partner of ▇▇▇▇▇ ▇▇.
"Genco IPO" means the sale of Genco Common Stock, either in a primary
offering by Genco or in a secondary offering by Regco, in an underwritten public
offering that results in Regco's ownership of the outstanding Genco Common Stock
being reduced from 100% to a percentage not greater than 83% and not less than
80%.
"Genco Liabilities" has the meaning assigned to that term in Section
1.18 of the Master Separation Agreement.
"▇▇▇▇▇ ▇▇" means the limited partnership to which the Genco Assets will
be transferred as provided in Section 2.1.
"▇▇▇▇▇ ▇▇ LLC" means the limited liability company which will become
the 99% limited partner of ▇▇▇▇▇ ▇▇.
"Genco Organization Date" means the date the Genco Assets are
contributed to ▇▇▇▇▇ ▇▇ and the Genco Liabilities are assumed by ▇▇▇▇▇ ▇▇ as
provided in Section 2.1.
"Genco Public Ownership Date" means the date on which a Genco Public
Ownership Event occurs.
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"Genco Public Ownership Event" means the first to occur of (a) the
closing of the first sale of Genco Common Stock to the underwriters pursuant to
a Genco IPO or (b) the distribution date for a Genco Spin-off that is a
distribution or the date shares are accepted for exchange in a Genco spin-off
accomplished by means of an exchange offer.
"Genco Spin-off" means either (a) a distribution by Regco with respect
to its outstanding Common Stock of at least 19%, but not more than 20%, of the
Genco Common Stock owned by it or (b) the consummation by Regco of an exchange
offer to holders of its outstanding common stock in which Regco transfers at
least 19%, but not more than 20%, of the Genco Common Stock owned by it to such
holders in exchange for Regco's common stock held by such holders, in either
case resulting in Regco's ownership of the outstanding Genco Common Stock being
reduced to a percentage not greater than 81% and not less than 80%.
"Good Operating Practices" mean any of the practices, methods and acts
engaged in or approved by a significant portion of the electric generation
industry or any of the practices, methods or acts which, in the exercise of
reasonable judgment in light of the facts known at the time the decision was
made, would have been expected to accomplish the desired result at a reasonable
cost consistent with reliability, safety and expedition during the relevant time
period. Good Operating Practices are not intended to be limited to the optimum
practices, methods or acts to the exclusion of all others, but rather to be
acceptable practices, methods or acts generally accepted in the industry.
"Governmental Approvals" has the meaning assigned to that term in the
Master Separation Agreement.
"Governmental Authority" means any federal, state, local or other
governmental regulatory or administrative agency, commission, department, board,
or other governmental subdivision, court, tribunal, arbitrating body or other
governmental authority.
"Hazardous Substances" or "hazardous substances" means (a) any
petrochemical or petroleum products, coal ash, oil, radioactive materials, radon
gas, asbestos in any form that is friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid which contains
levels of polychlorinated biphenyls in excess of 50 parts per million, (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "hazardous
constituents," "restricted hazardous materials," "extremely hazardous
substances," "toxic substances," "contaminants," "pollutants," "toxic
pollutants" or words of similar meaning and regulatory effect under any
applicable Environmental Law; and (c) any other chemical, material or
substances, exposure to which is prohibited, limited or regulated by any
applicable Environmental Law.
"Indebtedness" of any Person means, (a) all obligations of such Person
for borrowed money, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
upon which interest charges are customarily paid, (d) all obligations of such
Person under conditional sale or other title retention agreements relating to
property or assets purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of property or services, (f)
all
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Indebtedness of others secured by (or for which the holder of such Indebtedness
has an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, or other encumbrance on property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (g) all
guarantees by such Person of Indebtedness of others, (h) all capital lease
obligations of such Person, and (i) all securities or other similar instruments
convertible or exchangeable into any of the foregoing, but excluding daily cash
overdrafts associated with routine cash operations.
"Independent Director" means a director of Genco who (a) meets the
independence requirements for audit committee members under the rules of the
principal national securities exchange or automated quotation system on which
the Genco Common Stock is listed or reported and (b) is not otherwise a
director, officer or employee of Regco or of Resources or of any of their
Subsidiaries.
"Investment" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock or other ownership or
profit interest, warrants, rights, options, obligations or other securities of
such Person, any capital contribution to such Person or any other investment in
such Person, including, without limitation, any arrangement pursuant to which
the investor incurs Indebtedness of the types referred to in clauses (f) or (g)
of the definition of "Indebtedness" in respect of such Person.
"Liabilities" means any and all Indebtedness, liabilities and
obligations, whether accrued, fixed or contingent, mature or inchoate, known or
unknown, reflected on a balance sheet or otherwise, including, but not limited
to, those arising under any law, rule, regulation, action, order, injunction or
consent decree of any Governmental Authority or any judgment of any court of any
kind or any award of any arbitrator of any kind, and those arising under any
contract, commitment or undertaking.
"Master Separation Agreement" means the Master Separation Agreement
dated as of December 31, 2000 between REI and Resources.
"Material Adverse Effect" means an effect that is or could be expected
to be materially adverse to the business, assets, condition (financial or
otherwise), prospects, properties or results of operations of Genco, or prior to
the Genco Organization Date, of the Genco Assets or the business and operations
conducted with the Genco Assets.
"Mortgage" means the Mortgage and Deed of Trust, dated November 1, 1944
between Houston Lighting & Power Company and Chase Manhattan Bank National
Association (successor to South Texas Commercial National Bank of Houston) as
Trustee, as amended and supplemented.
"Option" means the option granted to Resources pursuant to Article III
of this Agreement.
"Option Closing Date" means the date on which delivery of and payment
for the Shares is made pursuant to Section 3.2 or Section 3.5, as applicable.
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"Option Exercise Date" means the date on which Resources gives notice
of exercise of the Option pursuant to Section 3.1.
"Option Expiration Date" means January 24, 2004.
"Option Period" means the period beginning at 8:00 a.m. on January 10,
2004 and ending at 5:00 p.m., Houston time on the Option Expiration Date, or
such other period during which the Option may be exercised as may be established
pursuant to Section 3.5.
"Permits" means permits, certificates, certifications, licenses,
franchises and other filings, notices, authorizations, consents and approvals of
any Governmental Authority (other than Environmental Permits).
"Person" means and includes an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization or a Governmental Authority.
"Pricing Period" has the meaning specified in Section 3.1.
"PUCT" means the Public Utility Commission of Texas.
"Regco" means the corporation that will be organized by REI and, by
means of a merger of a wholly owned subsidiary of Regco with and into REI, that
will become a holding company for REI's regulated businesses, as described in
Article VI of the Master Separation Agreement; provided, however, that if any
provision of this Agreement referring to Regco applies at a time when Regco has
not become such a holding company, references to Regco in such provision shall
be deemed to refer to REI or the ultimate parent entity of REI, as the case may
be.
A "Regco Change in Control Event" shall be deemed to have occurred upon
the occurrence of any of the following events:
(a) 30% OWNERSHIP CHANGE: Any Person makes an acquisition of
Outstanding Regco Voting Stock and is, immediately thereafter, the
beneficial owner of 30% or more of the then Outstanding Regco Voting Stock,
unless such acquisition is made directly from Regco in a transaction
approved by a majority of the Incumbent Directors; or any group is formed
that is or becomes the beneficial owner of 30% or more of the Outstanding
Regco Voting Stock; or
(b) BOARD MAJORITY CHANGE: Individuals who are Incumbent Directors
cease for any reason to constitute a majority of the members of the Regco
Board; or
(c) MAJOR MERGERS AND ACQUISITIONS: Consummation of a Regco Business
Combination unless, immediately following such Regco Business Combination,
(i) all or substantially all of the individuals and entities that were the
beneficial owners of the Outstanding Regco Voting Stock immediately prior
to such Regco Business Combination beneficially own, directly or
indirectly,
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more than 70% of the then outstanding shares of voting stock of the parent
corporation resulting from such Regco Business Combination in substantially
the same relative proportions as their ownership, immediately prior to such
Regco Business Combination, of the Outstanding Regco Voting Stock, (ii) if
the Regco Business Combination involves the issuance or payment by Regco of
consideration to another entity or its shareholders, the total fair market
value of such consideration plus the principal amount of the consolidated
long-term debt of the entity or business being acquired (in each case,
determined as of the date of consummation of such Regco Business
Combination by a majority of the Incumbent Directors) does not exceed 50%
of the sum of the fair market value of the Outstanding Regco Voting Stock
plus the principal amount of Regco's consolidated long-term debt (in each
case, determined immediately prior to such consummation by a majority of
the Incumbent Directors), (iii) no Person (other than any corporation
resulting from such Regco Business Combination) beneficially owns, directly
or indirectly, 30% or more of the then outstanding shares of voting stock
of the parent corporation resulting from such Regco Business Combination
and (iv) a majority of the members of the board of directors of the parent
corporation resulting from such Regco Business Combination were Incumbent
Directors of Regco immediately prior to consummation of such Regco Business
Combination; or
(d) MAJOR ASSET DISPOSITIONS: Consummation of a Major Regco Asset
Disposition unless, immediately following such Major Regco Asset
Disposition, (i) individuals and entities that were beneficial owners of
the Outstanding Regco Voting Stock immediately prior to such Major Regco
Asset Disposition beneficially own, directly or indirectly, more than 70%
of the then outstanding shares of voting stock of Regco (if it continues to
exist) and of the entity that acquires the largest portion of such assets
(or the entity, if any, that owns a majority of the outstanding voting
stock of such acquiring entity) and (ii) a majority of the members of the
board of directors of Regco (if it continues to exist) and of the entity
that acquires the largest portion of such assets (or the entity, if any,
that owns a majority of the outstanding voting stock of such acquiring
entity) were Incumbent Directors immediately prior to consummation of such
Major Regco Asset Disposition.
