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EXHIBIT 10.4
TEXAS GENCO OPTION AGREEMENT
between
RELIANT ENERGY, INCORPORATED
and
RELIANT RESOURCES, INC.
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ARTICLE I Definitions.................................................................................1
1.1 Definitions.................................................................................1
ARTICLE II Organization of Xxxxx XX and Xxxxx..........................................................9
2.1 Organization of Xxxxx XX....................................................................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
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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
7.14 Obtain PUCT Final Order....................................................................21
ARTICLE VIII Governance Matters.........................................................................22
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.................................................................28
ARTICLE XI Dispute Resolution.........................................................................28
ARTICLE XII Miscellaneous..............................................................................29
12.1 Modifications to this Agreement Arising from Amendment of the Utilities Code...............29
12.2 Amendments.................................................................................29
12.3 Successors and Assignment..................................................................29
12.4 Notices....................................................................................29
12.5 Governing Law..............................................................................29
12.6 Headings...................................................................................30
12.7 Severability...............................................................................30
12.8 Counterparts...............................................................................30
12.9 Rights of the Parties......................................................................30
12.10 Reservation of Rights......................................................................30
12.11 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 X.X.X.xx.xx. 1801 et seq.), the Resource Conservation and
Recovery Act (42 X.X.X.xx.xx. 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. xx.xx. 1251 et seq.), the Clean Air Act (42 X.X.X.xx.xx. 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. xx.xx. 2601 et seq.), the Oil
Pollution Act (33 X.X.X.xx.xx. 2701 et seq.), the Emergency Planning and
Community Right-to-Know Act (42 X.X.X.xx.xx. 11001 et seq.), the Occupational
Safety and Health Act (29 X.X.X.xx.xx. 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 Xxxxx XX as provided in Section 2.3, except that
when used in Article VII, Genco shall mean such corporation or Xxxxx XX, 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.
"Xxxxx XX LLC" means the limited liability company which will become the 1%
general partner of Xxxxx XX.
"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.
"Xxxxx XX" means the limited partnership to which the Genco Assets will be
transferred as provided in Section 2.1.
"Xxxxx XX LLC" means the limited liability company which will become the
99% limited partner of Xxxxx XX.
"Genco Organization Date" means the date the Genco Assets are contributed
to Xxxxx XX and the Genco Liabilities are assumed by Xxxxx XX 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, xxxxx, 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 Xxxxx XX and Xxxxx
2.1 Organization of Xxxxx XX. 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 Xxxxx XX free and clear of the lien of the Mortgage
and all other liens and security interests securing any Indebtedness, and to
cause Xxxxx XX 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 Xxxxx XX shall be owned initially by REI, indirectly through Xxxxx
XX LLC and Xxxxx XX LLC. On the Restructuring Date, Regco shall become the owner
of such partnership interests, indirectly through Xxxxx XX LLC and Xxxxx XX 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 and contribute to Genco all of Regco's interests in Xxxxx
XX LLC and Xxxxx XX 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 or Articles 13.01 et seq. of the Texas
Business Corporation Act, as applicable.
2.4 Genco Employee Matters. Effective no later than the earlier of the
Distribution Date and January 1, 2002, REI shall transfer to Xxxxx XX all
personnel employed by REI who are assigned to generating plants and other
facilities owned by Xxxxx XX, together with other employees identified by REI as
energy production employees who are directly supporting the functions of Xxxxx
XX. 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
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January 9, 2004 (the "Pricing Period") which result in the highest average
closing price for any 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 Xxxx-Xxxxx-Xxxxxx 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 Xxxx-Xxxxx-Xxxxxx
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, Resources 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 its state of incorporation. 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 Xxxxx XX will be validly issued, and following the
transactions described in Section 2.3, Genco will be the sole beneficial owner
thereof (indirectly through Xxxxx XX LLC and Xxxxx XX 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 Xxxxx XX or any Subsidiary
of Xxxxx XX 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 Xxxxx XX or Xxxxx (or any Subsidiary of Xxxxx XX 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, Xxxxx XX (and after its organization
Genco, which Regco shall cause to make corresponding loans or capital
contributions to Xxxxx XX) from time to time such funds as may be necessary,
together with other funds of Xxxxx XX (and Genco, as applicable), to enable
Xxxxx XX (and Xxxxx, 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 Xxxxx XX 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 Xxxxx XX
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 Xxxxx XX,
Xxxxx 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 Xxxxx XX as of the end of such quarter and statements of income
and cash flows of Xxxxx XX 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
Xxxxx XX, such statements shall be those of Genco rather than Xxxxx XX;
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 Xxxxx
XX, a balance sheet of Xxxxx XX as of the end of such year and statements
of income and cash flows of Xxxxx XX 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 Xxxxx XX, such statements shall be those of Genco
rather than Xxxxx XX; 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.
7.14 Obtain PUCT Final Order. Genco will use its best efforts to obtain
prior to the beginning of the Option Period any and all Final Orders (as such
term is defined in the Master Separation Agreement) from the PUCT and any other
necessary Governmental Authority necessary for (i) the facilities (as such term
is used in Section 32 of the Public Utility Holding Company Act of 1935, as
amended) of Genco to become eligible facilities (as such term is
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defined in such Act) and (ii) Genco to become an "exempt wholesale generator"
under such Act, which Final Orders shall include, without limitation, the
determinations required by Section 32(c) of such Act.
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 or articles 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 applicable 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 or articles 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.
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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.
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.
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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.
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
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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. 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.
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(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.
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.
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(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 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.
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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 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.
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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 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 Modifications to this Agreement Arising from Amendment of the
Utilities Code. To the extent any change effective after the date of this
Agreement to any provision of the Utilities Code (including without limitation
Section 39.262(c) or Section 39.262(h)(3)) accelerates or allows the
acceleration of the filing required by Section 39.262(c) or shortens or
otherwise modifies the 30-trading day period or the 120-trading day period for
the partial stock valuation method in Section 39.262(h)(3) or such other section
that may be used to perform the market valuation of Texas Genco, the dates and
periods set forth in this Agreement shall be adjusted by agreement of the
parties in order to preserve the essential regulatory and other objectives of
the transaction intended by the parties.
12.2 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.
12.3 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.
12.4 Notices. Unless expressly provided herein, all notices, claims,
certificates, requests, demands and other communications hereunder shall be in
writing and shall be deemed to be duly given (i) when personally delivered or
(ii) if mailed registered or certified mail, postage prepaid, return receipt
requested, on the date the return receipt is executed or the letter refused by
the addressee or its agent or (iii) if sent by overnight courier which delivers
only upon the signed receipt of the addressee, on the date the receipt
acknowledgment is executed or refused by the addressee or its agent or (iv) if
sent by facsimile or other generally accepted means of electronic transmission,
on the date confirmation of transmission is received (provided that a copy of
any notice delivered pursuant to this clause (iv) shall also be sent pursuant to
clause (ii) or (iii)), addressed to the attention of the addressee's General
Counsel at the address of its principal executive office or to such other
address or facsimile number for a party as it shall have specified by like
notice.
12.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
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12.6 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.
12.7 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.
12.8 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. 12.9 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.
12.10 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.
12.11 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.
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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 /s/ Xxxxx X. XxXxxxxxxx
-------------------------------------------------
Xxxxx X. XxXxxxxxxx
Vice Chairman
RELIANT RESOURCES, INC.
By /s/ X. X. Xxxxxxxxx
-------------------------------------------------
X. X. Xxxxxxxxx
Chairman, President and
Chief Executive Officer
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