For purposes of the foregoing,
(1) the term "beneficial owner" is used as it is defined for purposes
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(2) the term "election contest" is used as it is defined for purposes
of Rule 14a-11 under the Exchange Act;
(3) the term "group" is used as it is defined for purposes of Section
13(d)(3) of the Exchange Act;
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(4) the term "Incumbent Director" means a director of Regco (x) who was
a director of Regco immediately following the Restructuring Merger or (y)
who becomes a director subsequent to the date of the Restructuring Merger
and whose election, or nomination for election by Regco's stockholders, was
approved by a vote of a majority of the Incumbent Directors at the time of
such election or nomination, except that any such director shall not be
deemed an Incumbent Director if his or her initial assumption of office
occurs as a result of an actual or threatened election contest or other
actual or threatened solicitation of proxies by or on behalf of a Person
other than the Board;
(5) the term "Major Regco Asset Disposition" means the sale or other
disposition in one transaction or a series of related transactions of 70%
or more of the assets of Regco and its subsidiaries on a consolidated
basis;
(6) the term "Outstanding Regco Voting Stock" means outstanding voting
securities of Regco entitled to vote generally in the election of
directors; and any specified percentage or portion of the Outstanding Regco
Voting Stock (or of other voting stock) shall be determined based on the
combined voting power of such securities;
(7) the term "parent corporation resulting from a Business Combination"
means Regco if its stock is not acquired or converted in the Business
Combination and otherwise means the entity which as a result of such
Business Combination owns Regco or all or substantially all the Regco
either directly or through one or more subsidiaries; and
(8) the term "Regco Board" means the board of directors of Regco; and
(9) the term "Regco Business Combination" means (x) a merger or
consolidation involving Regco or its stock or (y) an acquisition by Regco,
directly or through one or more subsidiaries, of another entity or its
stock or assets;
and any specified percentage or portion of the assets of Regco shall be based on
fair market value, as determined by a majority of the Incumbent Directors.
"Regular Cash Dividends" means regular quarterly cash dividends by
Genco meeting the requirements of Section 7.9.
"Regulatory Conditions to Exercise" has the meaning set forth in
Section 3.4.
"Regulatory Conditions to Genco Public Ownership Event" has the meaning
set forth in Section 6.1.
"Release" means release, spill, leak, discharge, dispose of, pump,
pour, emit, empty, inject, ▇▇▇▇▇, dump or allow to escape into or through the
environment.
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"Restructuring Date" means the date on which the merger of a wholly
owned subsidiary of Regco with and into REI as provided in Section 6.2(g) of the
Master Separation Agreement becomes effective.
"Restructuring Merger" means the merger referred to in the definition
of Restructuring Date.
"SEC" shall mean the Securities and Exchange Commission.
"Shares" means the shares of Genco Common Stock subject to the Option,
which shall not include the Genco Common Stock sold or distributed in the Genco
Public Ownership Event.
"Subsidiary" of a Person means (i) any corporation, association or
other business entity of which 50% or more of the total voting power of shares
or other voting securities outstanding thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
subsidiaries of that Person (or a combination thereof) and (ii) any partnership
or limited liability company (a) the sole general partner or the managing
general partner or managing member of which is such Person or one or more of the
other Subsidiaries of such Person (or any combination thereof) or (b) the only
general partners or members of which are such Person or one or more of the other
Subsidiaries of such Person (or any combination thereof). For purposes of this
Agreement, however, neither Resources nor any Subsidiary of Resources, nor Genco
nor any Subsidiary of Genco shall be deemed to be a Subsidiary of either REI or
of Regco.
"Tax Returns" means all returns, declarations, reports, statements and
other documents required to be filed in respect of Taxes, and the term "Tax
Return" means any one of the foregoing Tax Returns.
"Taxes" mean all federal, state, local, foreign and other net income,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property, windfall profits, fuel,
gas import, customs, duties or other taxes, fees, assessments or charges of any
kind whatsoever imposed by any governmental entity, together with any interest
and any penalties, additions to tax or additional amounts with respect thereto,
and shall include all liability for the payment of any consolidated or combined
income taxes (including, without limitation, any United States federal
consolidated income tax liability) that is payable as a result of being a member
of, and which may be imposed upon, any affiliated group (as defined in Section
1504(a) of the Code or other applicable law) of which Genco is a member, and the
term "Tax" means any one of the foregoing Taxes.
"Utilities Code" means the Utilities Code of Texas.
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ARTICLE II
Organization of ▇▇▇▇▇ ▇▇ and ▇▇▇▇▇
2.1 Organization of ▇▇▇▇▇ ▇▇. REI agrees, prior to the Restructuring
Merger, and in any case no later than December 31, 2001, to cause the Genco
Assets to be contributed to ▇▇▇▇▇ ▇▇ free and clear of the lien of the Mortgage
and all other liens and security interests securing any Indebtedness, and to
cause ▇▇▇▇▇ ▇▇ to assume the Genco Liabilities, all pursuant to and in
accordance with Article VI and Section 8.1 of the Master Separation Agreement.
After giving effect to such transactions, all of the outstanding partnership
interests in ▇▇▇▇▇ ▇▇ shall be owned initially by REI, indirectly through ▇▇▇▇▇
▇▇ LLC and ▇▇▇▇▇ ▇▇ LLC. On the Restructuring Date, Regco shall become the owner
of such partnership interests, indirectly through ▇▇▇▇▇ ▇▇ LLC and ▇▇▇▇▇ ▇▇ LLC.
2.2 Genco Contracts. On the Genco Organization Date, REI will cause to
be assigned to Genco the Technical Services Agreement between REI and Resources
and Genco will assume the obligations of REI thereunder.
2.3 Organization of Genco. Prior to the Genco Public Ownership Date,
Regco shall organize Genco under the General Corporation Law of Delaware and
contribute to Genco all of Regco's interests in ▇▇▇▇▇ ▇▇ LLC and ▇▇▇▇▇ ▇▇ LLC.
Immediately following such transactions, all outstanding shares of Genco Common
Stock shall be owned by Regco, unless at such time the Restructuring Merger
shall not have been effected, in which case all outstanding shares of Genco
Common Stock shall be owned by REI. In connection with the organization of
Genco, REI shall cause Genco's certificate of incorporation to contain a
provision electing not to be governed by Section 203 of the Delaware General
Corporation Law.
2.4 Genco Employee Matters. Effective no later than the earlier of the
Distribution Date and January 1, 2002, REI shall transfer to ▇▇▇▇▇ ▇▇ all
personnel employed by REI who are assigned to generating plants and other
facilities owned by ▇▇▇▇▇ ▇▇, together with other employees identified by REI as
energy production employees who are directly supporting the functions of ▇▇▇▇▇
▇▇. Prior to such effective date, REI shall complete any necessary consultations
with labor organizations. In accordance with the Employee Matters Agreement, REI
shall cause benefit and welfare plans to be in place for employees of Genco as
of the effective date of the transfer of employment.
ARTICLE III
Grant of Option
3.1 Grant of Option. Subject to the terms and conditions and in
reliance on the representations and warranties herein set forth, REI hereby
grants to Resources the option to purchase, during the Option Period, all (but
not less than all) of the shares of Genco Common Stock owned by Regco at the
time of exercise (which shall not include the shares of Genco Common Stock sold
or distributed in the Genco Public Ownership Event) for an aggregate price equal
to the sum of (a) the product of (x) the average daily closing price per share
of the Genco Common Stock on the principal national securities exchange on which
the Genco Common Stock is traded over the 30 consecutive trading days out of the
120 trading days ending January 9, 2004 (the "Pricing Period") which result in
the highest average closing price for any
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such 30 trading day period and (y) the number of shares of Genco Common Stock so
owned by Regco, (b) any applicable Control Premium Amount and (c) any adjustment
(whether positive or negative) required by Section 7.9. The Option shall also be
exercisable prior to the Option Period in the circumstances set forth in Section
3.5 for the price and on the terms set forth therein. The Control Premium Amount
shall apply to the extent that the PUCT includes a control premium in the
valuation of Genco pursuant to Section 39.262(h)(3) of the Utilities Code, and
shall equal the amount of the control premium so determined to exist, but shall
in no event exceed 10% of the amount determined under clause (a) of the first
sentence of this Section 3.1. In the event of any stock dividend, stock split or
combination affecting the Genco Common Stock during the Pricing Period,
appropriate proportionate adjustments shall be made in the computation of the
average daily closing price pursuant to this Section 3.1.
Notwithstanding anything to the contrary herein, the Option shall not
be exercisable unless the Distribution (as defined in the Master Separation
Agreement) has occurred. If at any time the Option is exercisable hereunder the
Restructuring Date has not occurred, or for any other reason the Genco Common
Stock is held by REI or one or more other Subsidiaries of REI or Regco rather
than by Regco, the Option shall be an option to purchase all of the Genco Common
Stock held by REI or such other Subsidiary or Subsidiaries.
3.2 Exercise of Option. Resources may exercise the Option by giving
written notice thereof to Regco during the Option Period. Subject to compliance
with Section 3.3, and to satisfaction of the Regulatory Conditions to Exercise,
delivery of and payment for the Shares (assuming the Option has been so
exercised) shall be made at 10:00 A.M., Houston time, on the later of (a) the
third business day following the giving of such notice (or such other date as
the parties agree) and (b) the first business day following the satisfaction of
the Regulatory Conditions to Exercise (satisfaction of which shall be a
condition precedent to such delivery and payment) (which date shall be the
"Option Closing Date"), provided that if the amount of any Control Premium
Amount included in the exercise price has not been determined by Final Order of
the PUCT prior to the date for delivery and payment so determined, the payment
made on the date so determined shall exclude any Control Premium Amount and such
Control Premium Amount shall be paid in immediately available funds no later
than 5 business days after the PUCT issues a Final Order determining market
value under Section 39.262(h)(3) of the Utilities Code. Delivery of the Shares
shall be made to Resources against payment by Resources of the purchase price by
wire transfer payable in same-day funds to the account specified by Regco.
Delivery of the Shares shall be made by delivery to Resources of stock
certificates representing the Shares, accompanied by appropriate stock powers or
other instruments in proper form to effect such transfer. If Resources
determines prior to the Option Period and within one year prior to the
anticipated Option Closing Date that it intends in good faith, subject to
economic conditions and other reasonable assumptions identified at such time, to
exercise the Option, it and Regco shall make all appropriate regulatory filings,
including filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
("H-S-R") and the Nuclear Regulatory Commission, with a view to obtaining
required approvals or expiration or termination of the applicable waiting period
prior to the Option Exercise Date. Regco and Resources shall use commercially
reasonable efforts to cause all other Regulatory Conditions to Exercise to be
satisfied as promptly as practicable after the Option Exercise Date.
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If Resources exercises the Option and all other Regulatory Conditions
to Exercise have not been satisfied by the expiration or termination of the
H-S-R waiting period, Resources shall deposit the payment for the Shares in an
interest bearing account with an escrow agent mutually acceptable to Resources
and Regco, and Genco shall execute a power sales agreement with Resources under
which Genco shall sell to Resources or its designee all of Genco's available
capacity (after deducting requirements to satisfy prior obligations and amounts
it is required to sell to third parties under PUCT rules) at market-based rates
until the earlier of the Option Closing Date described above and May 31, 2005.
At the Option Closing Date, the escrow agent holding the payment for the shares
shall remit to Regco the entire amount deposited by Resources, plus all interest
accrued and unpaid to the Option Closing Date, net of dividends paid to Regco
during the period such funds are held in escrow. During the continuation of the
power sales agreement, Resources shall be obligated to advance, on the same
terms credit is extended by Regco pursuant to Section 6.5, all amounts required
by Genco for capital expenditures, and shall also pay for power purchased under
the power sales agreement pursuant to the terms thereof. If the Option Closing
Date has not occurred by May 31, 2005, the rights of the parties under this
Agreement shall terminate (except for the obligations of Regco to reimburse
Resources as set forth in the next sentence), the escrow shall be terminated and
all funds deposited with the escrow agent, together with interest accrued
thereon, shall be paid to Resources. Within five business days following such
termination, Regco shall cause Genco to repay, or shall otherwise reimburse
Resources for, all unrepaid advances made to fund Genco's capital expenditures
during the continuation of the power sales agreement as provided above.
3.3 Requirement to Purchase Notes and Receivables. It shall be a
condition to Resource's right to exercise the Option that Resources shall
purchase from Regco (or any Subsidiary of Regco, as applicable) any notes and
other receivables owed by Genco to Regco or any Subsidiary of Regco as of the
Option Closing Date (other than Indebtedness incurred pursuant to Section 6.5
which establishes specified terms for repayment, the repayment of which shall be
governed by the terms thereof), at an amount equal to the outstanding principal
amount thereof plus any accrued and unpaid interest thereon to such date. If
there are any notes or other receivables owed by Regco or any Subsidiary of
Regco to Genco as of the Option Closing Date, Resources shall assume the
obligations of the obligors on such notes and other receivables and in
consideration for the making of such assumption, Regco shall pay (or cause its
Subsidiary obligor to pay, as applicable) to Resources an amount equal to the
outstanding principal amount thereof plus any accrued and unpaid interest
thereon to such date. Regco shall provide an estimate of such amounts owed by
and to Genco and reasonably available supporting detail within two business days
following any request by Resources during the Option Period or during the ten
business days prior thereto, and within one business day after the giving of the
notice of exercise pursuant to Section 3.2. The estimated amounts notified to
Resources following the giving of the notice of exercise shall be paid by
Resources, or by Regco or the appropriate Subsidiary obligor, as applicable, in
same-day funds at the same time payment is made for the purchase of the Shares.
Any variation in the actual amounts outstanding as of the Option Closing Date
from the estimated amounts on the basis of which payment was made on the Option
Closing Date shall be determined as soon as practicable and payments made from
Resources to Regco, or from Regco to Resources, as applicable, so that the
amounts paid on the Option Closing Date, as adjusted to reflect such additional
payments, are equal to the amounts payable on the basis of the actual amounts
outstanding.
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3.4 Regulatory Conditions to Exercise. (a) The purchase and sale of the
Shares pursuant to the exercise of the Option shall be subject to the
satisfaction of following conditions precedent (collectively, the "Regulatory
Conditions to Exercise"):
(i) any applicable waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act shall have expired or been terminated; and
(ii) any approval by the SEC, the Nuclear Regulatory Commission or any
other regulatory agency then having jurisdiction over the transfer of the
Shares upon exercise of the Option or the ownership by Resources of the
Shares that is required by law to be obtained prior to the transfer of the
Shares or in order for Resources to exercise full rights of ownership with
respect thereto shall have been obtained and shall be in full force and
effect.
(b) Regco shall use its best efforts to expedite all regulatory
approvals, including initiation of share transfer approval proceedings before
the Nuclear Regulatory Commission prior to the Option Exercise Date as soon as
reasonably practical after receiving a non-binding notice from Resources prior
to the commencement of the Option Period stating that the current intention of
Resources is to exercise the Option.
3.5 Regco Change in Control. If a Regco Change in Control Event occurs,
and the Pricing Period specified in Section 3.1 has not been completed, then the
Option shall become exercisable on the terms specified in this Section 3.5,
including the modifications set forth in this Section 3.5 to the determination
of the exercise price therefor and the time and manner of payment of the
exercise price. In such event, Resources may exercise the option by giving
written notice thereof to Regco at any time after the occurrence of the Regco
Change in Control Event (provided the Genco Public Ownership Date has occurred
and at least 30 trading days have occurred thereafter) and prior to the Option
Expiration Date. If the Pricing Period has not been completed at the time the
notice of exercise is given, the option price payable on the Option Closing Date
shall be determined on the same basis as set forth in Section 3.1 except that
the Pricing Period shall be the 30 consecutive trading days out of the 120
trading days (or if there have not been 120 trading days, out of such shorter
period during which trading has occurred) ending on the date the notice of
exercise is given. At such time as the Option Period would have commenced absent
the occurrence of a Regco Change in Control Event a computation of the exercise
price shall be made in accordance with Section 3.1, including the determination
of any Control Premium Amount, and if that computation results in an exercise
price lower than has been paid by Resources on the Option Closing Date, the
difference shall be repaid by Regco to Resources as an adjustment to the
exercise price. There shall be no such adjustment if such computation results in
an exercise price higher than that paid on the Option Closing Date. Except as
modified by this Section 3.5, the provisions of Article III shall apply to any
exercise of the Option pursuant to this Section 3.5.
3.6 Prohibitions on Market Activity. Prior to the Option Exercise Date
or, if the option is not exercised, the Option Expiration Date, neither REI,
Resources nor Genco shall, directly or indirectly through any Subsidiary or
other Person, purchase, sell, contract to purchase or sell, or otherwise acquire
or dispose of, any shares of Genco Common Stock or any options,
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warrants, rights, convertible securities or other securities convertible into or
exercisable or exchangeable for Genco Common Stock.
3.7 Distributions, etc. Pending the Option Closing Date. On and after
the commencement of the Pricing Period through and including the Option Closing
Date, Genco shall not declare any dividend or other distribution with respect to
the Genco Common Stock except for Regular Quarterly Dividends consistent with
past practices.
3.8 Commitments Pending the Option Closing Date. On and after the
Option Exercise Date through and including the Option Closing Date, Genco shall
not enter into any long term contract or commitment for the purchase of fuel or
for the purchase or sale of power (including any such contract or commitment
reasonably expected to require performance or payment after the Option Closing
Date) without prior consultation with, and the consent of, Resources, such
consent not to be unreasonably withheld.
3.9 Regulatory Proceedings. To the extent permitted by court or agency
rules, Resourcess shall be entitled to participate jointly with Regco in all
Regulatory Proceedings (as defined in the Master Separation Agreement)
pertaining in any way to the value of Genco or to the Option.
ARTICLE IV
Representations and Warranties of REI
REI hereby represents and warrants to Resources as follows:
4.1 Organization; Authorization, etc.. REI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. All necessary corporate action on the part of REI to authorize the
entering into and performance of this Agreement has been duly and validly taken.
This Agreement is a valid and binding obligation of REI.
4.2 No Breach or Default. None of the execution, delivery or
performance of this Agreement by REI or the assumption or performance by Regco
of the obligations hereunder required to be performed by it will constitute a
breach of or a default under any provision of the articles of incorporation or
bylaws of REI or similar constituent documents of Regco or of any note,
mortgage, indenture, loan or credit agreement, contract or other agreement to
which either REI or Regco is a party or by which either of them is bound or to
which any material assets or property of either of them is subject.
4.3 Matters Relating to Genco. On and following the Genco Organization
Date, Genco will be duly organized, validly existing and in good standing under
the laws of the State of Delaware. All the outstanding shares of Genco Common
Stock issued prior to the purchase by Resources of the Shares pursuant to the
exercise of the Option will be duly authorized and validly issued, fully paid
and nonassessable and free of any preemptive or similar rights. All the
partnership interests of ▇▇▇▇▇ ▇▇ will be validly issued, and following the
transactions described in Section 2.3, Genco will be the sole beneficial owner
thereof (indirectly through ▇▇▇▇▇ ▇▇ LLC and ▇▇▇▇▇ ▇▇ LLC). At all times during
the Option Period and prior to
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the Option Closing Date Regco will be the record and beneficial owner of the
Shares free and clear of all liens, encumbrances, equities and claims, and
assuming that Resources acquires the Shares upon payment therefor as provided in
Section 3.2 without notice of any adverse claim (within the meaning of Section
8.105 of the Texas Business and Commerce Code (the "UCC")), no action based on
an adverse claim (within the meaning of Section 8.105 of the UCC) may be
asserted against Resources with respect to the Shares.
ARTICLE V
Representations and Warranties of Resources
Resources hereby represents and warrants to REI as follows:
5.1 Organization, Authorization, etc.. Resources is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. All necessary corporate action on the part of Resources to authorize
the entering into and performance of this Agreement has been duly and validly
taken. This Agreement is a valid and binding obligation of Resources.
5.2 No Breach or Default. None of the execution, delivery or
performance of this Agreement by Resources will constitute a breach of or a
default under any provision of the certificate of incorporation or bylaws of
Resources or of any note, mortgage, indenture, loan or credit agreement,
contract or other agreement to which Resources is a party or by which it is
bound or to which any of its material assets or property is subject.
ARTICLE VI
Covenants of REI and Regco
REI covenants and agrees, for itself and on behalf of Regco, to comply
with the covenants set forth in this Article VI until the Option Closing Date
or, if the Option is not exercised, the Option Expiration Date. In connection
with the transactions occurring on the Restructuring Date, REI covenants and
agrees to cause Regco to expressly assume the obligations under this Agreement
required to be performed by REI and by Regco.
6.1 Genco IPO or Genco Spin-off. Regco will use its best efforts to
satisfy all Regulatory Conditions to Genco Public Ownership Event on or prior to
June 30, 2002. Subject only to the satisfaction of such conditions, Regco will
cause a Genco Public Ownership Event to occur on or prior to June 30, 2002. The
"Regulatory Conditions to Genco Public Ownership Event" are that:
(a) Any material Governmental Approvals necessary under applicable law
to effect the Genco Public Ownership Event shall have been obtained and be
in full force and effect; and
(b) No order, injunction or decree issued by any court or agency of
competent jurisdiction preventing the consummation of the Genco Public
Ownership Event shall be in effect.
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6.2 Ownership; Encumbrances. From the Genco Organization Date through
and including the Option Closing Date or, if the Option is not exercised, the
Option Expiration Date, Regco will not (a) sell, contract to sell, grant or
enter into any option providing for the sale of, or otherwise transfer or
dispose of, directly or indirectly, any partnership interests in ▇▇▇▇▇ ▇▇ or any
Subsidiary of ▇▇▇▇▇ ▇▇ or Genco (other than transfers thereof pursuant to the
restructuring transactions expressly contemplated herein) or any Genco Common
Stock or any options, warrants, rights, convertible securities or other
securities convertible into or exercisable or exchangeable for such partnership
interests or Genco Common Stock, other than pursuant to (i) the Genco IPO or the
Genco Spin-off (ii) the sale of the Shares pursuant to the Option or (iii) in
the event the Genco Public Ownership Event is a Genco IPO which does not result
in Regco's ownership of the outstanding Genco Common Stock being reduced to 81%
or less, the sale prior to the commencement of the Pricing Period of Shares in
an amount sufficient to result in a reduction of Regco's ownership of the
outstanding Genco Common Stock to such level, but not below 80%, so that Regco
may use the partial stock valuation method specified in Section 39.262(h)(3) of
the Utilities Code or (b) mortgage, pledge, assign or encumber any partnership
interests in ▇▇▇▇▇ ▇▇ or ▇▇▇▇▇ (or any Subsidiary of ▇▇▇▇▇ ▇▇ or Genco), or any
Genco Common Stock.
6.3 Operation, etc. of Genco Assets prior to Genco Organization Date.
Prior to the Genco Organization Date, REI will:
6.3.1 Operate the Genco Assets and the business conducted
therewith in the ordinary course of business consistent with past
practices and Good Operating Practices;
6.3.2 Comply with all applicable laws and regulations applicable
to the Genco Assets, including without limitation all Environmental
Laws, except where failure to do so would not result in a Material
Adverse Effect;
6.3.3 With respect to the Genco Assets, comply with Sections 7.5,
7.6, 7.7, 7.8, 7.9 and 7.12 as though named therein as Genco.
6.3.4 Not pledge, mortgage, hypothecate or grant a security
interest in, or permit any mortgage, pledge, security interest or other
lien upon any Genco Assets to secure any Indebtedness except pursuant
to the Mortgage.
6.4 Pre-Genco Public Ownership Date Capital Contributions. Following
the Genco Organization Date and prior to the Genco Public Ownership Date, Regco
will lend to, or contribute to the capital of, ▇▇▇▇▇ ▇▇ (and after its
organization Genco, which Regco shall cause to make corresponding loans or
capital contributions to ▇▇▇▇▇ ▇▇) from time to time such funds as may be
necessary, together with other funds of ▇▇▇▇▇ ▇▇ (and Genco, as applicable), to
enable ▇▇▇▇▇ ▇▇ (and ▇▇▇▇▇, as applicable) to operate its business in the
ordinary course consistent with past practices and Good Operating Practices, to
satisfy its debts and other obligations and to fulfill its covenants set forth
in Article VII of this Agreement. On or prior to the Genco Public Ownership
Date, Regco shall take such commercially reasonable action as may be appropriate
(which actions may include without limitation contributions to the capital of
Genco, causing Genco to declare and pay dividends, lending funds to Genco or
arranging for
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Genco to borrow from others, or causing Genco to repay loans theretofore made)
to cause Genco to have a capital structure appropriate, in the judgment of
Regco's board of directors, for the satisfactory marketing of Genco Common Stock
in a Genco IPO or to establish a satisfactory trading market for the Genco
Common Stock following a Genco Spin-off, as applicable. Except as provided in
this Section 6.4, Regco shall have no obligation to contribute to the capital of
Genco or otherwise provide equity to Genco.
6.5 Credit Arrangements. On or prior to the Genco Public Ownership
Date, Regco shall establish commercially reasonable terms and conditions (which
shall be determined by Regco on the basis of its judgment as to the terms Genco
could obtain from an unaffiliated lender) under which it will lend funds to
Genco from time to time upon the request of Genco on or prior to the earlier of
the Option Closing Date and the Option Expiration Date.
6.6 Governance. From and after the Genco Public Ownership Date until
the Option Closing Date or, if the Option is not exercised, the Option
Expiration Date, Regco shall comply with the provisions applicable to it
contained in Article VIII and shall exercise its rights as a stockholder of
Genco and otherwise use its best efforts to enable and cause Genco to comply
with the provisions applicable to it contained in Article VIII.
ARTICLE VII
Covenants of Genco
REI shall cause Genco, in connection with the organization of Genco
pursuant to Article II, to execute and deliver an undertaking in favor of
Resources to observe and comply with the covenants set forth in this Article VII
expressed as obligations of Genco. Prior to the Genco Public Ownership Date,
Regco shall cause ▇▇▇▇▇ ▇▇ to observe and comply with such covenants. All
covenants contained in this Agreement that do not by their terms terminate or
cease to apply at an earlier date shall terminate upon the Option Closing Date
or, if the option is not exercised, on the Option Expiration Date.
7.1 Ordinary Course of Business. On and after the Genco Organization
Date, Genco will conduct, and cause each of its Subsidiaries to conduct, its
business in the ordinary course, consistent with its past practices and those of
REI and with Good Operating Practices.
7.2 Compliance with Laws. On and after the Genco Organization Date,
Genco will comply, and will cause each of its Subsidiaries to comply, with all
applicable laws and regulations applicable to Genco or the Genco Assets,
including without limitation all Environmental Laws, except where failure to do
so would not result in a Material Adverse Effect and is consistent in all
material respects with Good Operating Practices.
7.3 Payment of Taxes. On and after the Genco Organization Date, Genco
will pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (1) all material taxes, assessments and governmental charges
levied or imposed upon Genco or any of its Subsidiaries or upon the income,
profits or property of Genco or any of its Subsidiaries, and (2) all material
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon the property of Genco or any of its Subsidiaries; provided,
however, that Genco shall not be required to pay or discharge or cause to be
paid, or discharged any such tax,
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assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
7.4 Existence. On and after the Genco Organization Date, Genco and
▇▇▇▇▇ ▇▇ will each do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence or partnership existence,
as the case may be.
7.5 Maintenance of Insurance. Genco shall maintain insurance coverage
for Genco and its Subsidiaries with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
customarily carried by companies engaged in the electric generation industry and
owning similar assets in the same general areas in which Genco operates.
7.6 Operation and Maintenance and Capital Expenditures. (a) Genco shall
operate and maintain the Genco Assets in the ordinary course of business in a
manner consistent with past practices (including the past practices of REI) and
in that connection shall, subject to Section 7.6(b), make expenditures for
operation, maintenance and repair of the Genco Assets and for additions to and
replacements, betterments and improvements of property, plant and equipment
included therein, such as are necessary to maintain and keep them in good
condition, repair and working order, supplied with all necessary equipment, and
capable of operation in compliance in all material respects with all applicable
laws (including Environmental Laws), all in a manner consistent with good
electric generation industry business practices, reliability, safety and
expedition. Genco shall not abandon or permanently retire any of its generation
units, but may mothball units if and to the extent its Board of Directors
determines in good faith that it is economically warranted to do so.
(b) Capital expenditures for environmental compliance projects
reflected in the estimated expenditures set forth on Schedule 7.6(b), shall be
made unless and to the extent (i) such expenditures are determined by final
order of the PUCT no longer subject to rehearing by the PUCT not to be
recoverable as stranded costs under the Utilities Code, in which case Genco may
cease making such expenditures as are determined not to be recoverable and shall
promptly give notice to Resources of any determination to cease making such
expenditures and the basis therefor or (ii) such expenditures relate to
generation units Genco has determined, in accordance with Good Operating
Practices, to mothball, provided that prior to ceasing such expenditures Genco
shall have provided Resources with its written analysis in reasonable detail
supporting the decision to mothball the unit. It is understood that the amounts
set forth on Schedule 7.6(b) are current estimates and that actual required
expenditures for the projects may be greater or less than such amounts.
7.7 Compliance with Contracts. Genco will observe and comply in all
material respects with its covenants and obligations contained in the agreements
specified in Section 2.2. Genco will, except to the extent failure to do so
would be consistent with Good Operating Practices and would not have a Material
Adverse Effect, comply, and cause each of its Subsidiaries to comply, in all
material respects with all other material contracts for fuel supply and the
purchase or sale of power.
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7.8 No Issuances or Sales of Equity Securities, etc. Neither ▇▇▇▇▇ ▇▇,
▇▇▇▇▇ nor any of their respective Subsidiaries will issue, sell, pledge, dispose
of or encumber, or authorize or propose the issuance, sale, pledge, disposition
or encumbrance of, directly or indirectly, any of Genco LP's partnership
interests or any shares of Genco's capital stock of any class or any options,
warrants, rights or convertible securities or other securities convertible into
or exercisable or exchangeable for any such partnership interests or shares of
Genco's capital stock, other than (a) the issuance of partnership interests
issued upon Genco's organization as described in Article II and related
transfers thereof in connection with such organization, (b) Genco Common Stock
initially issued to Regco as provided in Section 2.3 and thereafter issued to
the holders of Genco Common Stock in respect thereof in connection with any
reclassification, stock dividend or stock split, (c) Genco Common Stock sold by
Genco in the IPO, (d) the sale of Shares pursuant to the Option, or (e) in the
event the Genco Public Ownership Event is a Genco IPO which does not result in
Regco's ownership of the outstanding Genco Common Stock being reduced to 81% or
less, the sale prior to the commencement of the Pricing Period of Shares, in an
amount sufficient to result in a Reduction of Regco's ownership of the
outstanding Genco Common Stock to such level, but not below 80%, so that Regco
may use the partial stock valuation method specified in Section 39.262(h)(3) of
the Utilities Code.
7.9 Dividends; No Repurchases of Capital Stock. For the period
beginning on the Genco Public Ownership Date and extending through the end of
the Pricing Period, Genco shall establish a dividend policy under which it will
distribute to its shareholders through regular quarterly cash dividends
complying with this Section 7.9 ("Regular Cash Dividends") all its annual
earnings which it may lawfully distribute to shareholders under corporate law or
applicable regulatory restrictions. The goal of such policy shall be to pay out
through dividends all earnings and at the same time maintain consistent levels
of dividend payments during the year without requiring unusual or large
payments. To implement such payment policy, the initial Genco dividend set at
the Genco Public Ownership Date shall be based on estimated earnings for the
remainder of the calendar year in which the Genco Public Ownership Date occurs.
To the extent that dividends paid for that year are greater or less than actual
earnings for that year, the Regular Cash Dividend for the ensuing calendar year
shall be increased or decreased as appropriate to reflect that overage or
underage in earnings paid out.
If Resources exercises the Option, the purchase price for the Shares
shall be adjusted for the difference between:
(a) the actual earnings per share of Genco through the earlier of (x)
the Option Closing Date or (y) if the Option Closing Date is delayed as
contemplated in Section 3.2, the date Resources deposits payment for the
Shares with an escrow agent pursuant to such Section multiplied by the
shares owned by Regco, and
(b) the dividends paid by Genco to Regco to that date.
To the extent dividends paid for each Share have been less than the per
share earnings of Genco, the Option Price shall be adjusted upward for the
difference, and to the extent dividends paid exceed actual earnings to that
date, the option price shall be credited with that difference.
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From and after the Genco Public Ownership Date, Genco will not declare,
set aside or pay any dividend payable in cash, stock or property, except for (a)
Regular Cash Dividends, or (b) dividends payable solely in Genco Common Stock
for which, if occurring during the Pricing Period, an adjustment is made
pursuant to Section 3.1. Genco will not, and will not permit any of its
Subsidiaries to, purchase or otherwise acquire for value any shares of Genco
Common Stock.
7.10 Indebtedness. Following the Genco Public Ownership Date, Genco
will not, and will not permit any of its Subsidiaries to, incur, assume or
otherwise become liable in respect of any Indebtedness except to satisfy
requirements for operating and maintenance expenditures and capital expenditures
in accordance with the terms of this Agreement, to meet working capital needs
and to refund or refinance Indebtedness incurred for any of the foregoing
purposes. Genco will not, and will not permit and of its Subsidiaries to, incur,
assume or otherwise become liable in respect of any Indebtedness incurred for
the purpose of making any expenditure in violation of Section 7.12.
7.11 Negative Pledge. Genco will not pledge, mortgage, hypothecate or
grant a security interest in, or permit any mortgage, pledge, security interest
or other lien upon, any Genco Assets to secure any Indebtedness, provided,
however, that this restriction shall not apply to or prevent the creation or
existence of:
(a) any mortgage, pledge, security interest, lien or encumbrance upon
any property or assets created at the time of the acquisition of such
property or assets by Genco or within one year after such time to secure
all or a portion of the purchase price for such property or assets;
(b) any mortgage, pledge, security interest, lien or encumbrance upon
any property or assets existing thereon at the time of the acquisition
thereof by Genco (whether or not the obligations secured thereby are
assumed by Genco or any Subsidiary);
(c) any extension, renewal or refunding of any mortgage, pledge,
security interest, lien or encumbrance permitted by subsection (a) or (b)
above on substantially the same property or assets theretofore subject
thereto;
(d) any mortgage, pledge, security interest, lien or encumbrance in
favor of Genco; or
(e) any mortgage, pledge, security interest, lien or encumbrance
created or assumed by Genco in connection with the issuance of debt
securities the interest on which is excludable from gross income of the
holder of such security pursuant to the Internal Revenue Code of 1986, as
amended, for the purpose of financing, in whole or in part, the acquisition
or construction of property or assets to be used by Genco.
For the purpose of this Section 7.11, "security interest" shall include
the interest of the lessor under a lease with a term of three years or more that
should be, in accordance with generally accepted accounting principles, recorded
as a capital lease, and any such lease of
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property or assets not acquired from Genco in contemplation of such lease shall
be treated as though the lessee had purchased such property or assets from the
lessor.
7.12 Other Negative Covenants. Genco will not, except as (x)
contemplated by this Agreement, (y) described in Schedule 7.12, or (z) required
under applicable law or by any Governmental Authority:
7.12.1 Make any material change in the levels of inventories
customarily maintained by Genco or, prior to the Genco Organization
Date, REI with respect to the Genco Assets, other than changes which
are consistent with Good Operating Practices.
7.12.2 Sell, lease (as lessor), encumber, pledge, transfer or
otherwise dispose of, any material Genco Assets individually or in the
aggregate (except for Genco Assets used, consumed or replaced in the
ordinary course of business consistent with past practices of Genco or,
prior to the Genco Organization Date, REI and Good Operating Practices)
other than encumbrances not securing any Indebtedness that arise in the
ordinary course of business and do not detract from or interfere with
in any material respect the value or use of such assets and pledges,
mortgages, security interests or other liens securing Indebtedness of
Genco or a Subsidiary of Genco permitted under Section 7.11.
7.12.3 Modify, amend or voluntarily terminate prior to the
applicable expiration date any agreements or real property leases of
Genco (or, prior to the Genco Organization Date, applicable to the
Genco Assets) or any of the Permits or Environmental Permits associated
with the Genco Assets in any material respect, other than (a) in the
ordinary course of business, to the extent consistent with the past
practices of Genco or REI and with Good Operating Practices, or (b)
with cause, to the extent consistent with past practices of Genco or
REI or with Good Operating Practices.
7.12.4 Merge or consolidate with or into, or convey, transfer,
lease or otherwise dispose of (whether in one transaction or a series
of related transactions) all or any substantial portion of its
properties or assets (whether now owned or hereafter acquired) to, any
Person.
7.12.5 Make any material change in the nature of its business as
carried on at the date hereof.
7.12.6 Not make any loan or advance to, or engage in any
transaction with, an Affiliate of Genco except (a) on terms no less
favorable to Genco than could be obtained in a comparable arm's-length
transaction with a Person not an Affiliate of Genco, (b) transactions
permitted by agreements specifically identified herein or in the Master
Separation Agreement, (c) the payment of reasonable compensation to the
directors and officers of Genco and (d) loans, advances, or equity
contributions to Subsidiaries of Genco all of the capital stock
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of which is owned, directly or indirectly through another Subsidiary or
Subsidiaries, by Genco.
7.12.7 Construct or acquire new generation plants or capacity.
7.12.8 Become a general partner in any general or limited
partnership or joint venture.
7.12.9 Engage in hedging transactions or other transactions
in contracts or financial instruments under which Genco is exposed to
market risk related to commodity prices, interest rates or currency
exchange rates except in compliance with Regco's policies regarding
such transactions.
7.12.10 Except as otherwise provided herein, enter into any
written or oral contract, agreement, commitment or arrangement with
respect to any of the proscribed transactions set forth in the
foregoing Section 7.12.1 through 7.12.9.
7.13 Reporting Requirements. Genco (or, prior to the Genco Organization
Date, REI) will furnish to Resources:
7.13.1 Beginning on the Genco Organization Date, as soon as
available and in any event within 15 days after the end of each
quarter, a balance sheet of ▇▇▇▇▇ ▇▇ as of the end of such quarter and
statements of income and cash flows of ▇▇▇▇▇ ▇▇ for the period
beginning at the end of the last fiscal year and ending with the end of
such quarter, duly certified by its principal accounting officer as
having been prepared in accordance with generally accepted accounting
principles, provided that following the date on which Genco becomes the
indirect beneficial owner of all interests in ▇▇▇▇▇ ▇▇, such statements
shall be those of Genco rather than ▇▇▇▇▇ ▇▇;
7.13.2 Beginning on the Genco Organization Date, as soon as
available and in any event within 90 days after the end of each fiscal
year of ▇▇▇▇▇ ▇▇, a balance sheet of ▇▇▇▇▇ ▇▇ as of the end of such
year and statements of income and cash flows of ▇▇▇▇▇ ▇▇ for the year
then ended, accompanied by a report of Genco LP's independent public
accountants; provided that following the date on which Genco becomes
the indirect beneficial owner of all the interests in ▇▇▇▇▇ ▇▇, such
statements shall be those of Genco rather than ▇▇▇▇▇ ▇▇; and
7.13.3 Beginning on the Genco Public Ownership Date, promptly
after the sending or filing thereof, copies of all reports that Genco
sends to any of its security holders, and copies of all reports,
registration statements or other statements that Genco files with the
Securities and Exchange Commission.
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ARTICLE VIII
Governance Matters
8.1 Board Composition. At least three persons who qualify as
Independent Directors shall be appointed to the Board of Directors of Genco no
later than three months following the Genco Public Ownership Date, provided that
to the extent permitted by applicable stock exchange and other requirements two
Independent Directors may be so designated no later than such time and the
appointment of the third Independent Director may be delayed until a date no
later than twelve months following the Genco Public Ownership Date. Thereafter,
Regco shall use reasonable efforts (including voting its shares of Genco Common
Stock) to ensure that the Board of Directors of Genco includes at least three
Independent Directors at all times prior to the Option Closing Date or, if the
Option is not exercised, the Option Expiration Date.
8.2 Charter and By-law Amendments. The certificate of incorporation and
by-laws of Genco shall not authorize any class of stock other than the Genco
Common Stock, or provide for a board of directors divided into classes or
contain any provisions requiring a higher vote of the Genco Common Stock on any
matter than is required by the Delaware General Corporation Law or any
provisions which would impose restrictions or have any other effects set forth
in Section 5.3 of the Master Separation Agreement with respect to Resources as a
stockholder of Genco or a Person who may become a stockholder of Genco. Prior to
the Option Closing Date or, if the Option is not exercised, the Option
Expiration Date, Genco shall not amend its certificate of incorporation or
bylaws or adopt any shareholder rights plan, except for (a) amendments to
conform to requirements of any national securities exchange or transactions
reporting system on which the Genco Common Stock is listed or quoted or (b)
amendments which (i) are not adverse to Regco in any material respect, (ii)
would not result in disparate treatment of Resources as a stockholder or as a
Person who may become a stockholder following exercise of the Option and (iii)
would not have any of the other effects set forth in Section 5.3 of the Master
Separation Agreement.
8.3 Chief Executive Officer. From and after the Genco Public Ownership
Date and prior to the Option Closing Date or, if the Option is not exercised,
the Option Expiration Date, the Chief Executive Officer of Genco shall at all
times be a full time employee of Genco.
ARTICLE IX
Tax Covenants of REI and Regco
REI covenants and agrees, for itself and on behalf of Regco, to comply
with the covenants set forth in this Article IX until the Option Closing Date
or, if the Option is not exercised, the Option Expiration Date. In connection
with the transactions occurring on the Restructuring Date, REI covenants and
agrees to cause Regco to expressly assume the obligations under this Agreement
required to be performed by REI and by Regco.
9.1 Except as set forth on Schedule 9.1, on the Option Closing Date,
there will be no liens for Taxes (other than for current Taxes not yet due and
payable) on any of the assets of REI, Regco or any Subsidiary of REI or Regco.
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9.2 On the Option Closing Date, except as set forth on Schedule 9.2, no
property owned by REI, Regco or any subsidiary of REI or Regco (i) will be
property required to be treated as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately prior to the enactment of the Tax Reform Act of 1986,
(ii) will constitute "tax-exempt use property" within the meaning of Section
168(h)(1) of the Internal Revenue Code of 1986 (the "Code") or (iii) will be
"tax-exempt bond financed property" within the meaning of Section 168(g) of the
Code.
9.3 On the Option Closing Date, Genco will not be a foreign person
within the meaning of Section 1445 of the Code.
9.4 On the Option Closing Date, Genco will be a member of a "selling
consolidated group" as such term is defined in Treasury Regulation Section
1.338(h)(10)-1(c).
9.5 Except as set forth on Schedule 9.5, on the Option Closing Date,
none of REI, Regco or any Subsidiary of REI or Regco will be a party to, be
bound by or have any obligations under any Tax sharing agreement, any Tax
indemnification agreement or similar contract or arrangement.
9.6 Except as set forth on Schedule 9.6, on the Option Closing Date, no
tax audits or other administrative proceedings or court proceedings will be
presently pending with regard to any Taxes for which Genco or any Subsidiary of
Genco will be liable except for audits or proceedings which would not have a
Material Adverse Effect.
9.7 Except as would not have, individually or in the aggregate, a
Material Adverse Effect, on the Option Closing Date, none of REI, Regco or any
Subsidiary of REI or Regco will have executed or entered into (or prior to the
close of business on the Option Closing Date will execute or enter into) with
any taxing authority (i) any agreement, waiver or other document extending or
having the effect of extending or waiving the period for assessments or
collection of any Taxes for which Genco or any Subsidiary of Genco would or
could be liable or (ii) any closing agreement pursuant to Section 7121 of the
Code, or any predecessor provision thereof or any similar provision of state,
local or foreign Tax law that relates to the assets or operations of Genco or
any Subsidiary of Genco.
9.8 Except as would not have, individually or in the aggregate, a
Material Adverse Effect, on the Option Closing Date, none of Genco or any
Subsidiary of Genco will have made any payments, will be obligated to make any
payments, or will be a party to any agreement or other arrangement that could
obligate it to make any payments that would not be deductible under Section 280G
of the Code.
9.9 Except as would not have, individually or in the aggregate, a
Material Adverse Effect, on the Option Closing Date, each of Genco and any
Subsidiary of Genco will have collected and withheld all Taxes that it will have
been required to collect or withhold and will have timely submitted all such
collected and withheld Taxes to the appropriate authorities. Each of Genco or
any Subsidiary of Genco will have complied and will be in compliance with all
applicable laws, rules and regulations relating to the payment, withholding and
information reporting requirements relating to any Taxes required to be
collected or withheld.
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9.10 On the Option Closing Date, none of Genco or any Subsidiary of
Genco will have made an election or filed a consent under Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
a subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by such entity.
9.11 On the Option Closing Date, no claim will ever have been made by
an authority in a jurisdiction where any of Genco or any Subsidiary of Genco did
not or will not have filed Tax returns that such Company or such Subsidiary of
any Company will be or may be subject to taxation by that jurisdiction.
9.12 REI will take all necessary actions to ensure that each of
Sections 9.1 to 9.11 are true on the Option Closing Date.
ARTICLE X
Tax Matters
10.1 Election Under Section 338(h)(10).
(a) REI, for itself and on behalf of Regco ("Seller"), and Resources
shall make a joint election for Genco under Section 338(h)(10) of the Code
and under any comparable provisions of state or local law (an "Election")
with respect to the purchase of the Genco Common Stock. Seller and
Resources shall mutually execute and complete copies of IRS Form 8023 and
any similar state or local forms no later than 60 days prior to the due
date (including extensions) for filing such forms or the Tax Returns to
which such forms must be attached. If any changes are required in these
forms as a result of information that is first available after such forms
are prepared, the parties will promptly agree on such changes.
(b) Resources shall prepare and submit to Seller a proposed allocation
of the Modified Adjusted Deemed Sales Price (as defined in Treasury
Regulation Section 1.338(h)(10)-1(f)) for Genco among the assets of Genco
as soon as practicable after the Option Closing Date. Seller shall approve
and agree to the proposed allocation unless Seller reasonably determines
that the proposed allocation is improper. Neither Resources nor Seller
shall take any action inconsistent with, or fail to take any action
necessary for, the validity of the Election, and, if an allocation schedule
is agreed to by Resources and Seller, Resources and Seller shall adopt and
utilize the asset values as determined on the allocation schedule for the
purpose of all Tax Returns filed by them unless otherwise required by
applicable law.
10.2 Tax Returns. Seller shall cause Genco and its Subsidiaries to
prepare and file at the Seller's expense (i) all Tax Returns of Genco and its
Subsidiaries which are required to be filed (taking into account extensions of
time to file) on or before the Option Closing Date and (ii) all federal and
state income and franchise Tax Returns of Genco and its Subsidiaries for all
periods ending on or prior to the Option Closing Date. Resources shall prepare
and file (or cause to be prepared and filed) at its own expense all other Tax
Returns of Genco and its Subsidiaries.
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If either Resources, on the one hand, or Seller, on the other hand, may be
liable for any material portion of the Tax payable in connection with any Tax
Return to be filed by the other, the party responsible under this Section 10.2
for filing such return (the "Preparer") shall prepare and deliver to the other
party (the "Payor") a copy of such return and any schedules, work papers and
other documentation then available that are relevant to the preparation of the
portion of such return for which the Payor is or may be liable hereunder not
later than 30 days before the Due Date (as defined in Section 10.12 of this
Agreement). The Preparer shall not file such return until the earlier of either
the receipt of written notice from the Payor indicating the Payor's consent
thereto, or the Due Date. The Payor shall have the option of providing to the
Preparer, at any time at least 15 days prior to the Due Date, written
instructions as to how the Payor wants any, or all, of the items for which it
may be liable reflected on such Tax Return. The Preparer shall, in preparing
such return, cause the items for which the Payor is liable hereunder to be
reflected in accordance with the Payor's instructions (unless, in the opinion of
nationally recognized tax counsel to the Preparer, complying with the Payor's
instructions would likely subject the Preparer to any criminal penalty or to
civil penalties) and, in the absence of having received such instructions, in
accordance with past practice.
If the Preparer fails to satisfy its obligations pursuant to this
Section 10.2, the Payor shall have no obligation to indemnify the Preparer for
any Taxes which are reflected on any such Tax Return if and to the extent the
Payor was actually prejudiced by such failure, and shall retain any and all
remedies it may otherwise have which arise out of such failure.
10.3 Transfer Taxes. All excise, transfer, stamp, documentary, filing,
recordation and other similar taxes, together with any interest, additions or
penalties with respect thereto and any interest in respect of such additions or
penalties, resulting directly from the sale and transfer by Seller to Resources
of the Genco Common Stock (the "Transfer Taxes"), shall be borne 50% by
Resources and 50% by Seller. Notwithstanding Section 10.2 of this Agreement,
which shall not apply to Tax Returns relating to Transfer Taxes, any Tax Returns
that must be filed in connection with Transfer Taxes shall be prepared and filed
when due by Resources, and Resources will use its reasonable efforts to provide
such Tax Returns to Seller at least 10 days prior to the Due Date for such Tax
Returns.
10.4 Indemnification.
(a) Seller's Indemnification of Resources. Seller shall indemnify
Resources from, against and in respect of (A) any Taxes imposed on Genco or
any Subsidiary of Genco with respect to any taxable period, or portion
thereof, ending on or before the Option Closing Date; and (B) any Transfer
Taxes for which Seller is liable pursuant to Section 10.3 hereof.
(b) Resource's Indemnification of Seller. Resources shall indemnify
Seller from, against and in respect of any liability of Seller or its
Subsidiaries for (A) any Taxes imposed on Genco or any Subsidiary of Genco
with respect to any taxable period, or portion thereof, beginning on or
after the Option Closing Date; and (B) any Transfer Taxes for which
Resources is liable pursuant to Section 10.3 hereof.
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10.5 Computation of Tax Liabilities.
(a) Proration of Taxes and Earnings and Profits. To the extent
permitted by law or administrative practice, the taxable years of Genco and
its Subsidiaries shall end on and include the Option Closing Date. Whenever
it is necessary to determine the liability for Taxes, or the earnings and
profits, of Genco or any Subsidiary of Genco for a portion of a taxable
year or period that begins before and ends after the Option Closing Date,
the determination of the Taxes or the earnings and profits for the portion
of the year or period ending on, and the portion of the year or period
beginning after, the Option Closing Date shall be determined by assuming
that the taxable year or period ended on and included the Option Closing
Date, except that exemptions, allowances or deductions that are calculated
on an annual basis and annual property taxes shall be prorated on the basis
of the number of days in the annual period elapsed through the Option
Closing Date as compared to the number of days in the annual period
elapsing after the Option Closing Date.
(b) Standalone Basis. Whenever it is necessary to determine the
liability of Genco or any Subsidiary of Genco for Taxes, such liability
shall be computed as if Genco or such Subsidiary of Genco was not a member
of Seller's consolidated, affiliated, combined or unitary group for Tax
purposes.
10.6 Contest Provisions.
(a) Notification of Contests. Each of Resources, on the one hand, and
Seller, on the other hand (the "Recipient"), shall notify the Vice
President - Taxes or chief tax officer of the other party in writing within
45 days of receipt by the Recipient of written notice of any pending or
threatened audits, adjustments or assessments (a "Tax Audit") which are
likely to affect the liability for Taxes of such other party. If the
Recipient fails to give such prompt notice to the other party, it shall not
be entitled to indemnification for any Taxes arising in connection with
such Tax Audit if and to the extent that such other party is actually
prejudiced by such failure to give notice.
(b) Which Party Controls.
(1) Seller's Items. If such Tax Audit relates to any taxable period, or
portion thereof, ending on or before the Option Closing Date or for any
Taxes for which Seller is liable in full hereunder, Seller shall at its
expense control the defense and settlement of such Tax Audit.
(2) Resource's Items. If such Tax Audit relates to any taxable period,
or portion thereof, beginning on or after the Option Closing Date or for
any Taxes for which Resources is liable in full hereunder, Resources shall
at its expense control the defense and settlement of such Tax Audit.
(3) Combined and Mixed Items. If such Tax Audit relates to Taxes for
which both Seller and Resources are liable hereunder, to the extent
practicable
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such Tax Items (as defined in Section 10.12 of this Agreement) will be
distinguished and each party will control the defense and settlement of
those Taxes for which it is so liable. If such Tax Audit relates to a
taxable period, or portion thereof, beginning before and ending after the
Option Closing Date and any Tax Item cannot be identified as being a
liability of only one party or cannot be separated from a Tax Item for
which the other party is liable, the party which has the greater potential
liability for those Tax Items that cannot be so attributed or separated (or
both) shall control the defense of the Tax Audit, provided that such party
defends the items as reported on the relevant Tax Return and provided
further that no such matter shall be settled without the written consent of
both parties, not to be unreasonably withheld.
(4) Participation Rights. Any party whose liability for Taxes may be
affected by a Tax Audit shall be entitled to participate at its expense in
such defense and to employ counsel of its choice at its expense.
10.7 Resource's Claiming, Receiving or Using of Refunds and
Overpayments. If after the Closing, Resources, Genco, or any Subsidiary of Genco
(A) receives any refund or (B) utilizes the benefit of any overpayment of Taxes
which, in each case (A) and (B), (x) relates to Taxes paid by Seller or Genco,
or any Subsidiary of Genco with respect to a taxable period, or portion thereof,
ending on or before the Option Closing Date, or (y) is the subject of
indemnification by Seller pursuant to this Agreement, Resources shall promptly
transfer, or cause to be transferred, to Seller the entire amount of the refund
or overpayment (including interest) resolved or utilized by Resources, Genco, or
any Subsidiary of Genco. Resources agrees to notify Seller within 15 days
following the discovery of a right to claim any such refund or overpayment and
the receipt of any such refund or utilization of any such overpayment. Resources
agrees to claim any such refund or to utilize any such overpayment as soon as
possible and to furnish to Seller all information, records and assistance
necessary to verify the amount of the refund or overpayment.
10.8 Resolution of All Tax-Related Disputes. In the event that Seller
and Resources cannot agree on the calculation of any amount relating to Taxes or
the interpretation or application of any provision of this Agreement relating to
Taxes, such dispute shall be resolved by a nationally recognized accounting firm
mutually acceptable to Seller and Resources, whose decision shall be final and
binding upon all Persons involved and whose expenses shall be shared equally by
Seller, on the one hand, and Resources on the other hand.
10.9 Termination of Existing Tax Sharing Agreements. Any and all
existing Tax sharing agreements or arrangements, written or unwritten, binding
Genco or any Subsidiary of Genco, shall be terminated as of the Option Closing
Date.
10.10 Assistance and Cooperation. The parties agree that, after the
Option Closing Date:
(a) Resources, on the one hand, and Seller, on the other hand, shall
each assist the other (and cause its respective Affiliates to assist) the
other party in
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preparing any Tax Returns which such other party is responsible for
preparing and filing;
(b) Resources, on the one hand, and Seller, on the other hand, shall
cooperate fully in preparing for any Tax audits, or disputes with taxing
authorities, relating to any Tax Returns or Taxes of Genco or any
Subsidiary of Genco.
(c) Resources, on the one hand, and Seller, on the other hand, shall
make available to each other upon written request and to any taxing
authority as reasonably requested in writing all relevant books and records
relating to Tax Returns or Taxes of Genco or a Subsidiary of Genco. Any
such information shall be kept strictly confidential;
(d) Resources, on the one hand, and Seller, on the other hand, shall
promptly furnish the other party with copies of all relevant correspondence
received from any taxing authority in connection with any Tax Audit or
information request relating to Taxes for which such other party may have
an indemnification obligation under this Agreement; and
(e) Except as otherwise provided herein, the party requesting
assistance or cooperation shall bear the other party's out-of-pocket
expenses in complying with such request to the extent that those expenses
are attributable to fees and other costs of unaffiliated third-party
service providers.
10.11 This Article X alone shall govern the procedure for all Tax
indemnification claims, notwithstanding any provision of Article XI or of
Article IX of the Master Separation Agreement.
10.12 For purposes of this Agreement, "Due Date" shall mean, with
respect to any Tax Return, the date such return is due to be filed (taking into
account any valid extensions); and "Tax Item" shall mean, with respect to Taxes,
any item of income, gain deduction, loss or credit or other tax attribute.
ARTICLE XI
Dispute Resolution
11.1 If a dispute, claim or controversy arises out of or in connection
with this Agreement, the parties agree to use the procedures set forth in
Article IX of the Master Separation Agreement, in lieu of either party pursuing
other available remedies, to resolve the same.
11.2 Notwithstanding Section 11.1 or any other provision hereof, it is
understood and agreed that Resources would suffer irreparable harm by reason of
any failure of Regco to perform its obligations under Article III or Section
6.1, and that Resources shall therefore be entitled, in addition to and not in
limitation of all other remedies, to the remedy of specific performance with
respect to any breach or default by Regco of its obligations under
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Article III or Section 6.1. This provision shall take precedence over any other
dispute resolution, remedial or other provision of the Master Separation
Agreement, this Agreement, or any other agreement or contract between the
parties.
ARTICLE XII
Miscellaneous
12.1 Amendments. This Agreement shall not be supplemented, amended or
modified in any manner whatsoever (including by course of dealing or of
performance or usage of trade) except in writing signed by the parties.
12.2 Successors and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. No party shall assign this Agreement or any rights herein
without the prior written consent of the other party, which may be withheld for
any or no reason.
12.3 Notices. Unless expressly provided herein, all notices, claims,
certificates, requests, demands and other communications hereunder shall be in
writing and shall be deemed to be duly given (i) when personally delivered or
(ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv) if
sent by facsimile or other generally accepted means of electronic transmission,
on the date confirmation of transmission is received (provided that a copy of
any notice delivered pursuant to this clause (iv) shall also be sent pursuant to
clause (ii) or (iii)), addressed to the attention of the addressee's General
Counsel at the address of its principal executive office or to such other
address or facsimile number for a party as it shall have specified by like
notice.
12.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
12.5 Headings. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Articles
or Sections in which they appear or to which they relate.
12.6 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law. If any portion of this Agreement is declared invalid for any
reason, such declaration shall have no effect upon the remaining portions of
this Agreement, which shall continue in full force and effect as if this
Agreement had been executed with the invalid portions thereof deleted.
12.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
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12.8 Rights of the Parties. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any person or
entity, other than the Parties and their respective Subsidiaries and Affiliates,
as the case may be, any rights or remedies under or by reason of this Agreement
or any transaction contemplated thereby.
12.9 Reservation of Rights. The waiver by either party of any of its
rights or remedies afforded hereunder or at law is without prejudice and shall
not operate to waive any other rights or remedies which that party shall have
available to it, nor shall such waiver operate to waive the party's rights to
any remedies due to a future breach, whether of a similar or different nature.
The failure or delay of a party in exercising any rights granted to it hereunder
shall not constitute a waiver of any such right and that party may exercise that
right at any time. Any single or partial exercise of any particular right by a
party shall exhaust the same or constitute a waiver of any other right.
12.10 Entire Agreement. All understandings, representations, warranties
and agreements, if any, heretofore existing between the parties regarding the
subject matter hereof are merged into this Agreement, which fully and completely
express the agreement of the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the undersigned, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
RELIANT ENERGY, INCORPORATED
By
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RELIANT RESOURCES, INC.
By
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